3 Reasons Why Investing in Real Estate isn’t for Everyone

3 Reasons Why Investing in Real Estate isn’t for Everyone

by Real Estate

Real estate investing takes hard work, proper management, and a decent tolerance for risk in order to be successful. If you want to invest in property and come out on top, you need to have a proper strategy in place. Here we’ll show you the three reasons why investing in real estate isn’t for everyone and what you can do to hedge these challenges to generate more consistent profits.

Cash Flow Risk

Not everyone is able to absorb the risks that come with investing in real estate. For instance, you can be cash flow positive one year and once the local market shifts, enter into a negative cash flow stage that can make it difficult for you to cover your mortgages. If you don’t have enough money in savings to cover yourself, you could be in serious trouble. Many investors don’t realize that they can deduct property taxes, mortgages, bank loans, or line of credit interest as well as operating expenses and capital expenses to earn rental income. This is why it’s imperative to have a proper investment strategy in place to avoid losing money when the market isn’t in your favour.

Rehabilitation Costs

Due diligence isn’t something everyone is great with. But, if you fail to adequately check the history, conditions, and limitations of a rental property, you could end up with excessive rehabilitation costs that limit profits. Many investors require skilled consultants on their side who can help analyze, plan, and execute purchases more effectively.

Tax Risk

Taxation has an impact on the returns of real estate and needs to be considered before investing. Tax rules are complex though, and there can be significant tax implications if you sell the property since you’re required to probate the capital gains for the years in which you didn’t designate the property as your primary residence. Tax risks also exist if you plan to own international property since you also have to consider the different tax laws. For instance, you may be required to pay taxes in the country where you are generating revenue, and you may also have to consider capital gains there as well. However, investment properties can provide significant tax benefits if the owner knows how to maximize their tax strategy.

Owning property can be very profitable if you understand all the risks and taxes that apply to real estate investments. If you’re thinking about investing in real estate, be sure to contact us at The Beacon Group of Assante Financial Management Ltd. We can help you come up with a thorough investment strategy to make more money, take advantage of tax deductibles, and reduce your overall risk.

Help Your Aging Parents Sell Their Home

Help Your Aging Parents Sell Their Home

by FinancialReal Estate

As your parents age, they may decide to sell their current home and move into one that is better equipped for their needs.  As they get older, the stress and uncertainty of the selling process can be difficult for them to deal with; that’s where you can help save the day by stepping in to navigate through the process. Here are some tips on how you can help your aging parents sell their home:

Hire a Realtor

Hiring a real estate agent can make the selling process much easier; plus, a realtor has the knowledge and expertise to help find and negotiate with the right buyer faster than you could on your own. You can help smooth over the process by taking part as the middle man. That way you are fully involved and can help guide the real estate agent as needed, ensuring your parents are getting the best advice and service possible.

Review the Costs

The total costs can come as a shock when the whole process is said and done. Doing the necessary research for your parents can guarentee they aren’t left with any surprises. Knowing how much it will cost to pay the realtor, arrange for home staging, moving costs, legal fees, new insurance premiums, and closing costs is important. What you don’t want is any hidden costs that may put your parents in an unfortunate financial situation.

Home Inspections

Your parents may not be as mobile as you, so taking on the task of inspecting the homes first may be a good idea. You can take pictures and create detailed lists of all the property features and prices. That way your parents can avoid the exhaustion of running around the city and instead select a few to look at on their terms.

Transaction

Your real estate agent and lawyer can take care of most of the transaction details for you, but when it comes to signing, it may be wise to review all the agreements. It will give your parents peace of mind that someone that they love and trust has also looked to make sure everything is correct.

Moving

Packing up a whole house full of items may be too much for your parents to handle. Arrange for family members to come and pitch in on the packing and unpacking; hire a moving company who can transport and move everything for your parents.

Giving your aging parents a helping hand in the sale of their house can make it a much easier transition for them. Hiring professionals that can help guide them is also a good idea, you will know you’re getting the best services and price for your parents.

Investing-in-Real-Estate

Investing in Real Estate

by Investment PlanningReal Estate

Real estate can be a very attractive source of income. It can also be a great way to enhance the diversification and return on an investor’s portfolio. To be a savvy real estate investor, it requires good analytical skills and proficiency in raising capital. From a basic investment property to “flipping” or trading property for profit to operating a real estate investment group, there are many approaches. Knowing how to invest and doing the proper research is important. Here we outline some of the basic points you should understand when looking to invest in real estate.

Growth

A location with steady growth in jobs can signify a strong rental market and make for a good investment. Also, look for areas with overall economic growth, as when the economy increases it drives businesses to hire more people and require more space. A smart investor should ensure that a full analysis is undertaken on unemployment rates of the area that you’re looking to invest in, along with market rental rates and overall consumer confidence.

Vacancy Rates

A review of the location’s vacancy rates is also important. A rise in vacancy rates will, in turn, lead to a decline in rent per square foot and can also result in an increase in turnover in the building.

Absorption

Also, take the time to evaluate the location’s absorption rates. The absorption rate tells you the rate of sales for available properties in a given time frame. A high absorption rate indicates strong demand and reflective rental rates.

Income Stream

For investors looking to have an income stream in rental properties, they need to have a clear perspective on comparable buildings in the area and overall market rental rates. You would typically want to see a cash flow demonstrating positive returns over ten years with low volatility.

