In today’s expensive Toronto real estate market, purchasing a home can seem like an unattainable goal. For individuals who enjoy city living but desire to accumulate equity, “rentvesting” is a viable strategy to consider.
Rentvesting entails buying a more affordable property in a different city and renting it out for income while continuing to reside as a tenant in a preferred city like Toronto. Over time, the rental income and property appreciation contribute to building equity, which can be utilized for a future down payment on a home in Toronto.
Zoocasa conducted research on the top cities where most Torontonians could afford to buy and potentially yield a profit on their investments.
Best cities for Torontonians to rentvest in a condominium
To identify the best cities for Torontonians to rentvest, the study examined the maximum mortgage amount affordable ($275,402) on an average Toronto income ($62,050), then compared condominium prices and rents across Canada.
Torontonians could make profitable investments in various cities, such as Edmonton ($163,452) and Regina ($183,630), where average condominium prices are within this range.
The study indicates that Etobicoke has the highest average annual income among the six GTA cities analyzed, allowing residents to afford the largest mortgage amount ($307,137). On average, they are slightly short of affording a condominium in Brantford Region and Windsor-Essex, or potentially in Oshawa (with an average price of $420,575 and a total mortgage amount of $336,460).
Lucrative Investments. In cities like Edmonton, investors can generate considerable monthly profits. With average rents at $1,553 and mortgage payments at $886, there is a potential monthly gain of $667. Calgary is another appealing option, offering potential gains of $474 per month due to the rent-mortgage payment difference ($1,954 vs. $1,480).
Regina, Saskatoon, Winnipeg, Ottawa, and Halifax-Dartmouth also present opportunities for positive monthly cash flow, making them attractive for rentvesting.
Is rentvesting right for your clients?
Before delving into rentvesting, it is essential for your clients to comprehend the associated aspects:
Higher down payments and stricter criteria. Investment property mortgages typically necessitate a minimum 20 percent down payment and have more stringent credit score and debt-to-income ratio requirements compared to traditional mortgages.
Tax implications and benefits. While the First Home Savings Account (FHSA) cannot be utilized for purchasing investment properties, there are potential tax advantages. Investors often have the ability to deduct mortgage interest, property taxes, insurance, and maintenance costs from their rental income.
Management responsibilities. Owning a rental property involves managing tenants, adhering to local regulations, and addressing unexpected repairs. It is crucial to consider these obligations when contemplating rentvesting.
For those willing to think innovatively and adopt a strategic approach, rentvesting provides a route to realizing homeownership aspirations in Toronto while establishing a strong financial base through real estate investments.
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