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real estate investing

Real estate investing is a proven way to increase your return on investment and also great protection from stock market volatility. After years of real estate market appreciation in major Canadian markets followed by a steep market correction, many people are saying they have missed their opportunity to make money. However, this is not entirely true. Before investing in real estate, ever investor must be educated in how money is made in real estate investment. After being equipped with the proper information it becomes easy to debunk some of the myths and misconceptions before starting your investment journey with confidence.

 

1. Buy Below Market Price

You can earn instant equity when you buy a property for under market value. These include buying foreclosures, finding distressed sellers and using creative strategies

A. Motivated Sellers

Motivated seller is a homeowner who is trying to sell his/her property with urgency. In other words, they are trying to get rid of the property as soon as possible. For example, due to economic or life situations, some sellers need to sell their property as soon as possible. This can include but not limited to death, disability and divorce. Talk to people and keep your ears open to see if there are any motivated sellers around you.

B. Real Estate Website

Another excellent place to find a property below market price is real estate websites. This includes kijiji.ca and forsalebyowner.ca

C. Work With Real Estate Agent

Next common way to find below market value property for sale is to work with a real estate agent. An investment specialized realtor will find you the best real estate deals in any market. In addition to this, a real estate agent with killer negotiation skills will be able to lower the listing price and maybe even create below market value properties that weren't there before.

 

2. Cashflow

Cashflow is all your income from the property minus all expenses on the property. Having a POSITIVE cash flow is strongly recommended as you won't have to cover shortfall out of your pocket every month.

Income from the property includes rental income, parking, garage rental.

Expense includes mortgage, insurance, property tax, property management.

 

3. Forced Appreciation

Careful renovation can greatly increase the value of your property. The common type of forced appreciation includes building basement suites, installing a new kitchen, new sidings, new floor, new windows and etc.

 

4. Market Appreciation

This is what many novice investors believe the only way to make money in real estate.

In Vancouver, the average sales price has increased from $579,384 in January 2015 to $1,092,049 in January 2018. In the times of significant market appreciation such as this, it is very easy to make profit only from price appreciation. When you invest in real estate, you should not speculate market appreciation and count on price appreciation only. If the market does not continue its appreciation and you don't have any other drivers to fuel the profit, your investment will perform very poorly.

 

5. Sell High

Make your property stand out in the market so that people will pay a premium to get your property. This can be done by updating light fixtures, adding a new coat of paint, changing hardware and doing proper upkeep on the property. Also, consider professionally staging your property. This can attract buyers over the market value.

 

6. Principal Paydown

If you have a mortgage of $500,000 at 2.99% with 25-year term, in five years, you would have accumulated $72,708.93 of equity. In 10 years, your equity would grow to $157,049.06. Do not disregard principal paydown in your investment consideration.

 

7. Tax Benefits

When you claim rental income and expenses on Form T776, you cannot deduct the entire mortgage payment for your rental property, however, you can deduct the interest portion of the mortgage and other expenses such as property tax, heat, and insurance 

Capital Cost Allowance

When you purchase a residential rental property, you can claim CCA at the rate of 4%. This allowance allowed for properties or equipment that can be depreciated over time. When selling your property CCA may be recaptured meaning that this amount may be added to your taxable income.

Repair and Improvement

Repair refers to the cost incurred to maintain your rental property in good working condition. This may be deducted from each property's taxable income in a given year. 

Improvement (Capital expense) refers to anything that increases the value of the property or extends its life. For example, the cost of putting vinyl siding on the exterior walls of a wooden property is a capital expense

 

For all your real estate investing questions contact me anytime.

 

CRA -Current expenses

CRA - Rental Expenses You Can Deduct

 

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