The Ins And Outs Of Becoming A Landlord In Toronto
Saturday Sep 07th, 2019
Toronto is not only the largest city in Canada but the most populous and luxurious one too. It's filled with beautiful locations and neighborhoods. Real estate in Toronto has always been great due to the type of facilities and the opportunities the city has to offer. Some of the best neighborhoods are situated in King West, Yorkville, Etobicoke, City Place, Entertainment District, etc. with each place having its own charm and vibrancy.
With Toronto having such a great market, there are a lot of investors who've earned high profits by buying, renting, and selling properties here. If you're looking to become a landlord in Toronto, this article contains all the information that you need.
Here’s why investing in Toronto real estate is a good deal
Cash flow – Cash flow is termed as the amount that an individual collects in cash as rental minus the amount that one pays out as expenses for the property. Cash flow is affected by factors like your down payment and mortgage terms. If you plan to invest in Toronto real estate, positive cash flow investment properties are difficult to come across, purchased with a down payment of 20%. It is a very normal thing for the investors to even it out every month by adjusting the rent accordingly.
Equity (mortgage paydown) – When your tenant pays your mortgage, you build on your equity. Let’s say, you purchase a property in Toronto for 0.6 million dollars which has a down payment of $120,000. You apply the rent to the mortgage and rent it out for about twenty-five years. Ultimately, after 25 years, you will have a property without any mortgage. Further, once that property is sold for $0.8 million, there will be a total amount of $680,000 with you as equity, and you'll get your original investment of $120,000 back. This is why long-term objectives are brilliant.
Appreciation – When the selling price of your property is more than your purchase price, that’s called appreciation or profit. For example, you buy a duplex in Toronto for $1,000,000 and later sell it for $1,300,000. That $300,000 difference is the appreciation in the value of your investment. Toronto real estate properties have always appreciated favorably for the investors due to the continuous development of the market.
Comparison of investment options in Toronto
Condos have changed the landscape of Toronto and have spiced up the real estate market. There have been so many condominium projects in Toronto, and there are many more coming up. Who buys all these condos in Toronto? The answer is, investors and landlords. As per reports, about 40% of the condominiums are owned by those who like to invest in real estate in Toronto. Condos in Toronto are one of the best investments with an ever-appreciating value.
· A condominium can be considered to be a profitable investment when you make a 20% down payment. This amount is anyways required as a mortgage.
· There are plenty of opportunities for better cash flow and better appreciation.
· There are not many condos available in Toronto with vacancies for rental accommodation. Hence, the task to find a reliable, trustworthy tenant is not that difficult.
· Condos are built brilliantly and generally require less maintenance work than a house
The condominiums that are built in ideal locations have more appreciation than the stock market. Hence, condos are a great investment.
· Due to the Residential Tenancies Act, there are plenty of obligations and very less flexibility.
· The idea of investing in a condo is definitely a long-term strategy and not a short term one.
II. Income properties
These are self-contained accommodation units that you can rent out. They are hot-selling commodities in Toronto. It'd be a fantastic investment if you don't have sufficient money to buy fancy condos in Toronto.
· The market for apartments is always flourishing. Considering the trends of interest rates in the market, 1000 dollars as rent can actually cover over $200,000 in the mortgage.
· For the past many years, the value of income properties appreciated faster than the condos. If your motive is to earn money faster when you make a deal and sell your property in Toronto, then houses are a safer bet.
· You should ideally be cash positive, with a down payment of 20% on a multi-residential house.
· Houses have plenty of repair work, renovations, and maintenance work that needs to be dealt with by the landlord.
· If you have tenants in leases, it might make it a little difficult for you to sell your property at the right time, and the market is at its peak.
· You need to deal with the complexities of the legality of the apartment.
III. New construction
Buying condos during the pre-construction phase and selling it once built, was the number one option of investment in Toronto till the last few years.
