With the surgence of Toronto’s real estate market over the past 25 years, it is certainly one of the top regions to invest in Canada.
Reason 1 to Invest in Pre-Construction Condos in Toronto is Population Growth
With the Toronto population increasing by an annual average of close to 1.5% from 2000-2015 according to World Population Review, there is no doubt the population will continue to grow over the next 15 years as well.
With the population expected to constantly grow, the land of Toronto isn’t, and the development of condominiums will be the only way to house the future population. With the increasing prices of houses, apartments and condos throughout the city, there will be an abundance of renters in the Toronto Market.
Reason 2 to Invest in Pre-Construction Condos in Toronto is THE ROI (Return on Investment)
With the large variety of Pre-Construction Condos in Toronto being built, investment opportunities are highly available. Purchasing the Condos during the Pre-Construction phase is one of the best opportunities to get the highest ROI (Return on Investment). Buying during the beginning stages allows you to use the minimum amount of capital (generally 5% or an average of $20 000), to reserve your suite, and pay the remaining deposit (15% or an average of $80 000) over the next two years of it being built. When the time comes for the closing, in those few years the initial value of the property would be at that future value (higher value), that would leave an individual with a gain on their initial purchase instantly resulting in profit situation.
Let’s do the math together:
If a pre-construction 2 bedroom condo is costing $400 000 there will be a minimum deposit of 20% ($80 000) for the down payment required from the builder. The remaining 80% ($320 000) can either be paid out in full, or with majority of Pre-Construction Condo Investors in Toronto get the 80% mortgaged. By seeking a mortgage for the remaining 80%, we can estimate the average mortgage rate to be 2.89% (for convenience sake, we will assume, same interest for 30 years), with an amortization period of 25 years, resulting in a monthly mortgage of $1496.00. With Property taxes, house insurance, we can estimate $2000.00/Month, and a monthly maintenance fee of $1000.00 per month. Your total cost on the 2 bedroom pre-construction condo would be $3000.00 monthly.
With the average rent for a 2-bedroom condo in Toronto being approximately $3500 a month, there is a way for individuals to rent out their pre-construction condo and make a small monthly profit at the end of each month.
Year One:
Rental Income will be:
$3500/Monthly * 12 Months = $42 000
Monthly Expense for Condo (Mortgage, Insurance, Taxes) will be:
$3000/Monthly * 12 Months = $36 000
At the end of the 12 months of the renter’s stay in the condo, the investor would make a yearly profit of approximately $6000.00. $6 000, might not sound like a very enticing number, however, the main benefits of having a property rented out, is there are individuals paying off the mortgage for you. And with an initial investment of $80 000 over 2 years, making $6 000 back at the end of the year is a pretty good return on investment in year one.
Let’s look at what can occur in 25 years where the mortgage will be paid out for:
Year Twenty-Five:
In 25 years, there are two main ROI’s that we can evaluate: The yearly profit and the mortgage being paid off.
The Yearly Profit: $6 000 * 25 Years = $150 000
Estimated random expenses (we will make it on the higher side): Tax Increase, Repairs Expenses, Property Maintenance Increases = $75 000. Total overall profit from the rent/mortgage over 25 Years is $75 000.
However the main benefit of this investment is the mortgage that is being paid off. The initial investment of $80 000 for the pre-construction condo allowed you to buy a $400 000 condo. With $320 000 being mortgaged over the span of 25 years, being paid by the renter, you essentially are making $320 000 over 25 years by investing $80 000 for the pre-construction condo. This does not include the amount the property would have increased over the period of time as well.
Reason 3 to Invest in Pre-Construction Condos in Toronto is Long Term Financial Security
Over the period of 27 years from buying the property (25 Years mortgage and 2 years in the pre-construction phase) the property value of the condo, from using historical data, can be estimated at a 100% return from 25 years ago. That being said, aside from the mortgage being paid off, the property value increase adds to the value as well. We can take an estimated guess from historical data and low ball the property value increase to 25% (1% per Year) resulting in gains at approximately $100 000.
Having the property over 25 years allows your to be able to use the property for equity if other real estate or other investment opportunities exist. You do not need to sell your asset, but can qualify for Line of Credits’ from the property. With investing in real estate it comes with tax advantages as well. You can deduct mortgage interest, property taxes and unit depreciation from the property. As a taxpayer, you are able to claim repairs on the property to defer your rental income as well. When you are ready to sell at any point of your purchase while renting, you will only be taxed 50% on capital gains you earned on your property.
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There will also be pros and cons to any investment for individuals. However with real estate, it is more slow growth than the stock market, however it can lead to more assurances over a 25 year period. Investing in Pre-Construction Condos in Toronto, with the population growth, return on investment (ROI), and long-term financial security are all positive reasons to invest in the Toronto real estate market.