What would you do with 200k in Toronto?

32 Replies

Hi all -

I'm new to real estate investing and to this great discussion board! Thanks to all for sharing your experience!

I have around 200k CAD and am looking at investing it in real estate in Toronto. I am 60 years old with a husband and 3 adult kids. Additionally, I am sitting on approximately 800k in equity in my current residence. I am somewhat scared of risk given my age. My goal is to grow a portfolio to include rental properties (for retirement income over time) and fix and sell as my husband is a contractor (we have flipped many years ago before it was sexy and made good profits back then). The investment properties would also be passed over to my kids and grandchildren to help contribute to their financial security.

Prices in Toronto have sky rocketed in recent years pushing me out of the market however, there has been some relief recently. 

@Jessica Labos

There are lots of options here. There's a few things I'd want to get a better idea of. Passing the properties down is a great goal. Living off the rental income will pose some challenges depending.

I have properties all over Hamilton & Niagara region - Would be happy to chat cash flow opportunities in those markets.

Are you open to other investment options like stocks or mutual funds ?  mutual funds better for older people who are looking for peace of mind rather than new challenges. However the return is less than more active investment like renting. 

Disclaimer : I am not subject matter in investing, just my two cents.

I’d suggest buy and hold if the wealth is to be passed on. 

A good strategy I’ve been following is buy, reno, refi and rent. This way you are able to pull out most of your investment and acquire more properties where you can add value. I do this mostly in Hamilton area. Happy to answer any questions you may have. 

Get specific on your goals and timeline. Honestly, all things considered, I believe there are better provinces to invest in. General rule: never get married on a sinking ship, the honeymoon will be awful.

No, ONT is not the titanic, but it’s certainly dragging one heck of an anchor

@Jessica Labos I am not trying to be funny when I say this and I'm sure others will disagree. If I were in your exact position in today's record high real estate market with about $1 million dollars in equity and cash, I would sell that house and drop it into an S&P index fund. Get a nice apartment that you don't have to maintain, mow grass, or shovel snow as you get older. Your investment will be completely passive and earn $80,000 to $100,000 per year on average. Great job! You are a millionaire.

@Anthony Dooley Or the stock market could go down (very likely considering it too is at all-time highs) and she could be left with a fraction of what she has now. It's not at all unusual for the S&P to lose 10-20% of its value. That is extremely rare in the Canadian real estate market.

Don't get me wrong, I've made a ton of money in the stock market as well. But for someone approaching retirement looking to pass wealth on, the stock market can't even compare to the stability of real estate.

@Jessica Labos I don't have any advice relevant to your question since I don't use cash or equity to buy any of my properties. But I would like to wish you the best in your investing! If you ever want to do a rent to own I'd be happy to walk you through.

@Doug Pretorius I have to disagree. The U.S. stock market has made money 90% of any 5 year period since inception. In 2008 the market was down over 40%. By 2010, it was all back and it is now up 400% since 2008. Ups and downs, yes but historical averages of 11% for the past 80 plus years cannot be disputed. Real estate is not a passive endeavor, as people like to claim. The stock market is completely passive and there are no tenants, vacancies, or repairs to deal with.

Originally posted by @Jessica Labos :

@Sam Hanaa Hi Sam - thanks for your response.  I am specifically interested in real estate.  Thanks!

 I would be very worried about investing in real estate in Toronto right now.  Who knows what will happen but the prices are still very high and governments seem to be implementing tax policies that are providing further headwinds.

Given a desire to focus on real estate, maybe a REIT would be an easy way to invest in real estate without risking it on Toronto. Just a thought.

@Anthony Dooley  Your facts are indisputable. The market does historically return an average of 11% every year. However, that average doesn't apply to individual accounts on a short-term basis such as Jessica investing all of her equity right now for her retirement in 5 years.

You kind of made my point for me. Let's say 2018 turns out to be another 2008. Instead of pulling out $80-$100k, she goes from $1,000,000 to $600,000 in equity. Even if the market magically had a perfect 11% year over year return from 2019 on, it would take 5 years of reinvesting every penny just for her to recoup that loss. See what happened to her 'practically guaranteed, passive income'?

And those huge losses happen in the stock market very 10-15 years with smaller 10-20% losses every few years. It's actually very difficult to grow your investment in stocks unless you enter when the market is at a low point so that you can weather the losing years with profit instead of your nest egg. This is coming from a guy who made $350,000 profit on a $50,000 account 2 years in a row and then lost $250,000 in one day. The stock market is a wild ride!

