According to Jose Jafferji, a sales representative and real estate investment advisor with Rock Star Real Estate Inc., carrying costs in Toronto reduce cash flow.
“Due to Toronto’s affordability, the price range there is not making sense for investors because of the higher entry price,” he said.
Additionally, says Jafferji, condos fees are unpredictable and that has made Toronto investors’ five-year outlook nebulous.
“There’s no way for anybody to tell for sure what’s going to happen to the condo fees,” said Jafferji. “Usually, they rise every year, depending on how old the condo is, but it’s the same thing with pre-construction. Ultimately nowadays, it’s hard to cash flow on condo properties unless you put down a larger down payment.”
Jafferji, however, believes the best investments can be found in the regions surrounding the city, particularly in freehold townhouses, semi-detached and detached houses. Oshawa, Kitchener, Hamilton and St. Catharines currently offer incredible value.
“We try to buy something with a finished basement or secondary unit,” he said. “We try to legalize that basement apartment, and that way we can generate two incomes from the one property. We look for $1,700 a month for a single-family home, but if we add a secondary unit we can get $2,800 to $3,000.”
Jafferji doesn’t believe condo investment is a fool’s errand, though—especially if a down payment exceeding 20% is part of the game plan.
“The advantages to investing in a condo are you don’t have to worry about exterior maintenance, or the roof or furnace, but if you want the best return on your investment, then these other outside cities are what will give you more.”
Ultimately, says Jafferji—who has REIN designation—remember the fundamental rule about real estate investment: All income from the property has to carry the expenses with strong cash flows remaining.
“A lot of people will invest in a property for appreciation alone, which is a recipe for not doing so well, because there’s no protection,” he said. “You’re only engaging yourself in one aspect, but the income you generate has to be greater than the expenses, and that’s your protection if the market flattens or goes down temporarily. The income you get from your tenant has to be more than the expenses on your property.”
Keeping ROIs high and taxes low
This housing segment appreciated fastest in 2017
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The Greater Toronto Area is still a great place in which to invest, but Canada’s largest city has begun yielding diminishing returns.