Real Estate Insider: April 2019 News Report

Happy Easter Weekend! Before you put all of your eggs in one basket, read some of these reports we found useful for making real estate decisions.

If you aren’t debt free going into retirement, you may have considered using your investments to pay off your mortgage. But is that the best retirement strategy? This isn’t simply a “Yes or No” question, there may be more things to consider than you thought. This article is a good place to start if you’ve been contemplating which route to take to retirement. >>

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Solar is the energy of the future without question, yet is buying a house with solar panels worth it today? It all depends on the company and the contract they have! Read here how solar panels on the roof ended up costing this couple more! Would helping the environment be worth a few extra dollars each month? We will let you decide! >>

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Ever heard of smart wood? This BC company is tired of the damage concrete is doing to our environment, and has developed wood that is stronger, lighter, and more soundproof than concrete. Read here more of the benefits of this timber over concrete.  >>

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Living mortgage free is a dream most have, but is pre-paying on your mortgage payments a good way to accomplish this? This article breaks down why pre-paying may not be all it’s cracked up to be! >>

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Buying your dream home might not be the best idea if you want to live your dream life! Don’t just take our word for it, read here why if this couple could go back in time, their “Dream Home” might have been crossed off their list of priorities. >>

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If you are selling your house and you want top dollar, the first thing you should do is call Team Lalovich! The second thing you should do is read this article for 5 tips on staging your home to attract the most buyers! >>

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Housing shortages is a major problem that Ontario is facing; this group has an easy solution! Your move Doug Ford. >>

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What was your reason for your last move? Do you fit in with the majority? The answer might surprise you, find out here! >>

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“2 Years of Home Ownership – The Good, The Bad, and The Ugly” >>

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If you’re contemplating ways to make passive income, this article is for you! Especially if AIRBNB is one of those contemplated ways. >>

Considerations when Evaluating a Multifamily Property

We are in the process of concluding a multifamily listing that kept us very busy these last few weeks. During the listing period, we came across several investors who seemed new to this area and had a lot to learn before pulling the trigger on something. Therefore, today we are going to discuss some points that are always worth considering when evaluating a multifamily property.

What is the Structure Like?

Does the property have a concrete or wood frame? Is the exterior full brick or have siding? How old is it? With a multifamily property, you are not just buying a cashflow—you are acquiring an asset. How solid is that asset? Make sure the structure is sound.

How is the mechanical in the building?

Are there forced air furnaces in each unit? Is it a boiler system with hot water or is it electric baseboard heating every unit? Heating is a very important consideration. In Ontario, hydro rates are sky-high; having electric heat is a huge drawback and can sap the cash flow of any building. Gas is a more economical choice.

Are utilities separately metered?

Are there separate meters for gas and hydro? Having your tenants pay for their utilities adds lots more certainty on expense projections. Statistically when tenants pay their own utilities, they are natural incentives to not waste energy.  

How do the existing rents compare to CMHC average rents?

If you review the rent roll and the rents seem low, this can be both good and bad. It's good that there is upside in the average rents in future should you have tenant turnover; it's bad in the fact that if you have very low rents, the tenants will be much less apt to leave such a good deal. You’ll only be able raise their rent by the annual CPI percentage (1.8% this year).  

What is the tenant profile?

What is the area like? What sort of tenants would you attract in this building? What sort of jobs do these tenants have? It is important to understand what sort of rental pool you are operating in. If you want to attract high-end renters, you need to look at high-end locations.  

What is the cap rate?

Is the cap rate consistent with the market? Does it seem too high or too low? If it's too high, it might indicate there is something off with the building or problems with the tenants. If it's too low then it probably won't appraise at the bank, meaning you’ll be forced to put down a higher downpayment, lowering your returns.

Do the expenses seem legitimate?

