probably 3% in Ottawa for condos. Tenant pays hydro only
Help explain taxes on Rental Property to me
- Last Updated:
- Feb 28th, 2017 12:35 pm
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- SCORE
- nikels21 [OP]
- Deal Addict
- May 18, 2015
- 1803 posts
- 851 upvotes
- Ottawa,Ont
- pkrash
- Banned
- Feb 23, 2009
- 1670 posts
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- Oshawa
- gerogesin
- Member
- Sep 22, 2014
- 448 posts
- 189 upvotes
- Ottawa, ON
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%.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.
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.
- pkrash
- Banned
- Feb 23, 2009
- 1670 posts
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- 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.
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.
- gerogesin
- 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.
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.
- pkrash
- Banned
- Feb 23, 2009
- 1670 posts
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- Oshawa
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?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.
Yes, I used $148K (if you looked at my post) since the OP said that's what his mortgage was.
Why use imaginary numbers?
How is that off topic, dude?
- skeet50
- Deal Fanatic
- Jan 15, 2017
- 5751 posts
- 6124 upvotes
- Ottawa
What is real estate doing in Ottawa? +10%/yr?
Over the long term, Ottawa real estate tends to appreciate at about 5 - 6% a year. In 2012 though, the Harper gov't announced a major down sizing of the federal public service and the housing market has since to rebound. Here are the average increases since 2012 of residential and condo class properties:
2012: 2.3%
2013: 1.6%
2014: 1.2%
2015: 1.7%
2016: 1.2%
- nikels21 [OP]
- Deal Addict
- May 18, 2015
- 1803 posts
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- Ottawa,Ont
Building insurance is part of my condo fees so I simply pay for contents as the other poster said. 2.5 years left on the current mortgage term.
713$mortgage payment + 26$ insurance = 740 fixed @2.2%
Current Owing:148k
Principle paid down each month:443$
- Chickinvic
- Deal Fanatic
- Dec 27, 2009
- 7941 posts
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- Victoria, BC
This is what I've seen. Prices have been fairly flat here since we bought in 2014 (Ottawa).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%
- nikels21 [OP]
- Deal Addict
- May 18, 2015
- 1803 posts
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- Ottawa,Ont
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)Chickinvic wrote: ↑ This is what I've seen. Prices have been fairly flat here since we bought in 2014 (Ottawa).
- skeet50
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- Jan 15, 2017
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- 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?Chickinvic wrote: ↑ This is what I've seen. Prices have been fairly flat here since we bought in 2014 (Ottawa).
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.
- zhanglishan
- 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.
- Chickinvic
- Deal Fanatic
- Dec 27, 2009
- 7941 posts
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- Victoria, BC
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.
- skeet50
- Deal Fanatic
- Jan 15, 2017
- 5751 posts
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- Ottawa
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...).