How to be Mortgage Free When You Don’t Want to Move
Investment properties are incredibly hot right now – and for a reason! They are a great way to earn money without leaving the comfort of your own home. With the Toronto market so hot, and approximately 46% of all Torontonians renting, it is very easy to jump into the market (especially the condo market) and purchase a property that you can rent out for at least five years.
In order to understand how investment works, you need to not be afraid of negative numbers. Here is a great example. Imagine there is a condo you are interested in purchasing in downtown Toronto for approximately $375,000. The condo fees are $350 dollars a month, and taxes are $2400 per year. You have $75,000 available for a down payment. Therefore, your total carrying costs (from mortgage to condo fees and taxes) will be $1968 per month. You have found someone to rent your property for $1600 a month. It is easy to be disenchanted by the negative net cash flow of 368 dollars a month. I am here to explain that you should not feel this way.
Firstly, the above example is looking at net cash flow in a short-term way. If, over five years everything stays the same, your current mortgage balance will be $245,000 and your total equity build will be $54,953. This ends up being a total average net return of $470 per month! That’s a 28.2% return on your investment, with 5.1% compounded annually.
Secondly, this is assuming that the price of the condo you purchased did not inflate at all. Imagine if the same condo you purchased had a total of 1% appreciation in value over the end of five years. That would mean after five years your condo would be worth $395,000. But in Toronto condo prices have increased between 15-30% a year! Which is a phenomenal price increase that shows that not only can your monthly rent rate increase every year or so, but that should you choose to sell the property after five years, you can make a healthy profit.
The most important thing to remember about your return on investment when it comes to investment properties is the long game. There might be net negative numbers in the beginning, but with proper research, patience, and a solid down payment, you can be mortgage free without having to move.
I have a lot of experience helping my clients buy investment properties and have helped wherever I could through each step of the purchasing and selling phases. If you would like to know more about making smart financial choices and receiving a passive income, please don’t be shy and contact me here. Alternatively, you can call or text “Ready to invest!” to 416-807-8484.