We continuously see buildings being advertised with several items being excluded from the expenses. For example, they’ll only include utilities, insurance & property taxes. What about other items? Where are the repairs and maintenance, management, grass cutting, snow removal, and vacancy allowance? Sometimes these buildings are run and managed by the owner, but if you are a hands-off investor, you need to hire someone for these tasks—they need to be accounted for. An appraiser working for the bank is going to rework these expenses too and run the number based on their expense assumptions.

Do you notice any major deficiencies related to fire code?

This one isn’t easy to identify and it's a bit of a grey area at times, but there are some easy items to look for. Are there any basement units? Did they get permits for the basement unit? Are there egress windows in the basement units? Are there multiple entrances and exits to the building for tenants to access? Do items like fire alarms and smoke detectors seem somewhat recent?

Those are just some items to consider when evaluating a multifamily building. There are quite a few more, but we wanted to keep this at a beginner level. Readers, are there any more you think should be added?

Russel's Review: The Real Estate Retirement Plan By Calum Ross

A lot of people ask us for recommendations on real estate and related books to read.  Well, today we are going to start a new periodic series on the blog that reviews recent real estate books that we’ve read.  So without further ado, here goes…

What is the Book?

The Real Estate Retirement Plan – An Investment and Lifestyle Solution for Canadians by Calum Ross with Simon Giannini.

What You'll Learn

The book starts by talking about traditional retirement and why, for many reasons, today’s younger and middle aged population will not be able to look forward to some of the typical retirement income sources of previous generations (ie workplace pensions, generous government entitlements, etc). The population needs to prepare itself for funding their own retirements going forward.

It then segues into a "good debt vs bad debt" discussion about how the public has no problem borrowing to buy depreciating assets like cars or other toys, but find it risky to borrow to invest and buy cash flowing and appreciating assets (ie real estate or equities). People need to start viewing their personal balance sheet more like a corporation, get rid of their bad debt, and also convert their dead equity (ie equity in their personal residence) into productive equity by using it to invest.  The best way to do that for most people would be to refinance equity in their home to buy additional investments, either cash flowing real estate or dividend paying equities. Come retirement time, this strategy should pay off in spades, and the author shares many examples.

Later in the book it talks about building your team, such a mortgage broker and real estate agent, and later about investing in real estate and how to profit from this borrow to invest strategy long term.

Why I Recommend It

I agree with the majority of the concepts in the book and put them into practice personally and with our clients all the time.  It's especially good for beginners as it's written with easy to understand terms.

My Critique

Some of the examples used I thought were pretty rosy. This is definitely not a get rich quick concept; more of slow, steady climb in wealth concept. Don’t want to people thinking this stuff is easy!

So there you have it folks.  Our first book review on the blog. If there are any other books you are interested in hearing about feel free to drop us a line ☺.

Check out our video review of this book here!

You can order a copy online today at Amazon and Indigo. Happy reading!

Investing In Real Estate – Building The Right Team: Series Recap

As a real estate investor, you have a lot at stake. It's important to remember to treat your investing as a business. As the CEO of your investing business, it's important to run your business properly to ensure its success.

As any good CEO will do, you need to surround yourself with the right help. It's hard to do it properly all on your own. Focus on your strengths and outsource the rest to the proper professionals.   You might not need every one of the team members we discussed in our series, but they should all be considerations for the future.

Make sure to value your time as an investor. Why spend your time mowing the lawn of your property when it could be spent analyzing your next deal? If you're busy with your career or family life and don’t have the time to take care of everything yourself, it doesn’t mean you don’t have time for investing in real estate, it just means you need to outsource.

One of the main reasons people hold back from investing in real estate is the horror stories they have heard about problem tenants or problems with the property (ie. flooded basement). One of the great benefits of outsourcing to professionals is that it minimizes your mistakes and potential liability as an investor. You don’t have to learn the hard way.

Remember, the path to real estate investing success and future wealth is a marathon, not a sprint.  Surrounding yourself with the right people will help you keep a steady pace on your journey and not stumble along the way. Now get moving!

