In today’s pricey Toronto real estate market, buying a home can feel like an impossible dream. So for those who love city life but want to build equity, “rentvesting” is a strategy worth considering.
Rentvesting involves purchasing a more affordable property in another city and renting it out for income while continuing to live as a tenant in a preferred city like Toronto. Over time, the rental income and property appreciation help build equity, which can be used for a down payment on a home in Toronto down the road.
Zoocasa looked into the top cities most Torontonians could afford to buy and where investments could likely turn a profit.
Best cities for Torontonians to rentvest in a condominium
To determine the best cities for Torontonians to rentvest, the study analyzed the maximum mortgage amount affordable ($275,402) on an average Toronto income ($62,050), then compared condominium prices and rents across Canada.
Torontonians could make profitable investments in several cities, including Edmonton ($163,452) and Regina ($183,630), where average condominium prices fall well within this range.
The study notes that Etobicoke is home to the highest average annual income of the six GTA cities analyzed and, as a result, those residents can afford the largest mortgage amount ($307,137). On average, they’re a few hundred dollars short of affording a condominium in Brantford Region and Windsor-Essex, or potentially in Oshawa (which has an average price of $420,575 and a total mortgage amount of $336,460).
Profitable Investments. In cities like Edmonton, investors can earn substantial monthly profits. With average rents at $1,553 and mortgage payments at $886, the potential for monthly gains is $667. Calgary is another great option, with potential gains of $474 per month due to the difference between rent ($1,954) and mortgage payments ($1,480).
Regina, Saskatoon, Winnipeg, Ottawa and Halifax-Dartmouth also offer opportunities for positive monthly cash flow, making them attractive for rentvesting.
Is rentvesting right for your clients?
Before diving into rentvesting, it’s crucial your clients understand what comes with it:
Higher down payments and stricter criteria. Investment property mortgages typically require at least a 20 per cent down payment and have more stringent credit score and debt-to-income ratio requirements compared to traditional mortgages.
Tax implications and benefits. While the First Home Savings Account (FHSA) cannot be used to purchase investment properties, there are potential tax benefits. Investors can often deduct mortgage interest, property taxes, insurance and maintenance costs from their rental income.
Management responsibilities. Owning a rental property comes with the responsibility of managing tenants, complying with local regulations and handling unexpected repairs. It’s important to factor in these duties when considering rentvesting.
For those willing to think creatively and take a strategic approach, rentvesting offers a pathway to achieving homeownership dreams in Toronto while building a solid financial foundation through real estate investments.
