Income Properties – Owning a rental property may seem like a license to print money.
Interest rates are low, what could be easier? Buy a property, lease it, collect cheques, and plan your retirement. But…before purchasing income properties, you should be aware of the benefits and drawbacks.
Advantages of Income Properties:
You pay less tax.
Since your secondary property is a business, you can deduct certain expenses (mortgage loan interest, property taxes, insurance, maintenance/upgrades, property management and utility bills) from your income and reduce taxes. Meet with an accountant or financial advisor to discuss your situation.
Rental cheques provide a steady monthly income
The frequency of other types of investment payments may decrease, or the predictability of income may decrease. For rental properties, please answer the following questions: Will the property generate a stable monthly income when the mortgage and operating costs are subtracted?
The value of your investment can increase
Historically, real estate prices will rise over time, and rental income will also increase over time. Don Campbell, a senior analyst at the Vancouver Real Estate Investment Network, believes that “a good real estate is like a blue chip stock. It won’t make you rich overnight, but it will perform well.”
You may be able to deduct losses for tax purposes
If the expenses exceed the rental income, you can deduct the loss from other sources of income. An accountant can help you understand the impact of taxes and estate planning
Income Properties: Make sure you’re ready!
You accept the responsibilities and challenges of property management
The rent requires regular maintenance and repairs-sometimes in emergencies. Filling vacancies can be expensive and time-consuming. Tenants can be challenging, especially if they don’t pay the rent and you need money. You must decide whether you want to invest in “sweat equity” and manage the property or hire a landlord.
Real Estate Prices and Setting Realistic Expectations
The rental real estate market may fluctuate. Milevsky of the Schulich School of Business at York University said: “If the unemployment rate soars or real estate prices plummet, then your profitable real estate investment will also be in trouble.” The key is location, location, location. Choose an area where employment and population growth are expected to ensure good long-term demand. Talk to your real estate agent about the neighborhood demographics and average rent in the area to ensure that the expected rental income is appropriate for the location.
Buyers can save on mortgage loans to purchase a multi-unit building such as a duplex or three-story, live in one unit, and then rent out other units. If you are considering downsizing in the next few years, buying an apartment or townhouse as a rental property may be a good way to plan for the future.
It may be difficult to finance the purchase
In most cases, a down payment of at least 20% must be paid when buying a second home. Before you start looking for an investment property, please meet with a mortgage broker. In the long run, it will save you valuable time and energy!