Land Value

Finding areas with low land supplies can be a good indicator of potentially increasing land values. Also, gateway markets and emerging markets with limited land supply are attractive investment choices.

When to Buy

There are many factors at play when deciding to purchase. But when you find a property with high returns and low volatility set in a location fostering stable economic fundamentals, low vacancy rates, positive absorption, and strong demand for living and working, you should consider buying.

Securing Money

Research all the different types of mortgages that will be available for you at a favourable interest rate. If you don’t have the equity to buy on your own, you can look at partnerships or capital raise projects with private investors.

Investing in a REIT or Fund

You may also prefer to invest into a Real Estate Investment Trust (REIT) or a Real Estate Mutual Fund offered by a professional investment company. These entities purchase and hold a portfolio of properties, and you can purchase shares in the company.  Look for companies that have historical solid returns, strong property management teams, and know-how to make a profit by adding value to undervalued properties. You can also maximize your returns and reduce risk by investing in a variety of real estate mutual funds, to create better diversification in your portfolio.

Real estate can be an excellent investment vehicle if you know how to navigate the system. But it also can be challenging for those who don’t have direct experience in the industry. Working with a financial advisor specializing in investments can help smooth over the process, and ensure you understand all the ins and outs of the complex system of property investment. Speak with your financial advisor from The Beacon Group of Assante Financial Management Ltd. to explore your options.

understanding principal residence exemption

Understanding the Principal Residence Exemption

by Financial PlanningInvestment PlanningReal Estate

It’s not uncommon for families to own more than one property at the same time. Additional properties can be used as a source of income, or possibly be a vacation home. Whatever the purpose for your additional properties, there are tax laws that govern what taxes you will owe upon the sale of any property. The Principal Residence Exemption is a tax privilege given to Canadians to protect them from capital gains tax when they sell their principal residence.

What is the Capital Gains Tax?

Capital gains tax is accrued when you sell a property for more than what you bought it for. You will be taxed on the profits of the sale which can be quite a large amount depending on the difference in the purchase and sale price. This becomes problematic when a house that was purchased decades ago for a now nominal amount, sells for considerably higher than the purchase price because over time the property value has increased significantly. The average home price in Calgary in 1996 was $176,305; the average home price in 2016 was $453,936, representing 157% average growth. The CRA offers extensive detail on how to calculate capital gains taxes on all eligible property.

Principal Residence Exemption

Even if you do own multiple properties, whichever house is designated as your principal residence is safe from capital gains taxes upon sale, thanks to the Principal Residence Exemption. The Canada Revenue Agency states that the Principal Residence Exemption can be used by a family unit once per year. The family unit is described as the taxpayer and their spouse and any minor and unmarried dependents. This means that under the principal residence exemption, a family could move once a year and not pay capital gains on any earnings from the sale of their principal residence. Capital gains tax comes into play when additional properties are sold that are not designated as the principal residence of the family unit.

Strategic Planning

If you own multiple properties and are planning to liquidate your real estate in the near future, speak to your financial advisor on how to approach each sale and receive advice on how to possibly avoid paying capital gains taxes.

The principal residence exemption is not designed to protect house flippers who buy and sell a house in the same year with the sole intentions of turning a profit. It is designed to be a tax break for families who may need to buy and sell in the same year for whatever personal or work reasons may arise. Talk with your financial advisor if you are worried about, or would like more information on capital gains taxes, the principal residence exemption, or tax planning and tax optimization.

Planning for Retirement as a Small Business Owner

Planning for Retirement as a Small Business Owner

by AgingBusinessFinancial PlanningReal Estate

When you own your own business you might live under the mantra that your business is your retirement plan. This can sometimes work out to be true, but it’s not always a guarantee. You do not want to enter your retirement years without a solid financial plan already in place. It’s not enough to rely on CPP to cover all of your living expenses and maintain the quality of life to which you have grown accustomed. Here are some financial plans that might be helpful to have in place long before retirement is on the horizon.

Equity in the Business

It is possible that your succession plan is for you to retain shares in a class where you can claim dividends to supplement your retirement income. If your company is large enough to do this and still thrive then that is certainly a viable option; however, many small businesses would not be able to sustain this type of dividend. It’s important to talk with your financial advisor well in advance of your retirement years to plan if this is the right move for you.

Registered Retirement Savings Plan

Investing in an RRSP is the most secure way to ensure you have money available to you when you need it in your retirement. By making sizable and regular contributions to an RRSP portfolio, you can ensure that your retirement fund has grown to a sufficient size by the time regular withdrawals need to occur. With different investment options available you have the potential to grow your retirement fund over the course of many years.

Real Estate

Since small business owners can’t depend on a pension plan it might be wise to invest in real estate. This can be done by purchasing income property or simply by ensuring your own mortgage is paid in full. Having your own property be mortgage free by the time you want to retire leaves you with the option to sell and make a nice deposit into your retirement fund. Real estate has been known to be a dependable source of income over the years.

As a small business owner you have to juggle many different things on a daily basis. You may not be close to your retirement years but it is imperative that you invest in yourself and in your future in order to retire in a way that is comfortable for you. It’s never too early to start. Speak with your financial advisor from The Beacon Group of Assante Financial Management Ltd. to make the best choice for your future.