Compare that to the Canadian real estate market which had a 'devastating loss' of 6% in 2009. If 2018 was another 2009 she'd be down from $1,000,000 to $940,000 but still have the income from her properties.

Income from real estate is largely independent of equity. While income from stocks is 100% dependent on equity. Your equity in real estate drops 50% but the unit is still rented your income remains unchanged. While in stocks if you take a 50% loss in account balance you take a corresponding 50% loss to income. Now you need a 100% increase in your balance just to return to your previous income level.

Putting some of your money in stocks is fine. But putting all of your money in stocks is just asking for trouble.

Hope that helps!

@Doug Pretorius Nothing is guaranteed, not even real estate. Look at the stock market after 9/11/2001 Total crash. But unless you sold at the bottom, all or your money was back within a few years. 11% is an average. Some years it's 5% and some years it's 25%. The other reason is that stock is practically liquid, much more so than real estate. If they need cash for some emergency, they can sell some shares online and have the cash in a day. With real estate, you have to either sell, refinance, or do a HELOC. This takes time and is expensive. I am simply saying what I would do in her situation. Depending on market cycles, when I'm too old to deal with rental real estate, I will sell everything I own and drop it in the stock market. This is also very easy to pass on to heirs.

@Anthony Dooley You do realize you just tried to back up your claim that real estate is less stable that stocks, with yet another example of the stock market taking a huge loss, don't you?

I didn't say real estate is guaranteed, I said it's more stable than stocks.

Hey you can do whatever you like with your money. I'm just letting you know you're totally wrong.

@Doug Pretorius My opinion is correct 100% of the time. Just because your opinion is different, doesn't make me wrong. You are confusing volatility with stability. I gave an example of how quickly the stock market rebounds after a sharp drop, which is a great buying opportunity. Real estate moves much slower. It took a decade to come out of the 2008 debacle and some areas have still not fully recovered. Millions of people were foreclosed on. Real estate doesn't always make money. All I know is that real estate in Canada has never been more expensive. I spoke to a Canadian investor at a conference and he said that he was getting .8% return on his rental properties. I get 15% on the low side. Real estate is a great investment, but when I'm 60 or 70, I will probably cash out and check my portfolio balance from my phone. Very passive.

I’m not intending to get into a measuring match here... but .8%? Cmon. Nobody with any skill level is getting that in “Canadian real estate”. I could perform a self lobotomy and at least double that. The market I invest in is down noticeably (& I own a condo that is down substantially in my market due to nearly a decade of overbuilding) and I’m still well into double digits.

@Jessica Labos I do exactly what banks do to make their money. I borrow from one person and lend to another person at a higher interest rate. Mostly using rent to own.

Here's an example to illustrate:

Jane had her old house listed for $500,000 (this is the average for a detached home nationwide). She has already bought her new home and will have to start making payments on both starting August 1st. For whatever reason her agent wasn't able to produce an offer on the old house and the listing just expired. She's thinking she might have to rent the old house and put it back on the market next spring, although she doesn't relish the idea of becoming a landlord.

That's when she hears that I buy houses from people facing two mortgage payments and decides to give me a call. We chat about the house and I tell her that I can buy the home from her on a rent to own for market value at the time of purchase, pay her the going rent of $2000/month, and handle all of the landlord stuff, if she's willing to credit the rent toward the purchase price.

She thinks about it and decides it's a decent offer. She'll be giving up a bit of the appreciation, but she doesn't have to pay a commission, her mortgage will be paid down for her, and she doesn't have to deal with the tenant. So she says yes, let's do it. We sign a 2 year rent to own agreement.

Now I call up Bill and Diane. They just had their 2nd child and the 2 bedroom apartment they live in is getting a little overcrowded. They want to buy a 3 bedroom home and they both have good credit and well paying jobs, but they're having a hard time saving the down payment with all the new expenses of parenthood. They contacted me from one of my rent to own ads and I promised to let them know when I have a house that fits their needs.

I tell them that they can buy this house for market value within 2 years. For the CMHC to consider their rent credit as part of their down payment, it must be above market rent. So I tell them that the going rent for this house is $2000/month, but if they pay a premium rent of $3000/month the extra $1000 will go toward buying it. They scrunch their faces up and say that $3000 is more than they can comfortably manage, but they do have $12,000 saved. Could they maybe pre-pay part of the rent?

