It seems no matter where you go in Toronto, someone is talking about investing in real estate. There’s good reason for that. Renting out a home is a fantastic way to earn some extra income—and build your equity in the process. While there’s no shortage of options to choose from, going the condo route has some distinct advantages. These units tend to be affordable and relatively low-maintenance compared to other housing types. Not only that, but the condo sector has consistently outperformed others in the GTA market in recent years.
Put simply, buying a unit to rent out in Toronto is a smart move. That said, many investors hesitate because they assume that getting a mortgage will be a major hassle. Fortunately, if you have equity in an existing home, you have options.
If you’re hoping to buy an investment condo, here are four tips for obtaining the financing you need…
1) Know the basics
There are a few differences between securing a mortgage for an investment property and getting one for a home you’re planning to occupy yourself. when you’re investing, you can expect to pay more for both your down payment (which will typically total 20 per cent) and your interest rate. You should also know what owning an investment condo will mean for your taxes. Before you take the plunge, speak to a financial expert to determine how much of your income will be taxable—and which expenses you can deduct. Be aware that when it comes time to sell, 50 per cent of your profit will be subject to a capital gains tax.
2) Apply for a home equity line of credit
If you have equity in your existing home, you can tap into it to obtain financing for your investment condo. One of the simplest ways to do that is with a home equity line of credit (HELOC). This option will allow you to access up to 65 per cent of your current property’s value. If you combine your HELOC with the amount remaining on your mortgage, that number jumps to 80 per cent. Put simply, you can borrow against the equity in your home, take out money when you need it, and only pay interest on what you borrow. Rates and conditions will vary depending on your lender. A financial expert can tell you more about home equity lines of credit—and whether obtaining one will serve your property-investment goals.
3) Consider refinancing
Another way to access your equity and put it towards purchasing an investment condo is through refinancing. Your first option is a blend-and-extend strategy, which you can pursue with your current lender. If you qualify and decide to go this route, you can extend your existing mortgage, and blend your current rate with a new (potentially lower) one. This partial refinance will allow you to access your equity without taking on a prepayment penalty. You can also opt for a full refinance, which will entail breaking your mortgage and paying the penalty. This may make financial sense if you’re able to negotiate a lower rate for the new mortgage you set up.
With either of the two above options, you can access your equity as one lump sum of up to 80 per cent of the value of your existing home.
4) Work with the right people
However you decide to finance your investment condo, you can set yourself up for success by seeking out professional guidance. First off, you may want to sit down with your current lender and have them walk you through your options. If you decide to break your mortgage and obtain new financing elsewhere, a broker can shop around to help you find the best possible interest rates and conditions. Once you have everything figured out on the financial side, it’s time to find a unit with the potential to provide high returns. Working with an agent who knows the local market—and what renters are looking for—is key. The right professional will help you identify your target market, locate the right unit, and get the best price possible for it.
There’s no doubt that buying a condo in Toronto is a great investment—one that has the potential to turn an impressive profit. By getting familiar with the lending landscape, knowing your financing options, and embracing guidance from experts you trust, you can help ensure that you receive the highest returns possible.
Thinking of buying an investment condo? Get started today by checking out some of the great properties on the market!