Thinking of investing?
Whether you're a seasoned investor or just getting your feet wet, we'll guide you through the process of buying your next income property. It’s all about the numbers and future ROI...
"Buy land, they're not making it anymore"
- Mark Twain
Benefits of Investing with dutton+co:
Greater ROI - It's true, no one can perfectly predict the real estate market, but our many years of experience, and long-term hold approach, means we can help you better estimate your return on investment. We’ll share with you our professional opinion of each listing's current and projected/future value based on our understanding of the trends within each neighbourhood and keen eye for home valuations. We’re a big believer in a well rounded investment portfolio. Real estate, as a forced savings vehicle, is a great way to balance out any investment portfolio. We’re biased, but we practice what we preach.
Sound Advice - Many buyers get caught in the trap of forgetting that the listings they're viewing are not their home, but their investment. I'll help you stay focused on the features that maximize profit and be the voice of reason you'll need leading up to, during and after the offer.
Contractor Network - If you're interested in renovating a space, I can connect you with local, reputable contractors and tradespeople that I have longstanding relationships with. Thinking you might DIY? I can also help estimate the cost of minor repairs and their impact on resale.
Why buy an investment property?
Debt Reduction. Tenants pay off your mortgage when the right factors are present (numbers, location plus good bones). The mortgage is being paid by someone else, not you. This may mean you aren't paying the mortgage on your principal residence, or investing your money in something long-term. Someone else is paying this for you! It’s like going to the bank, getting a loan to make a sound investment, and having someone else pay it off. In many situations the rental income goes beyond paying the bills and actually generates positive cash flow as well as providing you with a home to live in, if planning to live in one of the units.
Property Appreciation. Your property increases in value over time. This makes your return on investment (ROI) that much more significant as you have someone paying down your initial investment while it continues to appreciate. Plus, if the property is in a key, central location, even greater appreciation is gained. Location is such a key factors in achieving the best ROI.
Positive Cash-Flow. Not only does an investment property appreciate in value, over time, and allow someone else to pay down your mortgage it also should create a monthly revenue stream or Positive Cash-Flow!
The Magic Combination
Ensuring an income property is a profitable one depends on three key factors: numbers, location and bones.
Investment Fundamentals: The Numbers
When the numbers are right, you should have expenses covered or ideally positive cash flow, especially if the property is not your principal dwelling. There is a lot to consider in this calculation. Some of the main factors affecting “the numbers” are deposit, mortgage, renovations, taxes, maintenance, etc, etc. against what you may get in rent. This calculation is extremely important.
I simply recommend to my clients to not do a deal if the numbers aren't there. I want a long-term investment plan, positive cash flow situation, and great cap rate (%) for my clients or I would rather not do the business for them.
Area: Location, Location, Location
As the Greater Toronto Area continues to grow, the value of land increases. It's often called the spider-web effect. If you can find a property in key city areas, your equity will grow greater and greater as land becomes more and more valuable. And, it's a bonus when someone else is paying for it!
Location is also an important factor in rental demand. You don't want to buy a property in an area were people are less likely to rent. Good locations attract good tenants thus good rents, most of the time. I’ll help you choose a location with an abundance of great tenant candidates. Not only is there demand, but also you can afford to be picky and choose tenants that suit your property.
Building Structure: The Bones
It's often easiest to find an income property that is already divided up into a multiple family dwelling such as a duplex, or house with a basement apartment. However, it is critical to make sure that a building is sound (hopefully eliminating any nasty surprises) and will minimize long-term maintenance costs.
There are also many great buildings out there, especially older ones in central Toronto that may appear a little run-down or are not yet converted to multi-family dwellings, but have excellent bones underneath. Spotting one of these gems and envisioning potential conversions is a combination of talent and experience. If you are willing to invest a little more up-front for renovations in the right circumstances, you will likely get paid back many-fold down the road.
Through my experience and passion for this, I'm great at spotting good bones and envisioning what properties can become.
Annual NET Operating Income
Capitalization Rate = _________________________
Cost or Current Market Value
Net Operating Income (NOI) = Gross Income – Operating Expenses