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Buying to rent out can be profitable

<p>With lots of new housing developments in the GTA, opportunities to make money in real estate are soaring.</p>

But be sure you can cover carrying costs

With lots of new housing developments in the GTA, opportunities to make money in real estate are soaring.

One of the options is buying for the purpose of renting out.

Winham Wong, sales representative for Sutton Group Associates Realty, says that renting out is a great source of secondary income, and a good way to avoid the occupancy fee when buying a new condo.

The occupancy fee is a charge paid to the builder between the time your unit is deemed safe for occupancy and the time your building is fully complete. Wong explains that people who purchase a unit on the lower levels of a building will always pay an occupancy fee; sometimes, for up to a year.

However, renting out your suite for that time period will help you get that money back. You can then continue to rent out once the building is finished and you begin paying your mortgage.

“If you’re doing it for investment purposes, then that’s really the only way not to lose money,” Wong says.

Re/Max realtor Amit Paul admits that although he is not a fan of buying to rent out, that if done right, there is profit to be made.

“If someone came to me and they asked me for my advice on doing it, I would say you’re better off putting your money elsewhere,” Paul says. “But a lot of people have been doing it for a while and they’re having success at it.”

Both Paul and Wong recommend Toronto’s downtown core as the desired location, particularly King West, which Wong claims is considered a hot destination to move to today.

“Buying a home is so affordable these days, that anybody who is going to be paying, say, $1,500 a month for renting, can buy a place,” Paul says.

The downtown core, however, will grant the buyer access to what Paul refers to as the “here on business” crowd: wealthy businessmen working on contracts and not wishing to bother themselves with home ownership. Renting out a nice one-bedroom or one-plus-one (one bedroom plus a den, study or office) unit should ensure the buyer of at least breaking even after eventually selling the unit.

According to Paul, condominiums are the better choice when buying to rent out. He says that new houses are now being built in areas that are disconnected from the major arteries of the city, making it harder to find a tenant.

Wong, however, disagrees. He favours renting out low-rise houses because the tenants would be responsible for paying all of the utilities.

“There’s also a better return on houses than there is on condos because the owner of the condo has to pay the condo fees,” he adds.

Both realtors agree that the place you would buy to live in and the place you would buy to rent out are rarely, if ever, the same place.

Thus, aside from a good location, spending extra on things such as hardwood floors or fancy carpets is not recommended. Buyers should focus on buying the cheapest place they can find.

Finding the right building at the right price, especially with enough money down, will most likely result in profit, with the chances of selling it a year later for anything less than what you bought it for being slim to none.

“If you put down 25 per cent, you should be able to break even,” Wong says.

“If you’re able to cover just your carrying costs, it’s worthwhile,” Paul adds. “Because eventually, you will sell it and you’ll make a profit off that.”

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