Today I’d like to talk to you about Toronto Real Estate Investment.

There’s four different type of investors in the real estate game.  If you’re thinking about getting into real estate investment I’m going to tell you about each type and you can decide which type you’d like to be.

I’m going to rank these types of investors from worst to best, or from least effective to most effective in terms of making profit from your real estate investment.

The first type of investor is “The Speculator”. The Speculator is someone that moves into a property and waits for the market to improve or the price of the property to improve.  They don’t do anything.  They think that just by time the property’s just naturally going to go up because hey, there’s only so much land in the World it’s always going to go up at some point…right?

That’s generally the Speculator’s sense, that they’re going to wait until it goes up.  In real estate speculation here’s no real plan for earning profit, there’s no real plan for earning income.  In the real estate game we tend to call speculation a little bit of a crap shoot.  I can’t guarantee that there isn’t going to be some force in the World or in this regional market that’s not going to drive the price of your property potentially down.  So if you’re thinking of getting into real estate investment, you’ll probably rather not be a speculator.  It’s the least secure form of real estate investment and most of us realtors know it to be a crap shoot.

The second type of real estate investor, one that’s really popular nowadays is called “The Renovator”…some people know them as “Flippers”.  These are guys or girls who take a package of land or a property, improve it and then sell it again in hopes of making a profit or squeezing a margin out of it.

Now flipping real estate was really popular in the ’80’s & ’90’s when the market was going up and there were lots of “post-war homes” and “period homes” that were a little shabby, needed to be improved for younger families.  It was pretty popular, there was a lot of money to be made and a lot of people became very good at it.  There was a lot of laymen who go into the business that were very bad at it, they do shabby work, shoddy renovations, and the flipping game since then has always been a little bit shakey.

Don’t get me wrong, there’s margins to be made from renovating.  There’s margins to be made and profit to be made from real estate flipping, but it takes a professional, it takes a seasoned veteran…someone who can walk into a space, assess it, know what needs to be done, know exactly what it’s going to cost them, and know what the finished product is going to be worth.

If you don’t have that internal knowledge, if you’re just a layman who knows maybe how to paint, or do a little drywall, renovating or being flipper is probably not the best real estate investment for you.  It’s tricky, there’s not a lot of margins and it’s tough to make money, especially nowadays with the price of land being so expensive.  Even tear-down lots are over half a million dollars in the City of Toronto now, and that’s a lot of money.

The third type of real estate investor is the real estate investor, also known as the Landlord.  That’s someone who buys a piece of land and then rents it out.  After they’ve paid their mortgage, their taxes, their maintenance, and their insurance there should be some money left there, there should be a margin, and that’s the profit that they’re looking at.

When my investor clients call me and say hey we’d like to take a look at this investment property, they don’t care about the curb appeal.  What they care about is the CAP rate.  That’s the capitalization rate, and the rate of return that they’ll make their money that they invest into this property back.

Now there may be an element of renovations that go with that.  Some investors buy a property and improve it so that they can claim a greater rent from their tenants.

The investor wants cash flow.  Cash flow is what he’s looking for.  He’s looking for cash rents to come in and at the end of the month profit in his hand.

Hey a great way for you to get into real estate investment and become a landlord is to start with a basement apartment.  Buy a house that’s got a space for a basement apartment, or an inlaw suite.  Take the time to keep it nice, market it, and rent it out.

Learn what it’s like to deal with tenants.  Learn what it’s like to do minor repairs.  Learn what it’s like to try to collect rent cheques.  Tenants like to cause damage, sometimes tenants don’t like to pay their rent, or they like to pay their rent late…they can be a pain in the butt to be sure.

But a basement apartment is a good way to get your foot in the door of the real estate investing world.  Gives you and opportunity to work with a small property, maybe a single person, or a young couple.  That gives you a chance to experience what it’s really like to be a landlord, trying to collect rent, do the maintenance that’s required to keep a tenant happy.

If you find that this is something that you like and it’s something you have an aptitude for, maybe you’re ready to move to the next step of investment.

The fourth and final type of real estate investor is the developer.  Those are the big boys, the big guns.  They have experience, history in the real estate game, they have a lot of money, they have investors and partners.  They buy a piece of land and they create something that wasn’t there before.  Then they sell it, they make their margins, they make their profits.

The developer has been having a great time in the last decade in the City of Toronto.  You can’t look at the skyline right now without seeing multiple cranes building buildings.

Unfortunately as these developers come up with plans and schematics to make maximum profit, I think unfortunately the quality suffers.  A lot of the bigger developments especially in the condominium world probably aren’t built to the quality standards that they were in the ’80’s or ’90’s.

So let’s just recap the four types of investors to help you decide which type of real estate investor you’re going to be;

  • Are you a “Speculator” are you interested in the real estate crap shoot?
  • Are you a “Renovator” do you have the skills necessary to take a property, flip it and still make profit?
  • Are you an “Investor” are you interested in monthly profit and a monthly capitalization rate to make your money back?
  • Or are you a “Developer”?  Do you have the time, skills, and the money to take a piece of land where there’s nothing and create something?

So if you’re thinking about a real estate investment, remember the four types of investors, think about the type that you’d like to be.

If you have any questions, or you’d like to look into Toronto real estate investment, you can call me at 416-486-5588 or email me at CondoChris@gmail.com.