Greetings, Hamilton Real Estate Investor!
How are you involving you kids in your real estate? There’s that whole stigma around the words “child labour”
In our household I prefer child co-op hahaha. This past Saturday at Cherry and I’s IWIN Real Estate meetup I had our kids arrange tables and chairs in the room and register guests as they came in.
The kids have time for work now since we cancelled their tutoring and for now they didn’t complain one bit about having to work Saturday morning vs doing homework.
Teaching the kids how to run an event and the family business is important. Plus we save money on staffing hahah. It’s a recession don’t you know? We all have to tighten our belts
Now if only the kids were handy. The inflation on my handyman costs is through the roof!!
On to today’s topic…
Traditionally, real estate investors buy properties with the intention to enjoy the sweet passive income they will earn in the form of cash flow. However, some investors are in pursuit of another form of profit.
In the GTA (Greater Toronto Area), real estate investors are often in the market looking for properties that will allow them to earn a significant amount of equity – regardless of the cash flow potential on the property.
In fact, some of them do not mind if the property loses money month over month as long as they are able to earn equity over time.
Why do they do this?
Investing for equity is an incredibly popular strategy in regions such as the Greater Toronto Area, and it is one that can set you up to grow your portfolio rapidly in order to increase your real estate investing potential early.
So, let’s take a moment to learn how the GTA is secretly a gold mine for real estate investors in pursuit of equity.
The GTA Has a Negative Cash Flow Problem
Before we start looking at the high potential for you to earn equity in properties located in the GTA, we need to address the elephant in the room. The GTA has a negative cash flow problem.
Much like other major cities and the surrounding areas, Toronto and rest of the GTA is known for having incredibly high-value properties, which can be excellent for the property owner except for the fact that this can also lead to higher monthly mortgage payments, insurance premiums and even utility bills.
Usually, you would not worry about this because you can easily set the rent on the property high enough that it covers your costs and allows you to earn a profit. Still, market rent in the GTA is already considered quite high compared to the rest of the country, so there is not much room to raise the rent. (Plus, there are limits on how much you can increase the rent in Ontario on most properties built before November 2018.)
This means that investing in rental properties leaves you with a significant chance of earning very little cash flow or generating a negative cash flow and paying out of pocket to cover a property’s costs.
Investing for Appreciation and Equity
Admittedly it can sound strange at first – buying a property that barely turns a profit or even potentially loses money each month just because it is going to become more valuable is not the straightforward strategy that many real estate investors anticipate when they first enter the market. However, it is an incredibly valuable and profitable technique if you do it properly.
Appreciation and equity go hand in hand with investors. While equity is the amount of value you hold in a particular asset or property, appreciation is the process that the property increases in value over time or through improvements.
This value you are capable of building is a powerful tool that can be leveraged for all sorts of investments if you are prepared to use it properly.
Using Equity to Continue Investing
So, how can you leverage your equity in order to continue investing? There are quite a few ways you can do so.
Refinancing
One of the first and most common ways you can use your equity to continue investing is through a cash-out refinance. This allows you to take out a new mortgage on a property in order to receive a portion of your equity in the form of cash.
With that cash, you are free to do whatever you wish, whether that is putting a down payment on new investment property, renovating and updating your existing investments, or using the money to fund your lifestyle and invest in yourself.
HELOC & Home Equity Loans
Another thing you can do to utilize your hard-earned equity is to open a home equity line of credit (HELOC); this is a tool that allows you to borrow against the equity you have in a property for a period of time while only paying the interest on the loan before eventually starting the proper repayment period.
This line of credit can be used to make investments, consolidate debts, and more. So, by investing in a property with a high potential to appreciate and gain equity, you are increasing the amount of money you are able to draw upon once you get a HELOC.
Similar to a HELOC, a home equity loan is a single loan against your home equity that you can use to invest.
Property Appreciation in Toronto and the GTA
Investing for equity and appreciation traditionally requires investors to play the long game and wait years to build equity. Still, it is possible to build equity significantly faster in Toronto and the GTA.
From 2021 to 2022, the purchase price of detached homes in Toronto saw an average increase of 23 percent. Meanwhile, in the surrounding towns in the GTA, the average price increased by approximately 33%.
Before the pandemic from the peak of the last crash of 1989 to 2019 is about 7% average price increase PER YEAR. Not to say we will see this price inflation again but if we do, those without houses will be priced out and be forever tenants or have to leave town.
These increases mean that investors who bought in these regions saw massive returns on their investments in the form of equity.
If you would like to pull together your investment planning and strategy into a single clear, integrated system like our 500+ investor clients, including 45 self-made real estate investor millionaires, our Vision Architect Program™ is right for you. Please email us at iwin@infinitywealth.ca to speak to one of our investor specialist Coaches at iWIN Real Estate, the FOUR-time Realtors of the Year to Investors in Ontario.
If you’re just looking to learn more and not ready to move forward on an investment, get the new FREE book titled “The Canadian Real Estate Investing Playbook,” teaching you the 8 most powerful real estate strategies that will help YOU retire early. CLICK HERE to get your FREE copy instantly.
Until next time,
Happy Investing
Erwin
