Investing in Single Family Properties

Single family property investing has its own set of rules. For decades, single family home ownership has been in high demand in Ontario and specifically in the GTA. It can therefore be pricey to acquire an asset like a detached home or a condo and hard to get the numbers to work in your favour. For example, Toronto condos cost about $1000 per square foot (early 2021), with average rents at around $3 per sf and condo fees at around $.80 per sf. This brings your cap rate to 2.5% at best, lower when you also consider vacancy, repairs and management. Add in financing and your are going to have a hard time making the investment cash flow positive.

The situation is not much different with houses. While there are always opportunities for rehabs out there, achieving significant cash flows compared to property value can be challenging. Typically, value appreciation overtime becomes the main focus with single family investments. Advantages of this asset class are:

  • Easy and inexpensive financing, compared to multi residential properties
  • Broader supply of single family homes in the market, making it easier to find a suitable property
  • Management is often easier that with multi residential properties, as tenants are more self sufficient

Advantages of Houses
Houses such as detached, semis or towns generally have a higher value appreciation potential than condos, due to the fact that they are associated with a larger piece of land. Land value tends to go up over time. Further, a house gives you more control over what you can do, e.g. renovations, where as condos may have a limiting set of rules.

Advantages of Condos
Condos offer a lower entry barrier for you as an investor. Often you are able to buy a condominium with much less equity than would be the case with most other real estate investments. Many of them are in great locations increasing the rentability of your unit. Often, the main factor for investors is the low involvement factor. Condos are mostly hands-off for maintenance, you may only need a plumber or handyman occasionally. Most other items are covered with your monthly condo fees. Keep in mind that those condo fees tend to increase over time.

Specialties like Air BnB or Pre-Construction
Specialty investments in the single family domain include the purchase and sale of pre-construction properties. The investor has to come up with a downpayment of e.g. 5% with the intent to sell the title before taking ownership of the unit. The investment is minimal, compared to the potential capital gain down the road, when the unit is ready.
More and more people have gravitated towards Air BnB in the last decade. Short term rentals have the advantage of significantly higher income, however require a higher involvement for maintenance and management.

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