Rental Properties... anyone have one?

[midnightfxgt]

Hey Everyone,

I have always thought about owning a rental property, and am looking a little more seriously at it.

I am looking to buy a detached home, preferably with a separate basement apartment (2 incomes that way). Now, I know that rent is counted as income towards taxes, and maintenance etc is all a write off.

My big question is about capital gains tax. In the future, the idea is to sell the house. This will not be in the near future... but still. What percentage is taxed under capital gains? Are there any GOOD FAQ or quick reference guides?

Also, is it true that rental properties now require 20% down payment?

Thanks
John

[Default User]

Not 100% on this but from what Ive gathered from 2 close friends who have properties in Sudbury, and my mother-in-law that has just started this venture at the end of last year.


Maintenance is a huge write-off, but so is the initial purchase, and the costs associated with making it a livable dwelling. The total Capital Investment is a huge write-off and will / can basically recoup your 20% down. That was one of my buddies issues also. But he was told (as basic as possible) from his financial wizard father, is that your thinking should by "the less YOU have to PAY every month". And not how much I can make every month. Which includes CMHC fees, etc
Not sure of any FAQ sites.

[WeatherB]

Don't know the answer to your question but keep in mind that insurance and mortgage interest can be written-off as well.

[midnightfxgt]

Thanks guys......

Default - your buddy's father is right. A rental property isnt something thats going to pay out every month. If it costs a minimal amount, thats great. As the mortgage goes down, and the value goes up is where you make the money :)

-John

[seelsy]

Only 50% of your Capital Gains on non-primary residences are taxable under Canadian Tax Laws. So if you make 50,000 on the sale of the aquired property, you'd only be able to be taxed on 25,000 in gains at your specific tax rate.

[loganm3]

Seelsy is right, 50% is free the next 50% can be harsh depending on a lot of variables.

My brother and I have 2 houses together, we have a different situation though.

We incorporated ourselves into a company, and then bought our first house (back in 2008). Rent paid basically covers all expenses/insurance/maintence, and yes we get to write those all off. We keep on making improvements to the house every year (roof in 2008, windows 2009 and planning ext. paint 2010). Each year our company makes almost $0 (thanks to our accountant) so taxes are not bad.

Where we make our money is how the value of our house goes up, and inturn our company's value goes up. We use equity gained in the first house to buy another house this past winter. We plan on doing the same (replacing roof, windows and other major items every year)

We are doing a buy and hold strategy, we plan on selling everything in 20-ish years and retiring. I would sudgest this strategy to anyone for a variety of reasons.

First and foremost, you can buy a new home every 2 years or so and flip it (as your "primary" residence) because all your other houses are owned by your company. Incorporating yourself protects you, say buddy rents the place slips and falls. If you are a private landlord he can sue you and take your primary residence. If you make a LLC business, they can just go after the assets of the company. Finally the real money, you will make the most when in 20 years that property value has tripple, quadruppled (or in Toronto....5x,7x,10x???) and you are selling a well maintained house with recent upgrades.

Also make sure you buy a house with seperate hydro meters and make the tenants put the hydro in their names!