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First time home buying advice

paolo1967

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Emamabd what is the rate of return on ivestment for real estate in Toronto. i mean how much is the annual rent (afetr tax, maintainance ,..) if i am buying property let us say for CAD 1Million in Toronto?
 

Rossei

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paolo1967 said:
Emamabd what is the rate of return on ivestment for real estate in Toronto. i mean how much is the annual rent (afetr tax, maintainance ,..) if i am buying property let us say for CAD 1Million in Toronto?
I would assume the monthly rent of $1M house/condo in Toronto would be around $2400 - $3000.
The average CAP RATE stands around 5% [ Cap rate = (Annual Rent - Annual Tax - Annual Maintenance) / Price of the house ]
The ROI largely depends on your down-payment, if you're mortgaging.

Note that, the price of Toronto houses increased by an average of 20% over the last year!!!
 

Hasan9999

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Thank you. Informative thread!

Hasan
 

arch.lenin

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Very informative posts.

+1 to Rossey
 

Rossei

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torontosm said:
How in the world did you calculate that cap rate of 5%? Using the high end of your rent (which is likely too high), $3,000 x 12 = $36,000. Assuming that the tax on the property is $12,000 p.a., and the maintenance is about $2,000, you are left with $22,000, thereby implying a cap rate of 2.2%.

So, in effect, buying a $1 million house will actually cost you money rather than offer you any free cash flow (if you use bank financing), since your rate of return is less than the current interest rates. The only way you will make money is if prices keep going up.
I didn't calculate the cap rate, it was an average that's said on most sale advertisements (5 - 10%). It perhaps mostly suits apartments/condos. Some RemiNetwork says "The average cap rate in the GTA for the third quarter of 2015 (Q3’15) hit its lowest level in the last 30 years. The cap rate in Q3’15 stood at 3.75 per cent, down from 4.2 per cent in Q2’15 and down almost 50 per cent from the 6.3 per cent posted in Q3’10."

On the given example of $1M house, the tax wound't be more than $7K/year. I'm not too sure since I don't live in Toronto, but the city of Toronto website gives you this info. The cap rate would be just below 3%.

I agree that making money on residential property will depend on your financing rate as well. Just a growth in sales won't make money for you. You may need to possess the property for some years and prices need to go high constantly.
 

torontosm

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Rossei said:
I didn't calculate the cap rate, it was an average that's said on most sale advertisements (5 - 10%). It perhaps mostly suits apartments/condos. Some RemiNetwork says "The average cap rate in the GTA for the third quarter of 2015 (Q3’15) hit its lowest level in the last 30 years. The cap rate in Q3’15 stood at 3.75 per cent, down from 4.2 per cent in Q2’15 and down almost 50 per cent from the 6.3 per cent posted in Q3’10."

On the given example of $1M house, the tax wound't be more than $7K/year. I'm not too sure since I don't live in Toronto, but the city of Toronto website gives you this info. The cap rate would be just below 3%.

I agree that making money on residential property will depend on your financing rate as well. Just a growth in sales won't make money for you. You may need to possess the property for some years and prices need to go high constantly.
You are correct that property taxes would be $7,000 for the city of Toronto...that said, you would be hard pressed to find a house for $1mm in Toronto itself, and would likely have to look outside of the city where the property taxes are higher. Thus, the $12k estimate.

Sales and ads are not to be believed. I don't think there are many, if any, opportunities left to make a 5-10% cap on real estate in Toronto.

I would emphasize that anyone looking to speculate in real estate in Canada at this time should do their own calculations and ensure that they will be able to afford the property in a downturn, or while the property is vacant. They should also ensure that they have sufficient liquidity to cover the other charges and fees associated with buying a house.
 

Rossei

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torontosm said:
You are correct that property taxes would be $7,000 for the city of Toronto...that said, you would be hard pressed to find a house for $1mm in Toronto itself, and would likely have to look outside of the city where the property taxes are higher. Thus, the $12k estimate.

Sales and ads are not to be believed. I don't think there are many, if any, opportunities left to make a 5-10% cap on real estate in Toronto.

I would emphasize that anyone looking to speculate in real estate in Canada at this time should do their own calculations and ensure that they will be able to afford the property in a downturn, or while the property is vacant. They should also ensure that they have sufficient liquidity to cover the other charges and fees associated with buying a house.
I agree.

I started this thread to advise on few things that a first-time home buyer could miss or might overlook. I didn't write this up from a profit making perspective at all.
 

torontosm

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ALRIVAS said:
In the GTA we base the return not on the rent but on the equity at the time of sale of the property.
The question was not about returns, but about Cap Rates, which are calculated in the same manner, regardless of which city, province or country you are in. No one can guess future returns resulting from capital gains, and therefore Cap Rates are used to determine probable returns on properties. Speculating that historical price inflation will continue indefinitely into the future is a flawed methodology that has never happened in any market at any time in history.
 

Reginald

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Thank you. Very detailed and helpful information.
 

arunsgirl

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emamabd said:
I wonder if Toronto's real-estate bubble would blow up at some point, property prices have gone way far beyond being "reasonable" the bubble keeps growing bigger and bigger! ???
Read the recent news...BMO, Finch, CMHC...pretty much everyone thinks it's a bubble except real estate agents and some politicians (who get heavy donations by realtor associations). Vancouver prices are down 17% this month. Toronto will follow. If the government is courageous enough to implement some serious measures sooner than later.

In the meantime, try not to buy a house, or if you really need to, get a good realtor. The kind that will tell you the bad news.
 

emamabd

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Rossei said:
I should have been more precise about exemption of Land Transfer Tax. Ontario has similar scopes: the maximum refund amount is $2000.
Fyi - it has been increased to $4000 as of last month..
 

Lanina

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Hi Im thinking about buying a home in Ontario. It is a tall order but nothing tried nothing done!

I have been listening to the real estate industry having no compassion for what buyers are going through. All they are concerned about it profits!!! Rather than what the Mayor was saying. How can you have a fast growing city like Toronto with no housing or expanding transit????

Its crazy and i am praying the market rises then come down when they realize it out of human reach to afford!
 

emamabd

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Lanina said:
Its crazy and i am praying the market rises then come down when they realize it out of human reach to afford!
Well some people can afford to pay "1 million over asking price" for a townhouse....i don't know who are they, but
looks there's many of them in the GTA...

http://www.blogto.com/city/2017/04/sold-toronto-townhouse-sells-1-million-over-asking/