HOS Financial: Your Leader in Ontario Real Estate Investment
If you’re looking to enter the real estate market as an investor, there are several trends in Ontario that are likely to interest you. After all, when it comes to real estate investing in Ontario is one of the more diverse – and more exciting – provinces when it comes to finding gems.
The Toronto suburbs are a place that is experiencing a real boom right now. Consider the recent experience of one Shawn Lackie, a Toronto realtor. He listed a property in the suburb of Whitby in early March, at $540,000. It drew 10 offers in the first day that it was available for viewing – and ended up going for $550,000. This wasn’t a gem of a property, by any means. It was built in 1994 and had largely been neglected as it entered its second and third decades of existence, so the new owners were definitely going to need some more money to go toward some repairs.
There was also a home that opened in Oshawa in early March. Listed as a “renovator’s delight” at $200,000, it drew 61 offers and eventually went for $350,000. The fact that the listing agent had published a caveat that people visiting the home should “use extreme caution” when heading down into the basement, because of the decaying stairs, did not deter people from making offers. However, that same property popped back up onto MLS for the identical asking price a few days later – definitely an extreme case of buyer’s remorse.
Getting Started with Real Estate Investing in Ontario
What’s the lesson here? When it comes to real estate investment Ontario is a crazy place right now, which means having the right investment firm on your side is crucial.
What’s making the market so tumultuous? The primary factor is the extreme shortage of listings, at least with respect to demand. For a savvy investor looking to make a killing with a flip, times are definitely in your favor. It looks like someone who guessed wrong with that “fixer-upper” in Oshawa, but there are just as many opportunities for people to find profitable gems in the market.
It’s not just the Toronto suburbs that have real estate fever. Thunder Bay, up in the north of Ontario, has seen homes appreciate faster over the past five years than in any other municipality in all of Canada. Since Thunder Bay is not a place where families tend to pull up and relocate, those who are looking for real estate investment Ontario opportunities may find some real gems here.
Why is Thunder Bay so popular? The city used to be a transportation hub on both truck and rail shipping routes, but now it is growing in the knowledge economy, as employers in education, medicine and government are moving there. These sectors tend to shelter their jobs from such short-term factors as price drops that have ravaged resource and manufacturing sectors elsewhere in the country – one example, of course, is the horrendous impact that the long-term drop in oil and gas prices has wrought on the economy in Alberta. The biggest employers in thunder Bay are Lakehead University, the Regional Health Sciences Centre, the Lakehead District School Board and the municipal and provincial governments.
Prices are another factor drawing real estate investing Ontario-way in Thunder Bay. Average household income in the city is $81,000, but the average home in 2015 cost under $216,000, a multiple of about 2.5 times the income. In Toronto, the average home cost is six times the average household income, and in Vancouver, the multiple is nine.
So how can you get income potential out of a situation with those low prices? Well, rental rates in Thunder Bay have gone up 22% since 2011, partly because so many post-secondary students have arrived to take up studies at Northern Ontario School of Medicine. Interestingly, what people pay on average for monthly rent would more than satisfy a monthly mortgage payment. However, in a city like Vancouver, the average monthly rent would only pay for a third of the average monthly mortgage payment.
Why Investors Choose Real Estate Investments in Ontario
Rent to own real estate investments have been growing in popularity in Ontario. If you think about it, this is a no-brainer — the property investor gets several years of rent but then gets rid of the property before it goes through enough wear and tear to require major repairs. Unlike a traditional lease, the borrower/tenant is generally responsible for the majority of maintenance and minor upkeep. Since the borrower/tenant is committed to buying the house, you don’t have the issues that come with tenants trashing homes before they move out. In the unlikely event that the borrower/tenant can’t come up with the financing to buy the house at the end of the contracts, you get their down payment deposit (typically at least $5,000) and all of their down payment credits to keep as extra rent.
Ontario real estate investing – the next taxation target?
Now is the time to start considering buying rent to own properties instead of homes that you can simply “flip.” Why? Charles Sousa, the Ontario Finance Minister, has asked the Canadian government to alter the way in which profits in the housing markets are taxed. As current law stands, investors pay capital gains taxes on 50 per cent of the profits when a sale takes place on a home that is not the seller’s primary residence.
Many investors are purchasing homes as part of a speculative investing strategy and then turning around and selling them as a profit. Some experts believe that this practice has driven housing prices up in Toronto and the surrounding suburbs. This has led to a shortage in affordable housing, keeping first-time buyers out of the market.
Rent to own investors in Ontario have the advantage
However, rent to own investors don’t have the same exposure here. Why? Let’s say you negotiate a purchase price based on today’s market without quite the same markup that some other properties in the area are showing. You can afford to do this because you’ll be raking in rent for the next two or three years – and rent is not taxed as a capital gain. Then, when you sell the house at the end of the lease purchase agreement, you’ve made that revenue from the rent, and you’ve made some from the sale. However, your exposure to capital gains taxes is significantly less.
Home investors in Ontario can help first-time buyers
Rent to own can be a great way for first-time buyers to get into the market. As an investor, you can help someone who has had a hard time saving up for a down payment or has had a rough patch in terms of credit history escape the rent cycle and end up with a home of their own.
Rent to own borrower/tenants have a lot more motivation to make the contracts work than traditional tenants do. A traditional tenant is usually moving from one lease to the next rather than saving up to build home equity. Also, a borrower/tenant is usually closer to having his or her credit bank-ready than a lot of traditional tenants. Finally, borrower/tenants have tied up a lot more of their money in the deal and so have a lot more skin in the game.
Let’s be clear, though –it’s true that home prices in Toronto and the suburbs have gone up as high as 30 per cent in the last twelve months, and that is a trend that could price some people out of the market if it keeps going up.
What does this mean for you? As an investor you can take advantage of the security that this sort of borrower/tenant brings in: regular rent payments – and those rents are usually right at the top of the prevailing market rates. You also get the interest from the borrower/tenant’s down payment deposit, and the monthly down payment credits. You apply the principal from those payments to the final purchase price, but the interest stays with you. Plus you’ve unloaded the property at the end of the contract, which means that you don’t have to worry about an empty rental property while you find your next tenant. HOS helps you find your next borrower/tenant, keeping you flush with revenue coming in.
Some other exciting real estate markets in Ontario include Hamilton, Guelph and Brantford. Are you interested in real estate investing Ontario-style? Do you have more questions? Contact HOS Financial today to find out how you can turn your investment funds into regular revenue streams – while helping people achieve their dream of home ownership.