Building Your Real Estate Portfolio: How To Profit From Investments?

By: Reza Afshar

Building Your Real Estate Portfolio: How To Profit From Investments?


Investing in real estate properties can come with some challenges and it takes some time before you can reap the benefits of your work. Whether you are just starting out as a first-time buyer or building your portfolio, the following fundamentals can help you lay the groundwork for a successful and lucrative investment. 

The Sooner You Hit The Market, The Better
Interest rates might have gone up lately in Canada, but objectively, they are still very low. Why not use it to your advantage while it's still there? By paying less towards interest, and paying down more of the principal, the sooner you can borrow against the property to start building a portfolio of properties. Downtown Toronto has many great condo units to start building a real estate portfolio but if these condo prices are still out of your reach, start small and buy what your budget can afford. Expand your horizons and search for lucrative opportunities across the whole GTA where properties can be still be found at $300,000. The best piece of advice I received 17 years ago was to buy at least one property a year and to buy what I could afford at that time. Over time, real estate will appreciate and in time you will definitely come out ahead!

Long-Term Thinking Goes A Long Way
Investors always look forward to the appreciation of their property, but getting there means initially spending money. Toronto has seen some great gains in property values and continued demand forecasts for strong growth in both rental and sales going forward. However, with its high rental rates and positive price growth, comes one drawback with Toronto properties. You must take into account the dual Land Transfer Taxes as it will drain a percentage of your budget. If you are thinking about doing quick flips of buying and selling properties, then Toronto is not the market for you as typically you will need to hold onto a property for a few years to take advantage of any gains.  A short-term goal and perspective is to have the property generate income with positive cash flow. You can use this to pay down the property quicker or use it to build up your portfolio.

Think As A Visionary
What kinds of properties generate major cash flow and where to find them are the two questions you should start from. Properties in high traffic locations rank high, as well as those close to major facilities and transportation. Narrowing down the search to areas that are nearby major businesses, hospitals, universities, etc. is a good start. Vacancy rates in such locations range from very low to none which means that demand will continue to be strong for both rental and property value.

Another approach is to target more affordable real estate markets with huge growth potential. Be a visionary and try to predict the future needs of a community and which developments will become the go-to places in several years. This will help you diversify your portfolio and pioneer in other markets as well.

Low-Maintenance Properties
Properties that don't require a lot of work are ideal, especially for beginner investors. Properties such as condos would be an optimal choice as they are low-maintenance, especially since the condo building itself takes care of everything outside your unit including the shared facilities and exterior. All you have to focus on is managing your own condo unit and making sure to stay on top of any repairs and upkeeps to maintain its value. If you decide to take on more, renovations may be an option as you will add value to your investment and secondly, you can ask for higher rental rates since your unit is upgraded. 

Investment As A Tax-Saving Measure
Higher income earners pay higher taxes, but in some cases creating a loss from a rental property can help you save money by offsetting your taxable income. A loss can be created by depreciating an investment property over a period of time by deducting the property costs and improvements over the useful life of the property. You then recapture this depreciated value with gains when selling the property at a time when your income is lower. As an investor, you can reimburse all the costs (maintenance, landscaping, repairs, etc.) when you later sell the property.  If too much positive cash flow is generated, re-mortgage the property and take capital out of the property to either pay down your principal residence or continue to build your portfolio by purchasing another property.

Want to know more about real estate investing and how and what to buy in Downtown Toronto? Contact me today for more details.