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Ask An Expert – Real Estate Interview Part II

It’s not news that Toronto’s real estate market is booming. While a trusted real estate expert is always a good idea, when trying to move to a new city or upgrade your living situation in Toronto’s diverse and shifting marketplace, expert guidance is practically mandatory.
Eugene Mezini is an expert on Toronto’s real estate market.  In part 2 of our ‘Ask an Expert’ series, Eugene provides some insights on leveraging home equity for investment, renting, and what you can do when becoming an empty-nester.

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I’VE BUILT UP A LOT OF HOME EQUITY IN MY PRIMARY RESIDENCE OVER THE YEARS, WHAT ARE THE PROS AND CONS OF LEVERAGING THAT EQUITY TO INVEST IN REAL-ESTATE (VERSUS MORE TRADITIONAL MARKET PORTFOLIOS)?

You can leverage your investment in real estate, which you cannot do with more traditional market portfolios. There are pros and cons to both options and it is always best to diversify BUT real estate has definitely made investors more money than the markets.

A lot of buyers are using a HELOC to purchase real estate. The advantage is that you can write off the interest you are paying because it is for an investment property. You can use your HELOC to purchase in stocks/bonds etc. as well BUT your money is worth 5 times more in real estate. A $50,000 investment is worth $250,000 in real estate but only worth $50,000 in the markets. Even if the markets outperform real estate (which usually they do not), they would have to outperform the real estate market by 500% in order to just match the same returns.

The downside is that you must have the ability to hold onto the property. Your investment is not as liquid and cannot be sold in a moment’s notice. And of course, it’s never a good idea to sell during a down market. You should always have the capability to hold onto your investment property. The good news is that even in a down market, people will always need a place to live. You will always find tenants.

 

SO IF I INVEST IN A CONDO, WILL I BE ABLE TO RENT IT?

Without a shadow of a doubt, YES. Anyone that wants to rent it out will be able to. Our vacancy rate is at an all-time low. We have huge demand for rentals and as long as you price it correctly, you will rent it out.

WHAT’S THE DIFFERENCE BETWEEN INVESTING IN CONDOS VERSUS FREEHOLD REAL ESTATE?

Price. It’s unaffordable for most people to buy a freehold home and spend a million dollars on an investment. You can buy 3 investment condos and diversify the areas where you buy PLUS it’s easier to rent out condos and a lot less management. You can rent out homes as well but the days on market is much longer, there are a lot more things that can break- you have to worry about the grass, the snow, the garbage, the roof and a million other things.
If you rent out a million dollar home, you get maybe $3,000-$3,500 in rent, $4,000 if you’re lucky. Now rent out three 1-bedroom or 1+den condos and you’ll get about $6,000. You have the maintenance fee yes, BUT your rental returns will still be much better even with the maintenance fees.

I’M AN EMPTY NESTER LOOKING TO DOWNSIZE. MY HOME IS WORTH OVER $1M. SHOULD I BE CONSIDERING BUYING TWO CONDOS: ONE TO LIVE IN AND ANOTHER FOR RENTAL INCOME?

It’s one of those steps that everyone eventually takes. A lot of buyers are looking to downsize and move into condos. It’s a lifestyle change that almost everyone will take.
It is definitely a good idea to get rental income when you retire. I would go a step further and say you can buy 1 condo for you to live in and 2 for investment. And don’t be afraid to become a landlord. There are some challenges of course, but for the most part, it’s pretty turn-key with condos.