· You get to research and buy the property in Toronto that interests you, as it isn’t in the market yet.
· This option isn't very favorable now, as it's cheaper to buy a resale condo in Toronto
· Builders might cancel projects, and you'll be at a loss
Invest in legal apartments
Toronto city has a few laws and rules that affect suites defined as ‘self-contained units that are rented out in a detached or semi-detached house.' When you invest in a property, check all the papers and make sure that it's a legal apartment. If you own a condominium in Toronto, the Condominium Corporation will impose certain rules that you need to abide by. The terms are about and around minimum lease terms, paperwork to the property manager, etc. Acquire full knowledge of all the obligations and restrictions before renting out the condo.
Here are a set of standards that need to be met before you rent a condo in Toronto: -
a) Property standards
b) Occupancy standards
c) Residential zoning requirements
d) Fire and electrical codes
e) Health and safety requirements
The rental market in Toronto
In accordance with the Toronto Real Estate Board, the average monthly rents for apartments and condos in Toronto at the end of 2018 were:
· Bachelor apartment: $1,838 - $1,857
· 1-bedroom apartment: $2,196 - $2,241
· 2-bedroom apartment: $2,944 - $3,080
· 3-bedroom apartment: $3,679 - $3,910
To price your property accurately, you could hire an agent or use the properties around as comparison to set your own rates. The advantage of being a landlord in Toronto is that the rental market is hot. The market experiences vacancy rates at all-time lows. This gives the landlord the leverage to choose their own tenant. The rents have increased significantly in the last seven years. The values don't seem to fall in the coming years as well.
Landlord rights and obligations in Toronto
a) The rent increases in Toronto are controlled by the government. The landlords have the right to increase the rent once a year. The increase can maximum be equal to the consumer price index (CPI) of the year. For example, the allowable rent increase in 2016 was 2%
b) Landlords have the right to access the property. They can enter the apartment for repair work and maintenance. A prior notice of 24 hours has to be issued to the tenant if the case isn’t an emergency. Landlords in Toronto have the right to show the property to prospective tenants or buyers as well.
c) Landlords aren't permitted to evict a tenant for having a pet. They can choose to refuse to rent out the house to the tenant in the first place though.
d) If the landlord decides to move into the house; it can’t be done during the term of the lease. A notice period of 60 days needs to be given to the tenant.
e) If the landlord wishes to sell the property, he/she can’t evict the tenant during the lease period
f) The landlord is responsible for the repair and maintenance work at the house.
g) The landlord isn't allowed to interfere with the reasonable enjoyment of the tenant.
h) It's prohibited to harass, coerce, interfere or threaten the tenant under any circumstances.
How to find an appropriate tenant in Toronto?
Since the vacancy rates are low, you can choose your tenant in Toronto. Make sure to request the following:
· A current credit check
· Confirmation of employment letter
· First and last month’s rent as a certified cheque or bank draft
· A note of previous addresses and landlord’s contact information
· Employment details for the past five years
· Details about the other occupants who’ll be staying with the tenant
· Details about any pets
Once you have the required information, you can complete the screening process and pick the suitable tenant.
You can look for tenants in Toronto by two means: either on your own or by using an agent.
® On your own: Multiple landlords have successfully found apt tenants on Craiglist. You can also use viewit.ca for advertising your property and looking for prospective tenants.
® Hiring a realtor: A licensed realtor will help you find a suitable tenant. These real estate agents in Toronto offer leasing services that include advertising, showing, pricing, screening, negotiating, and paperwork. The total cost of the brokerage is generally the first month's rent. To ease out the work for you, it's best to hire a professional.
Investment in Toronto is a great decision as the probability of you being at a loss is very less. Do some research work and invest in the property smartly. Being a landlord takes skills and patience to master the art. Are you ready to be a landlord in Toronto?
To get some good tips on learning the tennat side of things check out our blog on How To learn the Ins and outs of becoming a tenant