Things No One will Tell you about Real Estate Investment in the GTA
Monday Mar 07th, 2022
Investing in a GTA property is a great way to get cash while also increasing your equity. With a low-risk investment, the returns are guaranteed.
The GTA market is thriving with investors buying and selling real estate property on the market to make profits. GTA real estate is relatively affordable and there's a lot of room for potential growth in the market.
However, there are certain things that no one will ever tell you about real estate investment, but we are here to save your day. As the Equity Master, I want to keep you in the know!
1. Buying is about math, not emotions!
Investors should be cautious of the emotions involved in buying an investment. Emotions can affect how investors view the market, how they make decisions, and even their risk-taking behavior - especially in a volatile real estate market like GTA.
You should never be afraid to take calculated risks when you invest in the stock market because it is all about math. You should do your research before investing and conduct back-up research as well to weed out any fear or irrational thoughts of regret.
2. Down Payments
For investing in the real estate market of GTA, you at least need a 20% down payment. When buying a house and applying for a mortgage, most mortgages require you to come up with 20% of the total cost upfront unless you are investing in a primary residence. This is because banks are required to maintain their capital reserves and protect themselves against risk and future defaults.
3. A good Break-Even Point
Toronto’s housing market is a hot spot for real estate investments.
Toronto became the fourth most populated city in North America in 2016 and it’s expected to be the third largest by 2026. With this growth, housing prices have risen significantly in Toronto.
As of writing, most investors reach the break-even point with a 20% down payment on their investment in real estate transactions.
4. Tax Considerations
There are mainly three types of taxes that you need to consider when investing in GTA’s real estate market:
- Land transfer taxes: Land transfer taxes are usually paid by real estate agents or lenders who finance the purchase of a residential or commercial property. It is not only a percentage of sales price, but also includes other costs such as interest rates, legal fees, agent's commissions and commissions to private developers.
- Income tax on the rental income: Rental income is taxable, so whatever net profit you make will be added to your income and taxed. However, you can write off expenses such as condo fees, mortgage interest, etc to decrease your profit.
- Capital gains taxes: Capital Gains taxes are a form of income tax. When you sell your investment property, the capital gains tax is calculated by multiplying the amount of the gain per day by the maximum period of ownership.
5. 80% of your Rental Income
Most lenders will consider 80% of the rental income when calculating how much you can afford.
When it comes to figuring out what your monthly budget will look like, lenders will take into account the following:
- For single applicants - 40% of their monthly gross income
- For married applicants - up to 80% of their monthly gross income
For example, if you have a rental property worth $2,000 a month and your mortgage is for $1,000 that means you can afford to borrow up to $1,800.
There’s a lot to consider when investing, a lot of unknowns. I’d love to walk you through the ins and outs of investment and real estate equity so that you can make the best-informed decision you can. Contact me today!