Last week I began discussing the topic of real estate investment, as it pertains to residential real estate. Judging by the response I’d say that it’s a topic on the minds of many Torontonians these days. I’d like to carry on and bring to light a few more matters with respect to this topic.
When it comes to residential real estate investment it seems that views are polarized — some believe it’s more difficult than trying to predict the weather these days, while others believe that making money in real estate is a virtual guarantee. My view is simple — while it is relatively easy to turn a profit in the residential real estate market in the GTA, depending on how long your turnover plan is, why not do it the absolute best way possible?
Look at it this way. If you wanted to bake an apple pie, you could probably use the first recipe you find on the Internet, follow it close enough, and chances are the pie will suffice at your dinner party. On the other hand, you could hunt for a recipe with very good reviews, a proven following of bakers, from a site that appears professional, follow it to a T, and chances are that much better pie will pop out of your oven. Of course baking a pie is much more trivial than a real estate investment — so doesn’t it make good sense to make sure you try and make your investment the best it possibly can, rather than simply throwing some batter into the oven and hoping it comes out edible? This focus is what separates those real estate investors who hang onto a property for 2-3 years and pocket $10,000 versus those who turn $50,000 in the span of 12 months. Of course the capital involved goes a long way in determining your best option, and the actual rate of return can help illuminate the most logical decision, but these technical topics are better left discussed in detail, or in a dedicated article.
Today’s best investments may not necessarily be the same as those of a few years ago. New condos, for instance, came with fewer caveats two or three years ago than they come with today, in many instances. A very good investment option today involves taking a multi-plex in a very good location and converting it into a single-family home. I recently sold a four-plex near High Park for around the $800,000 mark — fair market value for the property as it stood. As a single family home, based on accurate comparables, the same home would be worth upwards of $1-$1.1 million. Assuming renovation costs of about $60,000-$75,000, the investor stands to make a solid profit, especially with the way the market stands today — buying on the low and selling on the upswing.
High Park is one area where such an option can be a lucrative one. Other neighbourhoods across the GTA might appear to present similar options but the demand for large single family homes may not merit such renovations. The option of finding low quality homes in high quality areas, renovating and flipping, has once again become a desirable option, in a few specific areas, in this market. The Beaches and Bloor West Village rank amongst the best neighbourhoods to carry out such investments. The demand for these areas normally indicates that a good quality home will fetch a lucrative price and there remain enough low-grade properties that the ability to find one worthy of upgrading is not impossible.
Remember that purchasing real estate for the purpose of invesmtment is a different practice altogether than finding a home to live in. It’s important that the focus of one or the other not be confused.
Amit is a Realtor/Developer with Re/Max. amitp@rogers.com
