All Forum Posts by: Luc Boiron

@Phillip Johnson The mortgage doesn't affect depreciation. For the mortgage, you can deduct the interest portion as an expense, but not the principal pay down portion.

For depreciation, here is an example. You buy a SFR for $150k. $50k is attributed to land value (cannot depreciate) and $100k is attributed to building.

You rent it out, and get $20k in gross rents (which is very good return). Your expenses, including interest expense, are $15k. So you have $5k in net income that you would need to pay tax on. However, you can depreciate a certain amount of the building value every year. I believe most SFR are 4%. So you could deduct $4k as a depreciation expense, and only have a net taxable income of $1k.

You don't actually spend the $4k, it is only on paper. If you do any improvements to the property, they cannot be deducted against your income, but rather added to the value of the building, which will allow you to depreciate more, or have a smaller gain on sale.

The depreciation also gets recaptured on the sale, so you usually need to pay tax on it when you sell the property, assuming the property value hasn't actually gone down. So depreciation basically allows you to defer paying some taxes for a while.

I should also note, if you take $4k in depreciation in one year on a building that was $100k, you would have a new base of $96k, and would only be able to deduct 4% of $96k.

I'm not a tax expert though, so definitely speak to one.

@Roy N. should also be able to clarify if anything is incorrect.

@Phillip Johnson I would add in that if your expenses can't decrease your rental income to zero, you can take a certain amount of depreciation that usually will reduce your income to zero. Depreciation cannot make you have a loss though, so you can't use depreciation to bring a properties income below zero to reduce taxes elsewhere.

Also, any depreciation you take will need to be paid on sale in the form of recapture, assuming you don't actually sell the property at the depreciated value.

@Ashton Noland What about simply having the purchase close two months from now, when he can move out?

 What Bram said was excellent advice.

If you try to borrow on your next property and you have high mortgage payments on this one, it will affect your ability to get another loan. Like he said, you can always pay it down early when you have the money, but it's best not to be required to if you are saving money for your next property instead.

Paying the loan down aggressively can be a good strategy, it will just limit you to how many properties you can buy. I would rather buy 40 properties with loans on them and have the tenants pay the loans off over 20-30 years, than have 5 properties that I pay off quickly so have no debt on.

Looks like a good deal to me.

@Mimi H. The rules seem to be about the same as in Ontario. You're lucky that your rent increase is 2.9%, ours is only 2% for 2016. A couple of year ago they also decided to cap the rent increase guideline, so it cannot be above 2.5% in any year, no matter how high inflation is.

Also, I'm not sure how it is in BC, but in Ontario a tenant needs to be given 90 days notice of a rent increase, and it must be on the form prescribed by the LTB or it isn't valid.

@Matt Geerts It is possible to use an unsecured LOC for the balance of the downpayment.

Lenders do not let you use a LOC for the downpayment on a property. However, any funds in your account for 90 days (I guess you need to show them funds in your account going back 3 months of statements, without a transfer from the LOC showing up), they won't look at where those funds came from before. (This is what I have seen, it is possible a particular lender decides they want to see more, speak to a mortgage broker).

The problem here is that you pay interest on the downpayment amount for at least 90 days before applying for the mortgage, so there is a cost to it.

However, using this, the best strategy would be:

75% LTV from a b-lender.

15% VTB from seller.

10% Downpayment from the LOC.

Plus a little extra for closing costs.

Again, I would verify with an experienced mortgage broker that this can be done.

 IMHO, if it doesn't cash flow with 20% down, it's not a good option. It's harder to find cash flowing o[options in Canada than the U.S., particularly in the GTA, but it definitely is possible.

@Amy Conn I agree with @Jake Thomas. 

There are many flippers who buy a property and do cosmetic upgrades like you speak of, then sell it at a profit. They have all the buying and selling costs to deal with, whereas you won't have any buying costs will have barely any incremental selling costs. I imagine the value can be increased enough to make it worthwhile to renovate.

Just be careful what you do. For example, if you spend $2,000 on granite countertops for the kitchen, but the cabinets are garbage and the next person will need to rip everything out, you're not going to get any return for that $2,000. Consider having a professional, possibly a realtor, look at the comps and suggest what needs to be done to hit the higher price point without wasting money.

You can't get this info from a courthouse as far as I know.

The best way is to work with a Realtor who will get you the info. MLS has a strong monopoly here, so it is hard to get much info. Working with a realtor really is the easiest and best way to see solds.

You can go to a land registry office, but each property you request info on will cost you around $8, which adds up fast.

There's a thread on red flag deals that discusses this, and some of the suggestions might be useful.

http://forums.redflagdeals.com/how-find-out-how-mu...

They link to a website that sends out a daily newsletter of listed properties and sold properties, but I'm not sure if you can search past sold properties. 

http://sold.watch/

Let us know if you find a better way.

@Steve Scanlon This is very normal. Instead of making a bad decision, look broader and in different ways. I know in my market that you can't really find deals on the MLS. You need to either look outside of major cities, or change the way you search for deals. Market to sellers, and maybe a deal will come to you.

Good luck!