An income property is bought or developed with the intention of earning income on it. The income is generally made through holding and renting it out or selling the property after the value of the property has appreciated. Income properties can be residential such as condo apartments, single family homes or multi-family properties. They can also be commercial properties like a strip mall for example. In this post, we will only focus on residential properties: single family homes and condo apartments.

How to make money from an income property?

  • Cash flow. Real estate market fluctuates. As long as the property is producing positive cash flow, you can hold on to it and make money over time. It is however important to know some basics: Calculate annual gross rents. Add up total annual costs including mortgage payments and all other variable expenses. Deduct the total annual cost from the annual gross rents. And if you have a positive cash flow, then you are on a great path.
  • Equity buildup. As rents pay down the mortgage balance, the equity increase is considered as profit.This equity is only on paper, until you sell or refinance the property.
  • Equity Recapture – Ideally, we all want to buy a property below market rate. If the market value of a home is $500,000 and we purchase it for $475,000 our net equity capture is $25,000. This allows us to make money when we buy the property and ultimately realize money when we sell it.
  • Forced appreciation – Investing in home improvements is a great way to increase the value of the home. As an investor, we do not want to buy the best and prettiest house on the street. It is best to buy properties that we can put some work into to make the value of the property to go up.
  • Market appreciation – Real estate is an investment that grows in value over the years. While it has its ups and downs, a real estate investment has shown to grow in value over time. Market appreciation on our property turns into cash profit when we sell or refinance the property.

Why invest in a single-family home as an income property?

  • Appreciation potential. Single-family homes can be converted to 2 or 3 self-contained units, generating several streams of rental income.
  • No condo fees. Condos typically cost more to own than a single- family home of the same size. Not to mention the condo fees (both monthly membership fees and special assessments) are subject to increases, thus increasing the burden of cost over time.
  • Rent limitations. Tenants interested in renting a house are usually accustomed to taking care of utility cost, the snow removal and/or lawn care.

Why invest in a condo as an income property?

With a huge demand for condos, Toronto is fast becoming another New York City, however the property values are still of course far below New York’s. There are some options for you to consider:

  • Pre-construction condo. This can offer great profit margins. Look for neighbourhoods where prices are still low, where there are future developments or transit infrastructure that will add value in the years to come.
  • Resale condo. Simply look at existing condos that are known to perform well in the market.

What to look for when buying a condo?

  • Age of building
  • Amenities
  • Appliances and Other Equipment
  • City’s Development Plans for the neighbourhood
  • Commercial Condo Insurance Policy
  • Demographics
  • Elevator Infrastructure
  • Energy Efficiency
  • Exposure
  • Finishing/craftsmanship
  • Floor plans
  • Location
  • Maintenance fees
  • Price per square foot
  • Proximity to areas of interest
  • Proximity to quality schools
  • Reserve Fund and any potential special assessments
  • Separate thermostats
  • View
  • Visitor Parking

What are some up and coming Toronto neighbourhoods?

Bloordale Village: The corner of Bloor and Dufferin is expected to get a major face-lift with new retail, office space and lots of green space.

Dupont Street: Just north of Bloordale Village along Dupont with redevelopment of the Galleria Mall at Dupont and Dufferin.

Birchcliff (Beaches): Redevelopment is on the way along Kingston Rd in the neighbourhood of Birchcliff. Being so close to the Beaches, it’s a location that can’t be beat.

Gerrard St East: Set between Danforth and Queen Street East with accessible transit lines, where you can still find affordable detached and semi-detached homes.

We can help you plan a long-term real estate investment strategy based on your current income, savings,availability and property management skills. Feel free to reach out to us. Subscribe to our newsletter and don’t forget to follow and like us on social media.

With love and gratitude

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