Ask Me Anything - Investing in Toronto AMA!

[Ming Lim]

Hi Folks!

Biggerpockets has always been a great resource for me, so I wanted to give back a bit to the community.

I understand that investing in Toronto makes me a bit unique amongst investors, so I wanted to open up the floor and answer any questions about investing in Toronto. A bit about myself. I started investing in student rental properties in 2001 in Waterloo and reached 21 doors at one point there. I also started investing in Toronto at the same time and in the last 7-8 years have almost entirely migrated my portfolio to Toronto. I did this because of a number of reasons: better tenant profiles, better returns, scalability, ability to execute more complicated renovations, local expertise, etc. Between and my business partners, we've invested in lots of areas, Hamilton, Waterloo, Sudbury and Edmonton - we've all ended back in Toronto. Of course, you can make money anywhere if you know what you're doing. This is just my personal journey.

I'll answer the number one question I get about investing in Toronto - Is it possible to get cash flowing properties in Toronto? - Yes! You can't expect to buy a single family property here in Toronto and rent it out and cash flow - it takes a bit more. We use a various strategies, but the most popular one we use is densification where we take single family homes and turn them into legal triplexes to get cash flow. It's not cheap or easy. Closing costs are around $300k and renovations can be upwards of $500k with holding costs. From closing to tenants moving in takes about 1 year. But we take a property from $1.2M and exit around $1.9-2.0M by the end of this process. If we hold after refi, we're getting about $500-600 in cash flow. 

Okay - let me know what other questions you have! I'm happy to answer!

Cheers,

Ming

[Ming Lim]

@Shauna Sara - My personal opinion for beginning investors, is not to chase "the best area" or "the best kind of property" to invest in, because it's not as important as you might think it is. Here are a few things I would focus on.

Be an expert on your target demographic - We're really specific on the kind of people we're looking for to rent too. We like young professional Millennials, 2-5 years out of university, earning about $60-80k, working in areas like, tech, law, finance, healthcare, etc. Why do we like this demographic? Because in our eyes, they're the perfect tenants - because me and my friends were just like this when we were in our twenties. We would rather eat Kraft Dinner than be late on a rent payment and we took great care of the places we lived in. Plus, people in their twenties are transient and naturally move every few years. This may seem counterintuitive at first, but having tenant turnover is the easiest way to bring rents back up to market. We don't believe in renovictions, or other underhanded strategies, to raise rents. So, we focused on buying in areas that this demographic wants to live, which leads me to my next point.

Be an expert in your area - Where ever you invest, be it Kitchener or Hamilton or Waterloo or Toronto, it doesn't really matter. You can make good money in any of those places as long as you are an expert in the areas you're buying in. You should know on a street-by-street level differences in the homes, prices, and demographic. I always jokingly say, if you don't know the difference between Moss Park and High Park, and you think they're just nice parks, don't invest in Toronto.

Look at the total return of your investment - This was one of the biggest lessons for me was to look at the overall return of my investment. Not just the cash flow, but look at the cash-on-cash + cash-on-appreciation, and cash-on-equity. You'll notice that purchase price is not a consideration in my calculations. Not because that isn't important, but purchase price is not a function of returns. So give yourself a range that you'd be comfortable investing, and look for properties within that entire range.

It's not all about the money - As my portfolio grew, I came to realize that getting an extra $200 or cash flow meant absolutely nothing to my daily life. It's not like I was going to retire with an extra $200 a month. Heck, in Toronto, that's one fancy dinner. Instead, once I got okay cash flow, I cared about other things. Is it difficult to manage? Can I scale easily? Do I have a team to execute in that area on my strategy - contractors, property management, etc.? Questions like that became much more important.

Anyway, sorry for the long reply, but "where should I invest" is kind of the wrong question in my eyes. I believe anyone that tells you XXXXX place is the best place to invest, doesn't know a thing about your knowledge, your goals, and your comfort level.

If you want to do student rentals, for example, you should know everything about the university you're investing near. What are their growth plans? What has the city allowed for in terms of student rentals? What do students want to live in? Where do student want to live? It should be clear where you should invest if you know all the answers to my points above - and the answers for that will be different for everyone.

Hope that helps!

Cheers,

Ming