Is Toronto Real Estate a Good Investment Right Now?

Between all the headlines stirring fear of a bubble that's doomed to burst and soaring house prices, some potential investors are wondering if now is the right time to buy.  In fact, a recent article in Maclean's magazine which claimed that Canada looks like the US before their housing market crashed has actually spawned some more balanced perspectives to surface.  One such article in the Financial Post, examines some of the Maclean's headlines from 2007 to present which all seem to warn of imminent Canadian housing market collapse.  It's actually quite a good read.  In the end, we need to accept that danger and doom tends to see newspapers and magazines better than headlines reading "Clear Skies and Smooth Sailing Ahead" and it is really up to the consumer to find a market professional whom they trust and conduct their own research as well.

With interest rates so low and bound to eventually increase, some buyers are looking for homes which would provide them the option of renting a floor for extra income.  While not a bad idea, research into the Residential Tenancies Act as well as local zoning laws and addressing questions to a trusted real estate professional are all advisable. 

In a recent Fincial Post article, the writer, Fabio Campanella urges buyers to consider their own financial situations over market conditions when assessing whether it is a good time to buy.  The most successful investors purchase properties which they can afford to hold onto until market conditions dictate the timing is right for them to sell.  In contrast, investors who spread themselves too thin by investing in multiple properties and stretching their means, are more likely to be forced to sell if conditions or their situation were to change.  Campanella writes:

"If the Toronto residential market is used as a barometer, we can see that residential real estate has treated us quite well over the past 20 years. During the period from 1992 to 2011, the average sale price for a home in Toronto increased from $214,971 to $465,412 according to the Toronto Real Estate Board (TREB)."
He calculates a ROI based on an investor putting 25% down and finding a tenant whos payments cover only basic operating costs like interest payments (not principal) on their mortgage, taxes and maintenance.  The results are impressive... especially when compared with those of the TSX. 

He even addresses investors' fears of buying just before a dip in the market by looking back at the shattering crash in 1990:

"In fact, even if you were to have purchased a property at the bull market peak just before the infamous GTA real estate crash of 1990, you would still have achieved an 8.94% ROI if you held the property with a decent tenant until 2008 even though the value of your investment would have dropped by 25% over the first four years."

Questions regarding the comparison between real estate and stocks are common although, they are really like apples vs. oranges.  First of all, we cannot live in our stocks, enjoy our families, decorate or garden or any of the other things we associate with a home.  We need to live somewhere and we so seldom consider what our monthly payments would be as renters when considering our home expenses.  Finally, unless you hold an important position with the company of which you own stocks, you do not have much control over your stock investment (aside from deciding to sell) whereas with real estate we can upgrade, renovate and stage to our heart's content. 

Still, real estate seems to win the comparison as seen by the chart (above, right) which was published on a property inventment company's website.  While our stocks are still recovering from the downturn in 2008, the real estate market only experienced a minor bump in the road.

All in all, while specific advice should always be sought, it appears that real estate is still a solid investment for Canadians.