When Should You Incorporate as a Real Estate Investor in Canada

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

Real estate investing has many levels, when you are just getting started you probably aren’t thinking too much about incorporation, you are just thinking about picking up your first or second property. But, it’s never a bad time to plan and learn about how different real estate investors structure their deals and the age old question of whether or not you should incorporate to purchase an investment property. Why do people even care about incorporating in the first place. Today I’m going to discuss the different structures to conduct a real estate investment and the thought process behind each, when it makes sense and when it doesn’t make sense to incorporate.

Before I get into the meat and potatoes, just a disclaimer, speak to a tax professional, speak to a lawyer, speak to a CPA, in order to figure out what is right for you. Every situation is different. This blog is just for informational purposes and to get you thinking, I am not a lawyer or a CPA (yet). With that out of the way lets get into it.

Small Time Real Estate Investor:

If you are a small time real estate investor, say you own your primary residence and maybe 1 or 2 other residential properties that you rent out. Does it make sense to incorporate? Well you’ll hear this a lot today, it depends, but in this case most likely not. The reason being that passive income in a corporation like rental income is taxed close to 50% in a corporation. So if your marginal tax rate personally is lower once you include the rental income, it doesn’t really make sense. Obviously, there are nuances and considerations if you co-own property with someone else, or your tax rate is higher, then you’ll want to consult your investment team.

There is further nuance to consider, and this relates to refundable taxes on the corporate income. So while you pay 50% up front without getting into details, you can get a refund of about 30%. Making the actual tax paid closer to 20%.

Where incorporation does make a lot more sense is if you are operating your real estate as a business. So maybe you are flipping homes, maybe you are managing commercial property and the income can be realized as business income. If this is the case and the business is making less than $500,000 a year, your corporate tax rate is around 10%. Then you can choose to do what you want with the retained income and either leave it in the corporation for future investment, or pay it out to the shareholders as a dividend which generally speaking has a lower tax rate than earned income. So there are more tax advantages if you are earning active business income. But if you get into estate planning and paying dividends to various family members and shareholders the level of complication can increase even more.

If you want to know how to calculate income and expenses for a personal rental property the CRA has a useful page. Another interesting note, if you are thinking about transferring a property from personal to corporate ownership for legal reasons or tax reasons that make sense for your situation. You have to be careful because you may have to pay a land transfer tax since the property is technically changing ownership. This is why it becomes increasingly important to think about these things ahead of time if you are planning on building a large portfolio of real estate investments.

Larger Portfolios:

There are many more considerations once you begin to get beyond 4 properties. At 4 generally speaking traditional lenders may not give you a mortgage anymore, so you will have to find financing at B lenders for a slightly higher interest rate, or you’ll have to begin investing through a corporation which can sometimes enable you to find additional lending.

Also with larger portfolios, you may begin to bridge into investing in real estate as your businesses primary operations, in which case the rental income and the property management service you provide to your tenants could begin to be considered as business income rather than passive income. If you are considering building out an investment arm and hiring employees and building a true business to manage your company’s investments, then you would most likely be doing so in a corporation and earning business income.

Other corporate structures:

Partnerships (or Joint Venture) and Limited Partnerships:

This is going to be a very basic overview. But if you are looking at a larger project like a development project, or you want to partner up with someone and execute an investment idea, this could be classified as a partnership, which may or may not have an actual corporate structure or legal documentation to back it up. Legally speaking in Canada a Joint Venture is similar to a partnership, both generally share liability and both partners bear equal risk and can both be legally held liable for any debts incurred by the partnership. A Joint Venture is generally limited to a single undertaking, whereas a partnership generally has an intent for continuation of business. These are defined under common law and may or may not involve corporations as part of the Joint Venture or partnership.

A limited partnership, meanwhile, does have a corporate structure and is more well defined. You will often see when there are multiple investors in one or more projects and the project is managed by the general partners, while the limited partners are generally just the funding partners with an expected return. If you are looking into crowd funding a real estate investment, a limited partnership is generally a good structure to do so because it limits the investors liability to the capital they invest, and if a project is properly managed all partners can share in the returns of the investment.

If you are thinking about doing this type of investment as a Joint Venture or Limited Partnership and expanding the type of investing that you are doing, then might be a good time to talk to a tax professional and a lawyer about incorporation and the different structures that you are considering using.