This wraps up our series on building the right team as a real estate investor. Hopefully it was insightful and made you think differently about your chances of becoming a real estate investor.  We’d love to hear from you!

Investing In Real Estate – Building The Right Team #6: Contractor/Handyman/Trades

Not very handy? Don’t feel bad…we aren’t either. But that shouldn’t discourage you from investing in real estate. By building a team that includes a contractor or handyman to handle your renovations and repairs, you won’t have to slave doing manual labor jobs that you either don’t have the time for or the skills to do properly. Today we are going to talk about how having the right guys for the job will help make your investment properties more successful in the long run. We are using the terms contractor/handyman/trades interchangeably, as who you need can vary depending on your situation.

Why Do I Need A Contractor/Handyman/Trades?

If you are truly good with your hands and know the ins and outs of construction, including trades, pulling permits, etc, then maybe you don’t need a good contractor. But for the rest of us, they are very important. They will carry out necessary renovations to your rental properties that will attract the right tenants for top rents and keep your real estate values high. Time is money in real estate investing. The longer a job takes the more potential vacancy you have and the larger the hit to your potential rent. You should also be doing routine maintenance to your property, so the improvements you have will last longer, ie. servicing of the mechanical.

What Should I Look For In A Contractor/Handyman/Trades?

You should look for an experienced contractor that can handle the type of jobs you need done for your properties. Check references and assess their work with due diligence. Having a contractor that has rentals or has a background in them is a bonus. They will understand where you are coming from when it comes to smartly investing in your properties. You are not making decisions the same way you would if you were renovating your own home.

What Else Will My Contractor/Handyman/Trades Do?

They will give you advice on general updates that need to be done. Sometimes things can wait another year or two. Sometimes, an item needing repair can be a money pit and a full replacement is better in the long run. They should also have good referrals for you. For example, if you were renovating a basement and had a leak in the foundation, they should be able to refer you to some potential specialists outside of their expertise.

How Much Will My Contractor/Handyman/Trades Cost?

As with most team members in our series, the costs will vary depending on the person and the job.  Make sure to get multiple, detailed quotes in writing so you fully understand what is included in the price. Also, you usually get what you pay for in construction, so choosing team members solely on who is the lowest price isn’t always the best idea. Sometimes they are the cheapest for a reason and getting the job done right can save you money in the long term.

So there you have it, real estate investors. Do you have a team of construction experts for your properties? How has your experience been in finding the right help?

Investing in Real Estate – Building The Right Team #5: Property Manager

One of the first concerns we hear about when talking to new real estate investors goes something like this: “I heard real estate investing is a pain because I’ll be getting calls about clogged toilets at two in the morning from my tenants.” Is this something that has made you hesitant about investing in real estate? Today we are going to alleviate some of these concerns by talking about the next member of your team – the property manager.

What Will A Property Manager Do?

The property manager will be the main contact for the landlord in the day to day dealings of the property. They will collect rent, hand out any necessary notices to tenants, market vacant units, handle any complaints, deal with minor repairs and maintenance, etc.

What Should I Look For In A Property Manager?

Ideally your property manager should have lots of experience in handling similar types of rental properties to yours. They should have knowledge of the local rental market and tenant profiles. They should also know how to legally deal with problem tenants, including serving proper notices, keeping records of correspondence, and taking the proper steps up to possible hearings with Landlord Tenant Board. This last part is very important as not handling evictions and other tenant issues properly can get very expensive for the landlord. Make sure to interview them the same way anyone you would hire and get references. Sometimes it is prudent to manage a building yourself at the beginning so you understand the property, the tenants, etc. to get your feet wet and be able to properly manage your property manager.

How Will My Property Manager Help Me As A Real Estate Investor?

As a specialist in property management, your property manager should have the skills to ensure your investment property runs smoothly. Lots of real estate investors do not have the time or the desire to learn the management side of the business, so this frees up time for the investor to work on acquiring more properties, spend more time focusing on other employment or to spend free time with family or friends. And you won’t be getting any late night tenant complaint phone calls, so you can sleep easier!

