The real estate market in Toronto has never been hotter, and with mortgage rates at all-time lows, many Canadians are looking to jump on the bandwagon and start investing in properties. And while this can be a great way to make money and build wealth, it is still important to learn the rules of the game if you want to come out ahead.
If you are new to real estate investing or if you are considering investing in properties in 2021, here are a few things that you need to know.
1.You Need to Do the Math
If you are buying an investment property the bottom line is well, the bottom line. You can’t let emotion – or that beautiful granite countertop, get in the way. It’s all about the numbers – and that means more than just price. How much are the condo fees? How much will you need to spend on maintenance? How much rent can you charge? All these factors will need to be taken into consideration as you determine which property to buy.
2.You’ll Probably Need 20% Down Payment
Unlike buying a home for yourself which you can usually do with as little as a 5% down payment, most lenders will want to see a larger down payment on an investment property. 20% is standard.
3.Most Lenders will Factor in 80% of Rental Income
When you are applying for a mortgage for a rental property, most lenders will add 80% of your projected rental income to your total income. This means that you will be able to qualify for a bigger mortgage.
4.Reporting Rental Income
If you are investing in property in 2021 for the purpose of renting it out, it is important to remember that you will need to report any rental income. This is required by Canadian tax law, but it comes with the benefit of also being able to write off any expenses you incurred in repairing or maintaining the property.
Even if you have a loss on the property, it is still important to report rental income, as a loss may be used to offset any other income that you may have.
5. Capital Gains When You Sell
While you won’t in most cases have to pay capital gains when you sell your primary residence, this is not the case for investment properties. CRA is going to want their share. So just because property values skyrocket, you can’t count on keeping the entire increase for yourself if you sell the property. You will have to factor in capital gains tax.
6.Be Careful if You Are Living in Part of the Property and Renting the Other
Say, for example, you purchase a duplex and live on one side while renting out the other. This could end up costing you a small fortune in capital gains tax, as CRA will tax the entire property if you live in less than 50% of it. Talk to your accountant before you do this.
Call Adelson and Weiss today!
Do you think that investing in the Toronto real estate market might be for you? If so, we can help you find the right investment property for you. Give us a call today if you would like to talk.