How Does Toronto Real Estate Stack Up To Other Investments?

There are plenty of ways to make money investing your capital, and real estate is one of them.

In fact, real estate investing is perhaps one of the most lucrative ways to not only make a quick profit but also to build long-term wealth. And, compared to other investment vehicles, it’s also one of the safer options.

It’s no surprise that real estate prices in Toronto and surrounding areas have skyrocketed over the last few years. You’d have to drive a few hours outside of the city in order to buy a house for less than $400,000. The overall average selling price for all types of homes in Toronto in 2018 was $787,300, compared to around $375,000 back in 2010.

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That’s a massive jump. If you have gotten into the market when prices were around that range, you could have made a handsome profit like many real estate investors had and continue to do.

So, how does investing in Toronto real estate compare with investing in other areas?

Investing in Real Estate Vs Stocks

When you think of investing, perhaps one of the first things you’ll think of is the stock market. With all the different companies that are open for public trading and the myriad of stocks available, the stock market definitely makes a viable vehicle for investments.

Sure, you can make a great deal of money buying and selling stocks. And perhaps stocks should be part of your overall investment portfolio in an effort to mix things up. If you choose the right companies with strong fundamentals and study technical patterns, buying low and selling high can be a great way to build long-term wealth.

If the companies that you invest in are profitable for long enough, you stand to make a handsome profit. And if you opt for mutual funds rather than individual stocks, you have the chance to buy into several companies to spread out your money and reduce the level of risk you would otherwise face.

But stock investing is not without its risks. Of course, investing, in general, has some inherent risk. But stock investing might be riskier than investing in real estate. While a stock and the company it represents might show plenty of signs of good health and a strong future, anything can happen. It’s not uncommon for stock prices to tank suddenly, throwing its investors for a loop. While you will only lose money if you liquidate, it’s always possible never to quite recover from certain losses.

Real estate, on the other hand, is a much less risky investment. While there may be dips in prices here and there, the inevitable trend is upwards. Over time, real estate appreciates in value. Some types of properties in certain areas might appreciate faster than others, but appreciation still occurs nonetheless.

READ: 6 Canadian Real Estate Books You Should Read In 2019

Investing in Real Estate Vs Precious Metals

Gold and silver have long been invested in, and for good reason: precious metals can be a safe haven for investment capital. Gold has historically been able to hold onto its value over time, making it a relatively good investment option to hedge against things like inflation or a fluctuating dollar.

When the economy takes a turn for the worse, gold tends to maintain its value throughout, despite dips along the way. And unlike stocks, gold is not at any risk of eventually becoming worthless at some point.

But gold isn’t exactly the type of investment that you get into in order to make fast cash. Instead, gold is meant to be held onto over a long time. It’s not the type of investment that is typically flipped for a profit soon after being bought.

In 1980, the price of gold was $594.90. Today, the price of gold has reached $1,288.55. That’s just over a 116 per cent increase in value over almost 40 years. Not bad, but you could have realized similar gains in less than 10 years by investing in Toronto real estate.

If you’re looking for decent returns in a relatively short period of time, real estate provides a much more lucrative opportunity.

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Investing in Real Estate Vs REITs

One way to invest in real estate without actually owning a piece of property is by investing in REITs, or Real Estate Investment Trusts. With this type of investment, you would buy shares in real estate firms.

There are some great benefits to investing in REITs: namely, less risk of pouring all of your money into a piece of real estate on your own. Instead, you have experienced real estate companies using your investment capital towards sound investments that have been thoroughly and carefully investigated. You’re then paid out via dividends, which are typically quite modest at around 2 per cent to 3 per cent.

If you were to buy your own real estate, on the other hand, you could potentially realize much better returns. Using the example above, you could have made a profit of over 116 per cent in less than a decade if you had purchased a home for $375,000 back then and sold it for the average Toronto sale price of $787,300 last year, minus any expenses and mortgage interest you had to pay.

In addition, buying a property yourself provides you with the opportunity to build equity in a physical asset and enjoy collecting regular cash flow through rent.

Final Thoughts

There are definitely benefits to investing in several vehicles and diversifying your investment portfolio. In fact, that might be a sound idea. But there’s something unique and highly beneficial about investing in real estate, especially when you consider how far property values have appreciated in Toronto and surrounding areas over the recent past.