Sunday, 19 January 2014
Investing in Canadian Real Estate
Passive income is one of the most rewarding roads to travel . Investing in Canadian Real Estate is one of my key strategies to receive passive income . Some of the giants of financial literature (think; Rich Dad Poor Dad) remind us that the highest taxed income is earned income. A more favourable taxable income is passive income. Which by definition means you make your investments and sit back and watch your bank account slowly grow. Money earned from rental property income is in this classification. That said, there are many different techniques real estate investors can use to earn this and I’m going to cover a handful of them that might work for you.
The single family home may be one of the easiest investments to start with . Quite simply, you buy a home and rent it to one individual or family. Each month you collect your rent from the tenants of your home. In return, you as the landlord must pay the Mortgage payments, property taxes and insurance. Utilities are optional to include however,my preference is to make the tenant responsible for these fluid pay per use services. The important factor in this operation is to make sure the rent covers all of the fixed costs associated with your rental unit. There are many financial calculators available to help you accurately estimate these expenses (Bank websites, realtor.ca). Enter your expenses into the box, to this number add your property taxes and insurance costs. If you’ve done your homework well, you should have a bit left over after all of your expenses are paid.
The next option for would be investors is a multi-unit property. This is a building that can accommodate more than one family. Duplex, triplex and fourplex are common forms of multi-unit investments. The advantages to these over a single family unit is your price per door. Where a single family home could net you $850 in rent, a duplex may get $700 + 600 for both units. This will bring you more cash flow for your investment. One might expect to pay more for a multi-unit but there is only one property tax bill, one mortgage payment and one insurance premium . Typically you will need 20% of the purchase price down to pick up a investment property. Anything with 5 units or more is now considered commercial and the rules change. You may get away with less than 20% but expect to pay a higher mortgage rate, CMHC fees and insurance premiums.
A less considered strategy is a Rent-to-Own. The basics of this idea is to purchase a nice home in a nice area. The next step: find people who would like to own your home but can’t quite make it happen. An upfront payment is collected from the Rent-to-Own tenants Every month a portion of the rent is set aside to help with the purchase of the home . After a 1-3 yr period the tenant uses the upfront payment and collected premiums to buy your home from you the investor. With the money you’ve earned from paying down the mortgage and the appreciated home value, you are free to move on to your next endeavour.
Legal disclaimer: As with all advice offered on this blog , it is to be considered the author’s opinion and legal advice should be sought out from a professional.
Glenn Brown is owner of My Rental Unit property management and has enjoyed success with multiple unit investing.