How Much Will My Property Manager Cost?

Property management fees can vary as with any other professional services. On larger multi-unit buildings, we see fees such as a 5-8% of gross rent, one month’s rent per year or a $/per door per month. There can also be additional fees for renting/leasing of vacant units and you should inquire about that as they can add up. Usually there are also à la carte items available such as evicting tenants, going to landlord tenant hearings, etc. that they can provide for one-time fees. Get multiple quotes to understand the market prices in your area but be sure not to only focus on costs, make sure to also understand the service that comes with each. Also make sure to budget the costs of management into the financials of any investment properties you are looking at going forward.  Having your property properly managed is too important to cheap out on!

Get a good property manager on your side…you’ll be glad you did. Readers, do you manage your own investment properties?

Investing In Real Estate – Building The Right Team #3: Mortgage Broker/Professional

As you continue your journey in real estate investing, unless you are buying a property with all cash (in that case can you lend us some ☺?), you’ll eventually need to get a mortgage. But how do you go about doing that? Today, we are going to talk about the next member in building your real estate team: the mortgage broker/professional.

Why do I need a Mortgage Broker/Professional?

The main function will be securing the mortgage for your property purchase. They will also run your credit and applications and move the mortgage along from the initial application phase to giving mortgage instructions to your lawyer for closing.

What will my Mortgage Broker/Professional Do For Me?

Aside from the actual securing of the mortgage, they will shop around to get you best rates, advise you on the best products for your needs and make you aware of any potential pitfalls of a certain type of mortgage. They basically work with you to ensure your interests are taken care of in securing the mortgage.

How Is Financing My Investment Real Estate Different From My Personal Residence?

Financing a personal residence is typically much easier than investment properties. On a personal residence the lender will look at your income and based on that decide how much you can qualify for based on certain ratios. Investment properties are different as they incorporate rental income and so weight is given to income and expenses of the property. There are also different rules ie. you can put as low as a 5% down payment on a principle residence(with mortgage insurance), with investment properties that is usually 20-25% down.

What Else Should I know And Will My Mortgage Broker Be Aware Of?

It is important that your mortgage broker/professional be aware of your goals as an investor. The planning for the future can be much different if you plan on only owning 1 or 2 properties as opposed to 10 or 20. Sometimes it is better to choose lenders with higher rates or less attractive terms, if it helps you down the road qualifying for more mortgages as your portfolio grows. They should help immensely in this regard. Therefore it is a real bonus to work with a mortgage broker/professional that has plenty of experience working with investors.

How Much Will My Mortgage Broker Cost?

Typically the mortgage broker/professional is compensated by the lender with a built in commission into the interest rate. So essentially they are working for you, at no direct cost to you as a buyer!  Check with them on this though as your situation may be unique and may require different services. Note: You will typically have to pay an appraisal fee once you have a property under contract and a mortgage commitment has been given. This will range between $200-500 for a residential property. Sometimes the lender or mortgage professional/broker will take care of this fee.

So there you have it readers. You now know about how important financing is to your real estate investment future. Choose your team member wisely and you’ll be thankful later!

Investing In Real Estate – Building The Right Team #1: Realtor

Last week, we briefly reviewed a list of the team you should consider building if you want to become a real estate investor. Over the next set of posts, we will elaborate on some of these team members and what you should know. To begin, we will start with arguably the most important member of your team... the realtor ☺.

What should you look for when choosing a realtor to help you with investment properties?

Consider a realtor who specializes in income properties, or at least has significant experience with dealing with investor clients both on the buying and selling side. Ask for a list of properties they have worked on and possibly for references. It is also a huge bonus to have a realtor who is an investor themselves. They will be able to speak from first-hand experience and should be able to offer excellent insight. Choosing the right realtor is especially critical when investing outside of your home market, where you’ll be relying on them more for information about that market.

In what ways will my chosen realtor help in the process?

