Real Estate

Help explain taxes on Rental Property to me

  • Last Updated:
  • Feb 28th, 2017 12:35 pm
Deal Addict
May 18, 2015
1803 posts
851 upvotes
Ottawa,Ont
pkrash wrote: Sorry, missed the principle/interest separation.
So you may have to pay a small amount monthly.
You are still using somebody's $1300/mth.
What is real estate doing in Ottawa? +10%/yr?
Are you charging the tenant for utilities since they are included in the condo fee you are paying?
probably 3% in Ottawa for condos. Tenant pays hydro only
Banned
Feb 23, 2009
1670 posts
1496 upvotes
Oshawa
nikels21 wrote: probably 3% in Ottawa for condos. Tenant pays hydro only
You mentioned parking as a part of the condo fee....tenant should be paying some of that.
Any renos/repairs are also an expense.
Management fees are expensed and you can claim a small amount to do that yourself.
Member
Sep 22, 2014
448 posts
189 upvotes
Ottawa, ON
pkrash wrote: "I haven't ran the numbers to see if the OP'S property is worthwhile but the fact that he is cash negative every month automatically tells me it won't be great. Who knows, might work out well for him. "

Am I missing something here? You say you haven't run the numbers, but you say it's a bad investment.
You say he is cash negative, when in fact he's cash positive.
It you make money on a rental and have to pay taxes, the costs are covered and YOU ARE MAKING MONEY.
Any time you can use other people's money to pay off a mortgage, you are making money.
Any capital appreciation in the property means you are likely making money.
While condo fees take away some of the earning potential, it also means you are likely not spending anything on repairs or maintenance of the structure (roof, windows, etc.).
It depends on what the condo fees include.
Yes you're missing a wack load. Let's say we use the OPs numbers and say we are buying that place for 210k with a minimum 20% down at 5yr fixed 2.89% over 25yr. Closing cost we'll say 2%.

210k purchase price
168k mortgage @ 2.89% 25yr
42k downpayment
4.2k closing
Mortgage payments are 785.6/mo

2k Property taxes
1k insurance
6k condo fee
$4763 interest (first 12mo)


1536 total monthly expense
1300 monthly income
=-236/mo cashflow
Yearly $-2832


Taxes:
2k prop taxes + 1k insurance + 6k condo fee + 4763 interest = 13763.00

Income = 15600.00
Amount claimed = $1837
OP's marginal tax rate 29.65%
Income tax owed $544.67 (1837 x .2965)

So let's sum it up...
You are initially investing $46200 so that it can cost you an additional $3376 each year but you benefit on someone slowly paying down your mortgage?

I haven't even factored in 10% for vacancies or repairs. I understand it's a condo but you're still going to have indoor maintenance and let's not forget how meticulous tenants treat their homes. What are you going to do when you get the inevitable special assessment?
What will you do if you come across deadbeats? Do you know how long it legally takes to have them evicted? Who will pay if they damage your place prior to eviction? What if they grow weed and the municipal deems your place uninhabitable? Do you think [intact] insurance will bail you out?


There's more than meet the eye my friend. Much more. Don't get greedy.
Banned
Feb 23, 2009
1670 posts
1496 upvotes
Oshawa
Hang on there big fella, I didn't miss a "whack load". I already admitted my small mistake I you read the posts.
To let you know, I've successfully been a landlord for over 15yrs with a condo and detached house. Both cash flow positive. Both properties were bought with a LOC used for the down payment, so "no money down" (I own my home with no mortgage so I have equity). Yes, I have dealt with evicting a tenant. It can take 2 months.
You have conveniently rounded up the numbers in your calcs and chosen unfavourable financing to try and prove your point.
A couple of mistakes in your version:
The OP says he already owns the condo, so no "closing costs" of $4.2K.
You have added $1K for insurance which the OP doesn't list. My condo fees include insurance, I only insure my contents (appliances) and the tenant has to carry their own insurance.
Using the CIBC mortgage calculator a $148K, 5yr fixed, 25yr at 2.89% is $689/mth, not $785.60/mth.
Personally I would go with a 3yr variable, 30yr at 2.2% (I have one these mortgages with CIBC) at $561/mth if you want a lower payment.
Even with this mortgage, you pay down $18,441 in 3 yrs. (maybe that's slow for some).
A 25yr would cost $641/mth and net $23,501 in 3yrs. Better, and still lower than $785/mth.
There are always some risks when renting. You have to screen your tenants. Always get references and a credit check. I tend to pick people that will not trash the place and stay on top of it so "it doesn't turn into a grow op".
Being a landlord can be easy. There really isn't much more than meets the eye.
Member
Sep 22, 2014
448 posts
189 upvotes
Ottawa, ON
Sorry dude but what ever credibility you had went out the window when you said "It can take 2 months.". There are so many flaws to your response that I'm not even going to point it out.

I can all gloat and brag about being a landlord too, we own two freehold towns in a major city with my residence paid off. We only have 50k left from our heloc used to buy property #2 and I'm only 33 and have received zero inheritence. We're actually 33 and 1/2 if tha helps. BTW, why did you use 148k instead of 168k? Getting way too off topic.
Banned
Feb 23, 2009
1670 posts
1496 upvotes
Oshawa
gerogesin wrote: Sorry dude but what ever credibility you had went out the window when you said "It can take 2 months.". There are so many flaws to your response that I'm not even going to point it out.