I say sure. What if we spread the $12,000 out over the 2 years, reducing your payment to $2500/month, would that work? They agree that it would and we have a deal.

So at the end of 2 years where does everyone stand? Well, let's say the house as appreciated a bit and Bill and Diane built a deck and fenced in the backyard, so the value has increased to $550,000.

Jane nets $502,000 ($550,000 - $2000/month x 24 months), or about $27,000 more than if her agent had sold it 2 years earlier, plus her mortgage has been paid down.

Bill and Diane have already paid $24,000 toward purchasing the house ($12,000 in pre-paid rent at the begnning + $500/month x 24 months) so they owe $526,000. The property has been a forced savings plan for them so they only have to come up with another $3,500 for their down payment.

Meanwhile, I made:

$12,000 upfront
$500/month
$24,000 at the end

That's $48,000 minus a few closing costs on an asset I never owned, with no money invested, virtually zero risk, all while helping some nice folks solve their real estate problems.

And that, is why I love real estate investing :D

@Jessica Labos it sounds like you might be jumping in at the top with very little education. I would say beware, keep your cash in the bank and get more education. Real Estate can be a low risk venue for getting yield on capital you already have but exactly the opposite for building wealth IF you don't know how to create true value. The are opportunities in every market but most rookies who jump in now could very likely be the lambs to the slaughter.

All my very best!

@Jessica Labos always a good convo starter here on BP when you ask what to do with a million dollars! haha great job!

I agree with @Ivan Barratt do your research and talk with people like myself or him about advantages in a syndication. Im guessing you will want to enjoy your retirement so taking on a fix and flip job is exactly that... a job!

I know you said you wanted to stick with real estate but very few folks are finding great deals in multi-family right now. Its caused me to look in other areas like self storage, ATM's, and even coal which are all producing 20%+ returns for my community of investors. 

Then in a easier time to find deals in real estate use all of that cash to purchase more passive income producing real estate!

Have you thought about investing in rental properties in Florida?

Canadians have an advantage in relation to other foreigners in that they can purchase properties and get financing via familiar Canadian banks.

TD has a huge presence here and allows for easy cross border transactions.

You can purchase 3 bed, 2 bath properties in many areas for under $200k that return $1200 to $1500 USD per month in rent.

We liquidated all of our real estate in Toronto and moved to Florida last summer to fix and flip full time. I don’t recommend this route for everyone as we are dual citizens and have the ability.

That way you could start with maybe 2 properties with the cash you have, taking the exchange rate into account and a 25% down payment for each investment property, and not have to touch the equity in your primary residence.

If this sounds interesting, I’d start by speaking with your bank and see if they have a presence here in Florida.

Just my 2 cents.

@Doug Pretorius You are entitled to opinions, you are not entitled to facts. 

In the context of OP's post, @Anthony Dooley has given the best possible advice. The OP is not an experienced investor. Her biggest constraint is her age which leads to less ability to make an income long-term. 

Your one-way advice would leave her with a few big problems (for her and her estate): 

  1. Liquidity issues: She will be asset rich and cash poor
  2. Tax issues: Canada doesn't have 1031. 

The safest, surest bet for her would to do a combination investing in low-cost ETFs with a sprinkling of real estate. 

The point you failed to mention/realize is that real estate has gone massive periods with minimal returns. E.g. It took Toronto house price approximately 13-15 years to recover form their 1989 highs. The Canadian stock market did fine. 

The average investor would have to be asinine to be investing in individual stocks. If the market does go down, dividends, historically, are still maintained i.e. your income stream does not take a hit. If anything, if you're DRIPPING your dividends, you get to buy more shares. Hence, a larger cash flow stream over the long-term. 

I am a multifamily syndicator and love real estate. I think it is a great way to build wealth and generate income. BUT it is not a one-size-fits-all solution and there is a lot of nuance. 

P.S. I don't know if you read or not but as Anthony pointed out, every 10-year period, in history, the stock market has made money (can't say the same for real estate). Reason: It is the engine that generates wealth. Real estate investing is not a primary wealth generator. 

@Omar Khan So, why are you investing in real estate? Considering you are advocating the exact opposite of what you're doing, I can only assume that you are either trying to sell the OP something, or you want her to lose all of her money so she can't become competition for you.