Purchasing quality investor-grade real estate is not just about the numbers. Far too often I hear the same story – buyers only focus on one thing: what are the numbers! It's not that the numbers are not important…they are vital. But as a savvy investor, sometimes it's important to also focus on the upside. What can the numbers be! At Toronto Income Property, we pride ourselves on thinking out of the box and seeking out opportunities that are not as apparent, the proverbial diamond in the rough. We work with our investors to add the value.
What to Buy
For many people, buying an investment property can be very daunting. Identifying an individual investor’s goals and being able to determine the best type of investment vehicle is step one. It’s best to gear your purchases to reflect you knowledge base or skill set. If you are a first time investor you may want to get your feet wet with a Condo or Duplex, and if you are knowledgeable about construction you should look towards a renovate-and-flip scenario. We work to identify homes in opportune neighborhoods and advise in the process of renovations to maximize marketability while minimizing ongoing maintenance expenses. If our services are needed, we offer professional property management and tenant management services to ensure a seamless process from purchase through to the holding period.
Building Your Team
You're only as good as those you surround yourself with, so doing your due diligence and securing the right team is imperative. Key team members can include your Real Estate agent, lawyers, accountants, mentors, contractors, and mortgage advisors.
Knowledge is the new currency. Without it you are doomed to follow other people’s advice without knowing if it’s good or bad. Knowledge will also help take you from being a “good” investor to becoming a great investor, and that knowledge will help provide a passive stream of income for you or your family.
Try not to Speculate
Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will peak and it usually takes 6 to 9 months after the fact to find out. Don’t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the beginning.
Focus on Cash Flow
With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is directly related to the before-tax cash-flow from your property. Cash-flow is the “glue” that keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.
Be a Visionary
The Greater Toronto Area is made up of hundreds of micro real estate markets. Each market ebbs and flows independently of one another due to many local factors. As such, you should recognize that there are times when it makes sense to invest in a particular market, and times when it does not. Seek out value where others see none, and through ground level analysis source out opportunities. Only invest in markets when it makes sense to do so, not because you live there or you bought property there before. There’s an element of timing and you don’t want to buck the trend.
Like all portfolios, it’s healthy to diversify across different property investment platforms and geographic markets. It’s a way of spreading your investments across different asset classes and lessening risk.
Know Your Skills
Never manage your own properties unless you are good at it! Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good marketing expertise, and strong people skills to deal with tenant complaints and excuses. Your time is valuable and should be spent on your family, your career, and looking for more property.
Real estate is the only investment where you can borrow other people’s money to purchase and control income-producing property. This allows you to leverage your investment capital into more property than purchasing using “all cash.” Leverage magnifies your overall rate-of-return and accelerates your wealth creation.
As long as you have positive cash-flow and your tenants are paying off your mortgage for you, it would be foolish not to borrow as much as possible to buy more income property