I can all gloat and brag about being a landlord too, we own two freehold towns in a major city with my residence paid off. We only have 50k left from our heloc used to buy property #2 and I'm only 33 and have received zero inheritence. BTW, why did you use 148k instead of 168k? Getting way too off topic.
What flaws? You can serve the tenant with an eviction and they may leave on their own even sooner than 2 months. I have had them leave as soon as I asked with out filing any paperwork. Your point?
Yes, I used $148K (if you looked at my post) since the OP said that's what his mortgage was.
Why use imaginary numbers?
How is that off topic, dude?
Deal Fanatic
Jan 15, 2017
5751 posts
6124 upvotes
Ottawa
What is real estate doing in Ottawa? +10%/yr?
nikels21 wrote: probably 3% in Ottawa for condos. Tenant pays hydro only
Over the long term, Ottawa real estate tends to appreciate at about 5 - 6% a year. In 2012 though, the Harper gov't announced a major down sizing of the federal public service and the housing market has since to rebound. Here are the average increases since 2012 of residential and condo class properties:

2012: 2.3%
2013: 1.6%
2014: 1.2%
2015: 1.7%
2016: 1.2%
Deal Addict
May 18, 2015
1803 posts
851 upvotes
Ottawa,Ont
nikels21 wrote: Keep in mind Id incur about 10-15k in costs to sell the place.

Actual Numbers:

Original Downpayment: $15,000

Annual Interest: 297*12= $3564
Insurance: $400
Property Tax:$2200
Condo Fee: $5988

Cost:$12,152

Annual Income: $15,000

Net Income: $2,848
Building insurance is part of my condo fees so I simply pay for contents as the other poster said. 2.5 years left on the current mortgage term.

713$mortgage payment + 26$ insurance = 740 fixed @2.2%
Current Owing:148k
Principle paid down each month:443$
Deal Fanatic
User avatar
Dec 27, 2009
7941 posts
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Victoria, BC
skeet50 wrote: Over the long term, Ottawa real estate tends to appreciate at about 5 - 6% a year. In 2012 though, the Harper gov't announced a major down sizing of the federal public service and the housing market has since to rebound. Here are the average increases since 2012 of residential and condo class properties:

2012: 2.3%
2013: 1.6%
2014: 1.2%
2015: 1.7%
2016: 1.2%
This is what I've seen. Prices have been fairly flat here since we bought in 2014 (Ottawa).
Deal Addict
May 18, 2015
1803 posts
851 upvotes
Ottawa,Ont
Chickinvic wrote: This is what I've seen. Prices have been fairly flat here since we bought in 2014 (Ottawa).
I would agree although I am starting to see some upwards movement in stittsville on a new build i am waiting to close. 3 bed, 2.5 bath (hardwood,granite,finished rec room in basement). Purchased for 299k. Dont see anything comparable below 315k (does not have granite)
Deal Fanatic
Jan 15, 2017
5751 posts
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Ottawa
Chickinvic wrote: This is what I've seen. Prices have been fairly flat here since we bought in 2014 (Ottawa).
The market hasn't done well in the past few years, the condo market has been especially poor. I know people who have delayed retirement because they cannot sell their downtown condo. This has me wondering if this is the reason the OP wants to rent the condo?

Those gains are averages, so keep in mind that some people may have sold and gained more, and some may have sold at a loss. It also shows how quick a market can turn. Ottawa real estate was enjoying a great run and then one announcement and it all came to an abrupt halt.
Newbie
Jun 4, 2007
22 posts
3 upvotes
North York
You also can claim 2% of the current value under CCA which make you pay 0 tax.
Deal Fanatic
User avatar
Dec 27, 2009
7941 posts
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Victoria, BC
nikels21 wrote: I would agree although I am starting to see some upwards movement in stittsville on a new build i am waiting to close. 3 bed, 2.5 bath (hardwood,granite,finished rec room in basement). Purchased for 299k. Dont see anything comparable below 315k (does not have granite)
Good to know. We are in Kanata, and if I were to guess I think we would be selling at a loss if we were to sell right now (once you consider all the work/improvements we've done to the place that is). We'd probably be able to get what we bought it for 3 years ago, but all the improvements would be a loss. We aren't planning to sell in the near future, so it's all okay.
Deal Fanatic
Jan 15, 2017
5751 posts
6124 upvotes
Ottawa
nikels21 wrote: I would agree although I am starting to see some upwards movement in stittsville on a new build i am waiting to close. 3 bed, 2.5 bath (hardwood,granite,finished rec room in basement). Purchased for 299k. Dont see anything comparable below 315k (does not have granite)
We are certainly seeing the Ottawa market move from a buyer's market to a balanced market. And we are starting to see some increases in prices in certain areas of the city. Hopefully we have taken the turn. The federal government increasing its hiring with the T2 government has helped, I believe.

Be cautious comparing prices in the new build housing segment and the resale housing segment. Both are considered separate markets as they have very different characteristics. One, for instance, is the average resale price of a single family detached home is a little over $400k, whereas for new builds it is around $525k. Another difference is that may resale homes tend to be move-in ready whereas most new builds require further investment after move in (fencing, landscaping, window coverings, appliances...).

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