Your realtor should meet with you, understand your goals for investing and gauge your financial and management abilities to invest in properties. They should provide you information about the rental market, including rents, vacancy rates, employment info, demographics, municipal and fire code regulations, neighbourhood info and more. At this point you should be ready to look into specific properties and narrow down your focus to the right property for you. After finding the right property, your realtor will handle offer negotiations, facilitate inspections, appraisals, etc. to meet conditions and generally handle the sale right through to closing.

In what ways can my realtor go over and above?

Your realtor should have ideas and insights to help you be successful. They should understand the rental market and what makes a unit marketable to tenants. They can provide advice regarding value added renovations, marketing of vacancies, how to handle tenant inquires and applications and general maintenance of the property to keep things moving steadily. They can also provide referrals to other professionals for your team, including lawyers, mortgage brokers, insurance brokers, building inspectors, management companies, etc. Lastly, they should protect your interests at all times. They should see red flags such as blatant fire code violations, undesirable tenants, inefficiencies (electric heat loss) and other potential headaches of future problems.

This is a brief discussion about what to look from your realtor when looking at investing in real estate. It should give you some guidelines to get you started. Good luck!

Investing in Real Estate – Building The Right Team

After doing some research on different investing ideas, you’ve decided that real estate investing is right for you. No matter how big or small you intend for this investment venture to be, its important to be ready, willing and able to handle everything that comes your way. But how do we do that? By building the proper team of professionals around you to set yourself up for success.

But what type of professionals do you need? We've put together a list of such professionals. Not every one of them is necessary for every investor, but the list is a starting point to make sure your bases are covered.

Realtor

Now this is a pretty obvious one ☺. They’ll be able to help you out with understanding values, demographics, rents, etc. Working with a realtor who either owns rentals themselves or does a good amount of income properties is a huge bonus.

Lawyer

A good real estate lawyer is invaluable. They will make sure your interests are protected in whatever deals your are considering. Good legal advice can be expensive but can save you money in the long run.

Mortgage Broker-Professional

Assuming you will be mortgaging your properties, a good mortgage broker-professional is essential in getting your deals financed. They can give you advice so you can continue to accumulate properties and get the best terms possible.

Accountant

A good accountant is also invaluable. Understanding the best way to hold the real estate, claim expenses, amortize costs, etc. can save you tax dollars. They also have your back should CRA ever audit you.

Property Manager

Don’t have time or the ability to handle your rentals yourself? Finding a good property manager is must-have. They can collect rents, leasing, handle tenant calls and be the general go between the property and the owner. Fees generally range from 5% of rent to one month’s rent per year and up.  Make sure you factor this cost into your budget if you're planning to have the property managed.

Contractor/HandyMan

Not very handy? Then you’ll need to contract out any renovations or general upkeep. When you find good people who don’t cost an arm and a leg, it is important to keep them around and happy. They will make your life much easier in this business.

Bookkeeper

A good bookkeeper can keep track of all your income and expenses related to each property and make sure everything runs smoothly. They can also run regular reports so you understand your profits and can uncover trends (like increasing utility costs), so they can be addressed.

General Maintenance – Grass, Snow, Cleaning

A list of maintenance contacts can go a long way in efficiently operating your property and keeping it safe and attractive to tenants. Be sure to also add these costs to your budget.

This is far from an exhaustive list, but it gives you a general idea about who you should have on your speed dial as a real estate investor. How has your experience been in creating your team?

Bonus – Tax Time 2016: Tax Refunds

Now that the tax filing deadlines are officially behind us, a good portion of you will be getting a nice refund from the tax man! Now, before you go blowing it on the latest gadget or on a weekend getaway, it’s important to remember that this isn’t free money and it really is just a refund of the overpayment of taxes you made throughout the year. Considering it comes in the form of a lump sum, there are many opportunities to invest that money which can benefit you on an annual basis. Today we are going to make a list of the prudent potential uses for that hard earned tax refund, from your friendly local real estate professional’s perspective☺

Save Up For A Down Payment On Your Next Property

A lump sum tax refund can be a great head start towards saving for your next down payment.

