Real Estate Investing

Are You Looking To Invest In Real Estate?

1. WHY INVEST IN REAL ESTATE?

Statistics prove that those who OWN real estate have a higher net worth on average than those who don’t.  However, what is also true, is that those who own multiple properties generally have a larger net worth and additionally now have a road to passive income which in turn leads to financial freedom.


Investing in real estate comes with a proven positive track record if done properly and reasonably low risk.  Real estate can be leveraged as needed for further investment opportunities as equity grows.


2. THE 3 PRINCIPLES OF REAL ESTATE INVESTING:

  • Cash Flow

Cashflow is the amount of “net profit” earned on a real estate investment when considering the gross income less expenses. 

For example:

Rent: $2000

Mortgage: $1500

Other Expenses $250

Cashflow = $25


  • Principal Reduction

Principal Reduction is the active reduction of principal loan outstanding on the investment property. Each month that the tenant pays rent a portion of this goes towards principal of the mortgage which in turn creates equity.


  • Appreciation

With the increase of property values comes property appreciation, though generally less predictable than the first two principles, property appreciation can create more equity and net profit upon a sale.


3. WHAT TYPES OF REAL ESTATE SHOULD I INVEST IN?

Real estate is quite diverse and comes with many different investment opportunities.

- Residential (detached, townhouse, condo, duplex)

- Commercial (Warehouse, retail, industrial, office, farms)

- Construction & re-development


  • How Do I Get Started?

    Speak with an industry professional who can assess your financial situation. 


    Understanding your qualification & property budget is the first step in purchasing an investment property.

  • What If I Don’t Have A Down Payment?

    If a down payment is not available in any capacity you can look at purchasing with a partner (JV). 


    In some situations the other party may have the down payment, but you may have the income & credit worthiness to qualify for the mortgage. 

  • Do I Need 20% Down Payment To Buy A Property?

    If the property is being purchased for investment or rental purposes the minimum down payment requirement is 20%.


    If the property is being purchased as owner occupied, or owner occupied second home you can do as little as 5% down.

  • What Is The “Ideal” Down Payment?

    The ideal down payment will fluctuate and is always going to be property dependent.


    Depending on the CAP rate a 20% down payment may be enough to create cashflow, but in other situations a larger down payment may be ideal.

  • How Many Properties Can I Buy?

    Many lending institutions have a residential limit of 5 properties (1 owner occupied and 4 rentals.)


    To ensure best rates and all options are kept open a limit of 5 properties is ideal.


    If you plan on owning more than 5 properties your lending options will be limited, however still achievable. 


    You may see slightly higher rates and a fee charged on the loan amount on properties 6+.


    Commercial financing can be utilized on a case by case basis for very large real estate portfolios.

  • Are Private & Alternative Lenders “Risky”?

    The short answer is no. 


    Every alternative mortgage product serves its own purpose, and you would never commit to a more expensive mortgage if it did not make financial sense. 


    Alternative mortgages are typically a short term solution and there should always be a plan to replace this financing within 1-2yrs.


    Some private lenders can have very restrictive and expensive terms which should be disclosed by your Mortgage Broker.  Similar to Banks, not all private mortgages function the same. (Renewal Fee’s, Open/Closed, Interest Only / Amortized.)

  • Can I Buy In A Company Name?

    Yes, investment properties can be purchased in a Holding Company in lieu of your personal name, however you will need to provide a personal guarantee if there is mortgage financing involved. 


    Corporate real estate holdings can create advantageous tax strategies, which is generally why somebody will consider this.

  • Do I Need To Claim Rental Income On My Tax Returns?

    Legally, yes rental income must be claimed at tax time. 


    People who choose not to claim rental income are at risk of a CRA audit which can trigger fines, penalties and large tax bills. 


    Most lending institutions also require the rental income to be claimed in order to use it towards your qualification (if applying for further borrowing.)

  • Do I Pay Tax On Rental Income?

    Yes, you will pay tax on the net rental income claimed.


    There will always be a Gross and a Net rental income showing on your tax return, and you will only pay tax on the NET rental income claimed. 


    Gross rental income can be reduced by claiming expenses related to the property.


    Rental income will be taxed at the individual's marginal tax rate, which means your personal income plus net rental income will create your total tax rate. 


    Corporate tax rates may differ if the property is held in a corporation.

  • What Kind Of Expenses Are Related To A Rental Property?

    The common expenses related to a rental property are:

    (a) mortgage interest

    (b) property repair/maintenance

    (c) property management

    (d) insurance

    (e) utilities (hydro, heat, water, gas)

    (f) depreciation (wear & tear)

    (g) advertising/marketing

    (h) property tax


    Mortgage interest is tax deductible dependant on how much of the property is being used as investment.  If the property is 100% rented, then 100% of the mortgage interest can be deducted from gross rental income. 


    If the property is a personal residence with a rental suite, only the percentage of the property dedicated to the rental suite can be applied to the interest paid for deduction purposes.

  • What Is A Capital Gain And How Is It Taxed?

    A Capital Gain is the rise in value of an asset which is realized at time of sale. 


    If you sell an investment property for more than the acquisition cost you will realize a Capital Gain and tax will be payabe.


    Capital Gain tax is only payable on the appreciation value or profit at time of sale. 


    Tax is payable on 50% of the total Capital Gain, and then taxed at personal marginal tax rate.  


    Corporate tax rate’s will differ if the property is owned in a corporation.

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