My opinion.
Toronto is a very large market. Many REIN investors are "down" on Toronto for a variety of different reasons. I find it somewhat hypocritical that some investors are quick to remind people that real estate markets are local, not national (i.e. don't place too much emphasis on reports that make broad generalizations about the Canadian real estate market), and then go on to discuss the Toronto market without acknowledging that the Toronto market itself has a variety of "sub-markets" if you will.
For example, "Toronto" spans from Etobicoke to Scarborough, from Lake Ontario to North of the 401. The cost of a 3 bedroom single family home is significantly different in Scarborough than it is at Yonge and Eglinton. Even smaller sub-sets of the market have different characteristics. For example, the condo market is much different than the single family home market. And the condo market in the downtown core is much different than at Rexdale Blvd and highway 427. Even markets within the same geographical area can be broken down. For example, buying a single family home for students near the University of Toronto is much different than buying a single family home for Ryerson students.
All that being said, I'll comment on the downtown core, because it is what I know.
Single family homes are very expensive. You're looking at $550,000 and up. Most people here will tell you that your money will go much further in KW or Hamilton or a number of other areas, which is true.
I still don't think the downtown condo market is overheated. I've been hearing this for a number of years and it has still yet to come true. Yes there are a lot of condos being built downtown, and yes they're expensive ($250,000 and up generally for a one bedroom), but there is constant immigration, not just from overseas, but from people choosing to live down town for a number of reasons (young professionals not wanting to live in the suburbs while they're single - small families or couples moving closer to their work given the ever increasing cost of gas and commute times).
It is difficult to cash flow an investment condo from day one (especially if it is re-sale as opposed to pre-construction). That being said, I see a number of advantages in the condo market.
1) Vacancy rates are very low in the city, and have been low for some time. If your unit is priced appropriately you should have no problem filling it in short order (provided it's not a dump and the location is reasonable).
2) Appreciation in the city is very strong. By way of example, I purchased a $200,000 condo with $10,000 down less than 3 years ago. It was recently appraised at $250,000. Granted, the last few years have been VERY good for price appreciation.
3) Although it is not easy to cash flow from day one, it is not impossible to be in a break even position from the outset, which means you're paying nothing out of pocket while the property appreciates and while you wait a year or so until the market rent increases and you're in a position to start flowing cash.
4) Condos reduce the risk of major repairs (no roof to fix, no foundation, no new furnace etc.). You're generally responsible for what is inside the four walls and nothing more. This also means less maintenance on the landlord's part. Granted, you're paying condo fees so there is a trade off.
5) They are building new condos smaller and smaller each year. "One bedrooms" are now as small as 400 square feet. I'm a big believer in buying older units which are less expensive and which have more square footage. My thinking is that right now people might prefer a brand new 400 sq foot condo over a 7 year old 600 sq foot condo. But in 7 years people would prefer to have a 600 sq ft 14 year old condo as opposed to a 400 sq ft 7 year old condo.
Those are my general thoughts and my system works for me given my goals and my lifestyle and my free time.
You'd probably do much better moving outside the City into the GTA where there are better opportunities for cashflow, and I'm sure that is probably what you are going to hear from most others on here.
