Real Estate Questions and Answers 2012

[nepean19]

Hi everyone, I've enjoyed being a member of Redflagdeals for some time and wanted to help anyone with real estate questions that they might have. I work as a realtor in the GTA, so I may not be of much help if you are asking specific questions regarding areas outside of where I live.

Anyways... fire away, hopefully we can have some solid discussions and help a few people out.

Cheers

[Sabarnane]

I've been interested for a while now in purchasing a single family home to rent out as a way of making some passive income. Everything I've read on the subject makes it seem doable but how likely am I to actually make any money doing it? Have you seen it work out well and what's the general feel in the market right now; with super low rates on mortgages for 4-5 yrs is renting out a house still a possibility?

[GonePostal]

I've been interested for a while now in purchasing a single family home to rent out as a way of making some passive income. Everything I've read on the subject makes it seem doable but how likely am I to actually make any money doing it? Have you seen it work out well and what's the general feel in the market right now; with super low rates on mortgages for 4-5 yrs is renting out a house still a possibility?

Some thoughts:
1. It is far less passive then most people describe it to be.
2. It's not as easy to people make it out to be.
3. Best way to get started is to be come VERY educated and talk to others that have been successful investing before.

If anything super low mortgage rates have made it very easy to rent out a place and break even.

[nepean19]

I've been interested for a while now in purchasing a single family home to rent out as a way of making some passive income. Everything I've read on the subject makes it seem doable but how likely am I to actually make any money doing it? Have you seen it work out well and what's the general feel in the market right now; with super low rates on mortgages for 4-5 yrs is renting out a house still a possibility?



It's tough to make a big monthly profit, you need to look at what you may sell the property for a few years down the line. In Markham this year a detached 4 br home went up over 60 k from last year. That is not always the case but for the most part real estate will eventually increase over time.
The trick is to try and buy the home at the right time, especially when there are more properties on the market than buyers. You have an advantage over the seller in this type of market which can and should lead to a favorable deal for you. Homes in the middle of winter tend to sit a little longer on the market than they do in the spring when everyone is buying. Another good time to look is in the middle of summer when people are vacationing and once school begins.
Selling in late spring vs January or february can also get you a bit more money. Stay away from homes with stigmas attached to them even though they seem like a great deal you will usually have a tough time selling them.

Hope that helps answer some of your questions.

[Sabarnane]

Thanks for the replies.

As a first time real estate rental owner, would you suggest a duplex/triplex vs. a single family home? Why or why not?

[rgz]

Will discount realtors grab a larger portion of the market share in the coming years?

[nepean19]

"Will discount realtors grab a larger portion of the market share in the coming years?"

We are seeing a general trend towards that. Fees have come down over the past five years from the usual 5% to 4.5 to 4% total commission. Some may do it for cheaper. The problem is that many of these deals come with small print. Remember you need to offer at least 2.25-2.5% to the buyer agent, otherwise your listing will get overlooked by agents with clients ready to buy. A really hard working and well informed agent will know the tricks to get you the best price possible. As an agent we see these listings come up all the time with terrible photos, poor write-ups, no staging etc.
Not saying that they can't do the job, but be careful.

[nepean19]

"As a first time real estate rental owner, would you suggest a duplex/triplex vs. a single family home? Why or why not?"

Duplex's and Triplex's are great for investment income. Find out why sellers are selling. They always put in the adds how much income they bring in. If the numbers look to good chances are they are. Ask for all the financial records and if they don't have them move along. You need to find out the real cost of operating the property. With gas and hydro charges on the up it can get costly when 3-4 families are using the utilities.

Single homes will generally be cheaper to buy and easier to maintain-although you need a firm idea of the condition of every property you purchase. Please pay for a home inspection even if the place looks immaculate.

This is a hard question to answer via this forum, there are so many variables that must be considered when purchasing. Area, future value, Amt. to be financed, how long you want to keep investment etc...

[nepean19]

Forgot to mention that with a triplex you are dealing with more tenants and more leases. Renting is a tricky game the way the landlord- tenant act is set up. As a landlord you don't have much control over your tenants and if you sign a bad tenant you could lose plenty of money if they stop paying and refuse to move out.

For example. Let's say you rent a home out for $2200 a month and you need $1900 to cover your expenses. What will you do if they stop paying rent. It could take you months to get them out. The bank does not care, they want their money. It's a predicament that you should consider because it happens more often than most people believe.

[nepean19]

Just sold my 1st home of 2012. About time!

[MarcFromOttawa]

Just sold my 1st home of 2012. About time!

Congrats.

[nepean19]

Marcfromottawa. How is the real estate market out there? My folks live in barrhaven.

[bambamvan]

I have rental property. If I claim capital depreciation now, and then sell the property later at a higher price I have to add back in the depreciation I had deducted. But when I sell I pay capital gains tax at 50% of the profit and can write off any capital losses. So doesn't it always make sense to max out CCA and then pay Capital Gains when you sell, instead of paying tax on rental income?

[dgodsell]

I have rental property. If I claim capital depreciation now, and then sell the property later at a higher price I have to add back in the depreciation I had deducted. But when I sell I pay capital gains tax at 50% of the profit and can write off any capital losses. So doesn't it always make sense to max out CCA and then pay Capital Gains when you sell, instead of paying tax on rental income?

The sale will trigger the reclaiming of CCA; i.e., the CCA you deducted will be added back to income. So if you have a $100,000 home and claimed max CCA (4%) for 1 year and then sold for $120,000 you'd have $4,000 income added to your income tax to reflect the reclaimed CCA, and you'd have $10,000 ($20,000 x 50%) in capital gains added to your income tax.

Claim CCA over many years and the reclaimed CCA on sale can push you to the highest marginal tax rate making it a money losing option if you aren't already in the highest tax rate.

Bottom line: Only the amount above your purchase price is treated as capital gain.

[nepean19]

"Originally Posted by bambamvan
I have rental property. If I claim capital depreciation now, and then sell the property later at a higher price I have to add back in the depreciation I had deducted. But when I sell I pay capital gains tax at 50% of the profit and can write off any capital losses. So doesn't it always make sense to max out CCA and then pay Capital Gains when you sell, instead of paying tax on rental income?
The sale will trigger the reclaiming of CCA; i.e., the CCA you deducted will be added back to income. So if you have a $100,000 home and claimed max CCA (4%) for 1 year and then sold for $120,000 you'd have $4,000 income added to your income tax to reflect the reclaimed CCA, and you'd have $10,000 ($20,000 x 50%) in capital gains added to your income tax.

Claim CCA over many years and the reclaimed CCA on sale can push you to the highest marginal tax rate making it a money losing option if you aren't already in the highest tax rate.

Bottom line: Only the amount above your purchase price is treated as capital gain."


Thanks for taking that one! I've just learned something