Renovate or Update Your Investment Property

Have you deferred a renovation because cash flow has been tight? With your tax refund in hand, now could be the time to address some of those outstanding issues.

Value Added Upgrades to Your Home

Thinking about adding a bathroom or changing some flooring? Having some freed up cash to complete these tasks will not only make your further enjoy your home but increase its resale value.

Paying Down Mortgages

Without delving into people’s personal financial situations, paying off debt is never a bad option whenever you have a cash windfall. It gives you a guaranteed return on investment (ie. interest costs  saved). If you have any outstanding non-mortgage debt (credit cards, car loans, lines of credit) I would recommend you start with those as they are typically at the highest interest rate. Once those are taken care of, I would move to the mortgage on the principle residence. Lastly, I would pay down the mortgage on the income properties because of the tax deductibility of interest (as opposed to the principle residence mortgage debt).

So there you have it readers. What do you normally do with your tax refund?

Tax Time – It’s a Wrap

As we are in the last week of April, tax season is almost officially over.  Hopefully by now you’ve compiled all the info, met with your tax professional (if you don’t do it yourself) and are done filing your return. Some of you will be paying your balance owing, or if your lucky, getting back a nice tax refund.

To wrap up this series on Tax Time, we’d like to leave you with a few pieces of advice and insight as it relates to taxes and real estate and some of the crossovers between the two.

Stay Organized

As a landlord especially, you have lots of money coming in and going out every month. It’s important to stay on top of the paper trail so it can all be properly input at tax time. It’s much easier to do a little bit regularly, monthly or quarterly, than to leave a huge pile for tax season. The onus is on the filer to show receipts and invoices should CRA ever come calling. Not having your paperwork in order can cost you! We consider this time and money well spent to hire a bookkeeper to do this for you.

Look At Your Investments On An After Tax Basis

It’s great that you are investing in real estate and making money, but what do you really have to show for it come tax time? We often see people who know how much positive cash flow they have monthly or yearly, or what cap rate their property runs at, but hardly ever anyone who look at how their properties perform after taxes are accounted for. Tax season is a great time to review how your properties are actually performing. For example, say you have an investment property with a fixed rate mortgage at 3% and you’re in a marginal tax bracket of 40%. Because mortgage interest is tax deductible, your after tax interest cost is 1.8%. You have some extra cash and were thinking about making a prepayment on this mortgage. When you look at it in this after-tax light, you may consider there being a better use for the cash that can achieve a better rate of return after tax (highly likely in this case).

Give Thought to Tax Planning When Considering Real Estate Transactions

You might have a plan to dispose of a long held rental property in the near future.  The market might be hot right now and you’re thinking it’s a good time to sell. You also are a higher income earner but planning to retire in a few years and drop into a much lower tax bracket. All else being equal, it might make sense from a tax liability stand point to wait on that sale until you’ve retired to pay less tax on the proceeds of your sale. This type of planning is best done with your tax professional.

It’s Not All Bad

Sometimes we hear people complain about their tax bills around this time of year.  To all those high income earners: would you rather make less money? It's generally a good problem to pay a lot of taxes because it means your making a lot of income! Make the best of the situation by maximizing allowable deductions and efficient tax planning.

That’s a wrap for the tax season. How was tax season for you?

RENT FREE INCENTIVES (RFI) – An Alternative Strategy to TI ALLOWANCES

Landlords will often consider offering a RENT FREE INCENTIVE in order to attract Tenants on vacancies they are looking to lease. An RFI can be offered in addition to a TI ALLOWANCE or in lieu of, depending on the specific deal. However, from a Landlord’s perspective there are certain considerations that you should clearly assess, as you look to build-in a rent free period into any lease deal.

