Real Estate Investing
Real estate investing: When a property is purchased or held with an intent of making profit, its referred to as real estate investing.
The profit could be derived from renting it out to tenants or selling it for profit at the higher price at later date.
How is Realestate Investing Taxed?
When real estate is purchased or held with an intent to profit, capital gain tax is applied. This applies to short term and long term real estate investments. To be sure about your income tax with CRA (Canada Revenue Agency) you are encouraged to speak to your accountant.
What is The Minimum Down Payment Required When Investing in Real Estate?
When investing in real estate the required Down payment depends upon the types of real estate being purchased.
When buying a single-family real estate investment property in the city of Mississauga, the minimum down payment required by a bank is 20%.
35% or more may be needed on multi-unit real estate investing in Toronto, Mississauga, Brampton, North York, and GTA (greater Toronto area).
Seasoned real estate investors always have a competent mortgage broker and a real estate professional who understands and guide the real estate investors on the basis of the ROI or CAP rate.
This incorporates purchase price, mortgage interest rate, monthly payments, and cash flow in mind.
How does CRA (Canada Revenue Agency) treats Income and expenses on investment properties?
All the rent collected during the year time is deemed as earn income. The mortgage installments including principal, interest payments, property tax, fire insurance premiums, repairs, property management cost etc are all tax deductible expenses.
Legal costs like land transfer tax, lawyer’s fee lender fee and or brokers fee you paid at the time of buying a property for investment are all considered as expenses. Expenses like chattels etc are also accounted for when filing income taxes.
You should consult your accountant or your income tax expert to find out details and how your real estate investment property impacts your income taxes.
Buying real estate alone is not a good investment, instead of buying cash flowing real estate is. Be smart about it and DO NOT fall into the hype.
Cash flow analysis is the one critical step to keep in mind when looking to investing in real estate. Many inexperienced real estate investors lose money for committing this mistake.
The investor should take the onus or should work with those who understand the cash flow analysis and are capable to guide them properly in this hype ridden real estate investing market.
Focus on positive cash flow when investing in real estate.
Critical 6 Monthly Expenses to include into your cash flow evaluation
Principal and Interest
It depends upon factors like other rental units in the neighborhoods, local and regional employment prospective, crime rate, proximity to public transit and highways, hospital etc
You plan to do it yourself or plan to hire someone. It ranges from 2-10% of monthly rent
The actual repair cost depends on the over all state of the property.
Approx. 6-10% of your monthly rent is reasonable to account towards repair cost.
- How well your property is being managed?
- What entails your tenant selection process?
- What type of tenant is living in?
- How well do your tenants are taking care of your property
- While the property was occupied, how frequently did you go for the property inspection
- Contingency funds
- And the list goes on….
When an investor buys and holds property for 5 or more years the investment is referred to as long-term investment property. With a long term real estate investing strategy, you need not worry about sales prices because time gets you your desired returns of increasing your net worth.
Whatever your strategy its always good to keep in mind the local landlord tenancy act and bylaws laid down by municipality and peel region police.
When real estate is acquired or held with an intent to sell it quickly, this strategy is referred to as short term real estate investing. The period could be anywhere between 1 month to less than 5 years. The net outcome of this strategy strictly depends upon sales prices in the area at any given time.
In general, house flipping for profit after making major or minor repairs, renovations, or upgrading the property, Rent to Own property investing in all type of short term real estate investing.
7 Critical Factors That Impacts Your Short Term Investing ROI?
- Accurate cost analysis for the repairs you intend to do
- Dollar value impact on the real estate after the renovations are completed
- Know what type of renovations increases the value of the real estate. Do not blindly go ahead with major renovations like adding a swimming pool to the property
- Real estate buying and selling cost in commissions and other legal costs. Don’t forget the double land transfer tax when buying real estate in Toronto.
- Monthly carrying cost from your pocket since the property is vacant and renovations are being done
- The time needed to sell the investment property in Toronto’s present real estate market
- Impact of Income-tax or Capital gains when buying and selling investment properties in Toronto, GTA (Greater Toronto Area) in Ontario
- Real estate investors lose money when the renovation cost goes above their budget and they can’t complete the renovations and sell the property on time.
Have seen many investors lose money and even have to declare bankruptcies
Speak to a mortgage broker who understands real estate investing well to discuss your plans today……
- Hand pick your tenants carefully
- Take care of your tenants and they will take care of you
- Raise annual rental income as fore set by local Landloard Tenancy Board.
- In multi-unit rental properties, install coin laundry
- Do your own home work to evaluate cash flow. Majority times new investors underestimate the impact of missed expenses like repair cost, property management cost and vacancy rates.
Yes of course you can!
A good mortgage broker specializing in real estate investment property mortgages with bad credit could help you. Your regular bank may not be able to help you if your beacon score is low or has credit blemishes.
Yes real estate investing is also subject to mortgage stress test which as implemented implemented in 2018.
Under this test, all mortgages on real estate properties purchased for the purpose of investing are qualified at rate of 4.74% or contact rate plus 2% as of August, 2020.
If you have bad credit the qualifying rate tends to be even higher.
To clarify, mortgages for commercial real estate is not subject to mortgage test.
Click here to learn more about the mortgage stress test and how it impacts your next mortgage application.
In real estate investing, how does bad credit impacts cash flow?
Since the mortgage interest rate is higher due to your bad credit, the monthly payment could have a significant impact on your monthly cash flow
With bad credit mortgages there is associated lender fees, application fees etc which you have to account for prior to buying or refinancing a rental property
It varies between 1-3 years depending upon your individual scenario, your intended end result and available exit strategies at your disposal.
A good mortgage advice can save you heaps of money and headaches with your investment properties financing.
How is investing in band & stock market different?
When investing in bonds and stock markets, you lose the leveraging aspect because you pay 100% of the price to acquire them.
While the potential to earn income on regular basis is not practical in the stock market and mutual funds, the risk of losing your money is very real especially when market tanks.
On the contrary, the real estate market gives you signals and provides you enough time to decide for yourself.
Great article. Lots of useful info here. Thank you
Thank you
Great info
Thank you