Concluding thoughts:

The most important thing I want readers to get out of this is to plan ahead and have a broad understanding of what types of corporate structures work best for which types of investments. This rabbit hole is endlessly deep and you can get into umbrella corporations if you are doing multiple investments with different partners at one time, or you want to handle and manage trusts and estate planning. For those who are interested in this side of things I would highly recommend checking out the book: Tax, Legal, and Investing advice for the Canadian Real Estate Investor by Cohen and Dube. It covers a lot of the stuff I loosely touched on in the blog in much greater detail and gets into estate planning.

I also want to stress the importance of getting things done. Quite frankly, if all this stuff is confusing and you find yourself in a research rabbit hole and aren’t actually out there trying to find a good investment, or connecting with the right professionals, get your butt moving and start talking with other investors, go to meetups, talk to CPAs and Lawyers who specialize in this type of thing and do your best to get your hands dirty. All this corporation stuff is somewhat icing on the cake, and while it is good to know and could in theory save you money, you need to be making money in order to have money to save in the first place. So the more important thing to execute on your goals if you are seriously considering real estate investment and get out there.

That’s my two cents this week, as always thanks for reading and hope I got you thinking.

Chat soon,

Oliver

Newsletter Email Archive Sent: May 12, 2024:

Newsletter #14: My Upcoming Pre-Construction Webinar! Mother’s Day! Corporate Structure for Real Estate Investors and More.

Happy Mother’s Day! Hope you all find some time to thank your moms today for everything they do. The big news I want to bring to this newsletter this week is that I will be hosting an event on Saturday May 25th at 10AM! It’s going to be held on Zoom so you can join and sip a coffee from the comfort of your own home. The topic of discussion will be how to get started purchasing or investing in pre-construction. It will be hosted by myself and at least 1 other special guest to help out. We’ll cover everything you need to know about buying “new builds”, why it’s great for first-time buyers to consider, and why they make great investments as well. I’m also going to be talking about how the current market dynamics are proving it to be a very good time to consider making such a purchase. I’m also setting up a new mailing list that will include some of the best project launches of the year, you can opt-in at the link below. I will also be raffling off a $100 amazon gift card at the end of the event for those who attend it live. As another incentive, I’ve also created “an informed buyers guide to pre-construction” for those who register, it will be in your inbox right after you register (if you choose to do so), and of course anyone who can’t make it will get the recording of the whole event afterwards. I’m really trying to make sure you get a good value and no matter your situation you can get something out of it, if you think this might be something you’re interested in you can register at this link. Link removed.

Hope you can stop by!

This Weeks Blog Post:

When Should You Incorporate as a Real Estate Investor:

  • Talking about incorporation as an investor
  • Joint Ventures and Limited Partnerships
  • Mom and pop investors and when they should consider incorporation.

Read the full blog post here: https://oliverfoote.ca/incorporate-real-estate-investor-canada/

Real Estate News:

  • The Toronto Real Estate Board market stats for April have arrived, here are some of the highlights:
    • There were 7,114 sales through the Toronto Regional Real Estate Board – down by five per cent compared to April 2023. Inventory levels or the number of listings of available homes of all types have begun to creep up with over 18,000 available for sale at the end of April, which means there is an increased choice for home buyers.  Prices have remained constant, the average selling price was up by 0.3 per cent to $1,156,167 compared to March of last year.
    • Many would be buyers are continuing to wait for the Bank of Canada to make a move and decrease interest rates. Once rates do move down there is a expectation that many buyers will return to market and put upward pressure on pricing going into 2025.
    • Recently it has been stated that there is 2 years of Condo inventory available for sale when you account for resale, new construction, and developer standing inventory. This will likely lead to a shortage of homes down the line due to the delay that many pre-construction projects are experiencing thanks to slower sales. Opportunities will be available to condo buyers now and in the coming months for buyers willing to take advantage of downward pricing pressures on new construction units.
  • All provinces expect Ontario see rents increasing an average of 8.8% since last year. https://rentals.ca/blog/april-2024-rentals-ca-rent-report
  • Many reports are showing that Downtown Toronto’s office market continues to struggle with high vacancies. With fewer people living Downtown, this could be leading to the downward pressure on residential rental prices in the downtown core and surrounding as people have more selection and can move further away from work.
  • This overall trend of higher office vacancies could also be a contributing factor to slower condo sales and construction in downtown as fewer people have the need to live there and can find more space elsewhere.
  • Additionally, with international student visas being restricted for the upcoming school year, this could also result in downward pressure on rental prices in various cities as the demand for rentals from students gets cut in half.