Questions to Consider:

Q: How does the RFI affect your overall cashflow for the property?
A: Cashflow – 2 months not as much a factor, as say a 6 month RFI would be.

Q: How does the RFI affect the net effective rent over the lease term?
A: Net Effective Rent is reduced from the face rate as shown on the lease (do the math).

Q: Does it include the operating cost/ft. of the property or strictly the base rental?
A: If Operating Cost/Ft. forms part of the RFI, it costs the same as if the unit were vacant.

Q: Are the TI costs being invested by the Tenant comparable to the rent free amount?
A: Tenant Investment is an ideal trade-off and helps substantiate the RFI.

Q: Is the Tenant stable and do they offer a Good Covenant?
A: Tenant Stability is a key factor and one which requires a close look.

Q: Does the RFI have to be provided at the front of the lease term?
A: RFI Upfront – not necessarily, and helps reduce the risk if it’s spread out over the term.

Q: Can RFI be conditional upon the Tenant not defaulting and otherwise becoming repayable?
A: RFI Conditional – all terms are negotiable and this ties the RFI to tenant’s performance under the lease agreement.

As with TI allowances, rent free incentives are considered to be a cost of doing business, and when offered in the right circumstances can be an effective inducement. The above Q&A gives you a good basis for assessment and ensures any RFI concessions make good business sense. RFI expectations vary  from the Tenant’s perspective and is really a market call based on your area.

In any real estate deal – a lease in this case – remember you don’t get what you deserve, but what you negotiate. RFI terms are often a key point in any lease negotiation and hopefully this gives you a better perspective as you assess a future deal.

We welcome your comments and stories about RENT FREE INCENTIVES based on your experiences – both Landlord and Broker alike. Just a click/call away from discussing our investment opportunities here in Windsor-Essex!

Tax Advantages of Owning Real Estate

With April arriving at the end of this week, tax season is officially upon us. I know most of you view taxes as a dry subject that isn’t particularly exciting. That being said, there is one element of the subject that always gets people excited - paying less taxes!

There are many tax advantages to owning and investing in real estate. Although we aren’t accountants, and would defer any specific question regarding your tax situation to a professional, there are a few broad tax advantages that you should all be aware of.

So without further ado:

1. Capital gains on a principal residence are tax free. So say your one of those lucky Vancouver home owners who bought their house 30 years ago for $100,000 and are now selling it for $3,500,000, those proceeds are your tax free. There are some complications if you also own a vacation home and are unsure which property is your “principal residence”. You may also have a hard time with CRA if you are a contractor and buy and sell your principle residence for profit multiple times. Talk with your accountant about some of these scenarios.
2. Financing costs related to an income property are tax deductible. The general rule is, if you're borrowing money to invest to make income, the interest costs with that borrowed money are tax deductible. For example, if you buy a duplex for rental income, and get a mortgage at 3% interest, and you are in a 40% tax bracket, your after tax cost of borrowing becomes only 1.8% ((3%*(1-0.4)). This makes your return on cash invested potentially very attractive.
3. Depreciation can be claimed as an expense against rental income. You are able to depreciate the value of the property every year (usually up to 4% of the value of the building), which will lower your taxable rental income in that year. So for example, if you had a property with $10,000 of taxable income, and property with a book value of $200,000, you could claim a depreciation expense of $8000 ($200,000*4%), lowering your taxable income to $2,000 for that year. This basically acts as a tax deferral, which can come in very handy in tax planning. Also note, that claiming this depreciation lowers your book value and will increase your capital gain down the line when you sell. This can be a complicated subject and should be discussed with your accountant.
4. Properties can be owned in personal names or owned in holding corporations. Different ownership structures can provide different opportunities for tax planning and flexibility. Owning in a corporation can also have legal liability advantages. Again another subject to discuss with your accountant.

While this is far from an exhaustive list, these are some of the tax advantages related to real estate you should be aware of this tax season.

Are there any tax benefits you enjoy from your real estate ownership?

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Russel Lalovich
russel@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 995-5620