Are you thinking about real estate investment but don’t know where to start? That’s okay! We all have to start somewhere. Here is a very basic breakdown of the basics of real estate investment.
Financing
Getting a mortgage for an investment property isn’t as easy as borrowing for your primary residence.
You’ll need at least 20% of the purchase price for a down payment, and only a portion of your rent income (usually 80%) will be considered in qualifying you for a mortgage.
For commercial property investments, you’ll likely need a down payment of 50%.
Taxation
In Canada, any money collected from rent is considered income, and thus subject to income tax.
Increases in the value of your investment property (from the time it becomes an investment property to the time you sell it) will be subject to capital gains taxes.
If you’re thinking of buying an investment property, make sure to talk to your accountant to fully understand the tax implications.
Timing
Most real estate investments should have longer-term objectives.
Because of the unpredictability of the real estate market, expecting to profit in a short period is risky.
Goals
What are your investment goals? For example, there are three ways to make (or lose) money by investing in Toronto and GTA real estate:
1. Cash flow (cash return) – Cash flow is the difference between what you collect in rent and the expenses you pay out. In Toronto, cash flow positive properties (purchased with 20% downpayment) are hard to come by, though it’s fairly common for investors to break-even on a monthly basis (meaning that the rent they collect is equal to the expenses they pay). Cash flow is affected by factors outside of the real estate market, for example, it depends on your down payment and mortgage terms.
2. Appreciation – When you sell your investment property for more than you paid, that’s called appreciation. For example, you buy a triplex for $1,300,000 and later sell it for $1,600,000, that $300,000 difference is the appreciation in the value of your investment. Toronto and GTA properties have historically appreciated favourably for investors.
3. Equity (mortgage paydown) – When a tenant pays down your mortgage, you’re building equity. For example, you buy a property for $600,000 with a $120,000 down payment and you apply the rent to the mortgage and rent it for 25 years. Eventually, you will have a mortgage free property. When you then sell that property for $800,000, you’ll have built up $680,000 in equity (and you’ll get your original investment of $120,000 back).
Return on Investment (ROI)
Real estate investors use different calculations and tools to calculate the returns on their property investments:
• Cash flow is the net amount of cash moving in and out of an investment ? Calculation: Income – operating expenses – financing costs
• Capitalization Rate (cap rate) is the rate of return on a real estate investment property based on the income it is expected to generate.
• Calculation: Operating Income / Purchase Price
• Return on Investment (ROI) – a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of several different investments
• Calculated by adding the cash return + mortgage pay down + capital appreciation.
There are many tools to help you predict the ROI of investment properties. If you would like to learn more about real estate investments, watch out for my Blog post every Wednesday.
You can reach out to me directly by calling 905-5683-7800 and ask for Brian Kondo.
Thanks for reading today’s BLOG!!!
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
Homesellers - Find Out What Homes in Your Neighbourhood are Selling For! You can receive a FREE computerized printout of ALL recent Home Sales and Current Listings in your neighbourhood. Click here!
Best Buy Hotlist - You can receive a FREE list of the 10 Best Buys in your
specific price range sent to you at No COST or OBLIGATION.
Click here!
Your Home Sold Guaranteed or I'll Buy It!* No Gimmicks! For a Free Special Report that Details my Guaranteed Sale Program, visit: www.BriansGuaranteedSaleProgram.com.
Remember, your referrals change lives! We donate a portion of our income on every home sale to a great worthy cause like SickKids Hospital. To find out more visit: www.ReferForSickKids.com.
If you or anyone you know is considering making a move in the next little while, give me a call or pass on my number ... 905-683-7800 (Office) or 905-426-7484 (Direct).
#RealEstateInvestment #BasicRealEstateTips #PropertyInvestment #Investment101 #PropertyManagement #InvestingInRealEstate #InvestingInProperty #HouseInvestment #RentalBusiness #LandlordGuidelines #Brian Kondo #RealEstate #DurhamRegion #Canada