- Why Invest in Real Estate?
- There are many reasons why Canadians choose real estate as their path to a better future. Over the past 50 years, real estate investing has become a very lucrative vehicle in the financial space and has led many to financial freedom.
- Investing in the real-estate market comes with a notable track record of creating wealth for many Canadian homeowners. Considered as its own asset class, real estate can be leveraged for future investment opportunities as your equity grows.
- What are the FOUR Main Benefits of Real Estate Investing?
- Principal Pay Down
- Unlike your rent payment, mortgage payments include a principal component that otherwise brings your total monthly mortgage balance owing down and resulting in an increase of your equity.
- Appreciation refers to the increase in your home’s value over time. Your value may increase for a number of reasons, including interest rate fluctuations, supply and demand, inflationary periods, and even due to emotional house shoppers.
- Cash Flow
- Whether you’ve purchased a stand-alone rental property or have a rental component to your home, this secondary source of income, ideally above and beyond your total monthly bills, provides great value.
- Rent = $2,500
- Mortgage = $1,500
- Expenses = $500
- Cashflow = $500
- Sweat Equity
- Sweat equity refers to the physical improvement of upgrading your home through renovations.
- What are the Types of Real Estate Investments?
- Residential – (detached, townhome, condo, duplex, fourplex)
- Commercial – (office building, industrial space, farms, retail, warehouse)
- New Construction
Real estate is a diverse industry that offers many variations of opportunity.
- How Do I Get Started Investing in Real Estate?
- How Much Down Payment Do I Need?
- How Many Properties Can I Own?
- I Have an Accepted Offer, Now What?
- What Is Capital Gains Tax?
- Can I Purchase a Rental in a Holding Company?
- Do I Need to Claim My Rental Income?
- What Expenses Can I Write Off on My Rental Property?
- How do I Buy More Properties With 5% Down?
- The first step is speaking to an industry professional to help you break down your potential borrowing power. Your mortgage advisor will help you understand your options and educate you on a variety of financial solutions.
- Knowing what you will qualify for today and putting together a strategic plan is critical to your real estate investing success.
- If you are buying a property for the purpose of an investment, 20% will be the minimum required down payment.
- If you are buying a property for the purpose occupying that home, a minimum of 5% will be the minimum required down payment.
- Let’s break down a few common sources of down payment.
- Savings – This strategy often takes the longest to accumulate.
- HELOC – A home equity line of credit is a common source that many homeowners utilize to invest in real estate. In this case, the interest paid is tax deductible.
- Equity – When done right, homeowners can leverage their built-up equity for the purpose of buying assets like real estate.
- Joint Venture – A JV partnership works great when one party has the down payment, and the other party has the credit and income to help qualify.
- Turn your primary into the rental - This strategy works well for those homeowners who want a rental property but have less than 20% down. Remember an owner-occupied purchase only requires 5% down.
- The magic number is 5 properties (1 primary & 4 rental units)
- While most lending institutions limit borrowers to five total properties, there are exceptions.
- If your plan is to own 5 or more properties, there are strategies you can implement that will help you maintain your qualifications from one rental property to the next. Reach out to our team to learn more.
- On a case-by-case basis, there are commercial financing options available for those larger portfolios of 6 or more properties.
- Here are twelve touch points to consider:
- Confirm your numbers - projected rents vs expenses. Reanalyze!
- Review comparables in your area to pinpoint a final price.
- Review the sales history of the home you are planning to purchase – this report can tell you a story about the property and how motivated the sellers are.
- Get your mortgage approved and your property appraisal done!
- Inform your property manager.
- Get your home insurance policy quote in place.
- Review the current tenancy schedules - if applicable.
- Call the city – confirm no issues from their end. i.e., illegal suites.
- Confirm property conditions and any updates required. For example: Hot water tank, HVAC, roof, plumbing, electrical, cosmetic work, etc..
- Review all documents including purchase, strata, title, disclosures, and more.
- Inform your legal team of your new purchase.
- Conduct your home inspection – confirm no deficiencies.
- Final review before subject removal – GUT CHECK!
- Capital gains tax is a government tax on the profits realized on the sale of an appreciating asset.
- In real estate today, if you sell an investment property for MORE than your acquisition cost, you will realize that capital gain and be taxed accordingly.
- In Canada, the capital gains tax is 50% on HALF of any profits gained at the time of sale.
- Remember, capital gains tax is only payable on the appreciating value, and not the full sale price.
- Corporate tax rates will differ if your investment is held in a company name.
- Yes, investment properties can be acquired in a Holding Company. However, when securing mortgage financing, the lender will require a personal guarantee.
- Tax and liability strategies are the two big advantages of corporate real estate holdings, which is why many savvy investors consider this option when purchasing.
- Legally you are required to claim your rental income come tax season.
- Most conventional lenders will require proof of rental income claimed on your taxes in order to use that income to qualify on your next purchase.
- When claiming rental income, remember you only pay taxes on the NET income (after expenses). Many investors owe little to no money come tax season, after writing off all property expenses (see below for more details).
- Unlike business income, we can use your rental properties GROSS income (per the lease agreement) to help maximize your qualifying power on your next rental property.
- Common rental property expenses include:
- Mortgage Interest
- Property Taxes
- Legal Fees
- Property Management Fees
- Professional Costs
- Repairs & Maintenance
- Strata Fees
- Utilities if applicable (heat, water, gas)
- Step 1 - Purchase a home that you plan on occupying with 5% down (this can be as little as $15,000 - $20,000).
- Step 2 - Eventually, convert that property to your rental property.
- Step 3 - Purchase your next home that you plan to occupy, again with as little as 5% down.
- Step 4 - Rinse & Repeat
Remember, 5% is the minimum required down payment on a property you plan to occupy. We can even use the potential rental income from your previous property to help you qualify.