Market Performance as of close Friday May 10, 2024:

S&P 500: 5,222.68 (+10.12% YTD)
NASDAQ: 16,340.87 (+10.67% YTD)
S&P/TSX Composite: 22,308.93 (+6.88% YTD)

Canada CPI Inflation Mar 2024: 2.9% (0.1% Increase from Feb 2024)
Current BoC Benchmark Interest Rate: 5% NC (Next Meeting: June 5, 2024)
Unemployment Rate Mar 2024: 6.1% (0.3% Increase from Feb 2023)

Thank you for reading and have a wonderful day,

Oliver Foote

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Canada’s New Capital Gains Tax ($77,000 per year increase)

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

If you’ve purchased stocks or own some real estate then you’ve likely heard about what changes the federal government has proposed to the capital gains tax. I thought I would go through and talk about this and in a future post I may go over some of the other changes proposed. There was talk of millions of homes getting built which might be what we need to work through our housing problem. But will we have to manpower to accomplish these lofty targets? I’m not so certain.

Let’s begin with the big headline. The changes to capital gains tax. Under the proposed 2024 budget the capital gains inclusion rate, which is the percentage of the gain that is taxed, will stay at 50% for gains under $250,000. However, beyond $250,000, 2/3rds of the gain will be taxable at your marginal tax rate. This would most likely be taxed at the highest tax rate since the gain itself will almost produces enough income to put you in the highest tax bracket.

So lets take an example. You sell a real estate asset and it produces a gain of $500,000 under the current system where 50% of the gains are taxable, you would owe tax on $250,000. If you’re in Ontario the combined federal and provincial tax rate is 33+13.16 = 46.16%. So you would owe approximately 250,000*.4616 = $115,400 total on the gain.

Under the proposed change, your first $250,000 would produce $125,000 of taxable income. I’m going to assume this is still taxed at the highest tax bracket. This means you would owe $57,700. Then on the next $250,000 gain, you would have an inclusion rate of 2/3rds which is $166,666.67 of taxable income. This means you would owe $76,933.33 in taxes. The total tax amount is $76,933.33+$57,700 = $134,633.33.

So the change in taxes owed is approximately 134,633-115,400 = $19,233 increase. As you get into higher gains this number does increase quite a bit. Another way to look at this is as an “effective” tax rate. If you get taxed on 50% of the income at a 46.16% tax rate your effective rate on all this income is .5*.4616 = 23.08%. The effective rate of 2/3rd’s is 0.6667*0.4616 = 30.77%. So this is an increase of around 7.69% in taxes on any capital gains beyond $250,000.

If you are an investor, and you are buying and selling many stocks, real estate, or businesses and making millions of dollars a year doing so, you’re going to owe approximately an additional $76,900 in taxes per $1,000,000 in capital gains. That would be a total of around $307,700 per $1,000,000. Where under the current system it’s closer to $230,800 per $1,000,000 gain. The increase is the equivalent of a pretty decent salary for the average Canadian. Crucially, primary residences remain tax free, which is the majority of Canadian’s largest asset and many Canadians retirement plans.

Many people in the business community are arguing that this change could do a few things. It could disincentivize venture capital from investing in Canada, disincentivize general investment in new businesses, and cause investment money to leave Canada altogether and put us into a further state of stagnation. Our per capita economic output has actually declined over the past year due to our recent population influx combined with higher interest rates. Interest rates impact borrowing costs which is how a lot of business invest, less investment equals less economic growth; generally speaking. Additionally, if companies who are mobile  choose to leave the country altogether, depending on the nature of their work, they may or may not be able to keep a Canadian workforce. Which could also negatively impact the Canadian jobs market.

Regardless of your stance on this I do believe that a change of this nature (some type of tax increase) was likely to be proposed at some point as more and more people feel they cannot get ahead for one reason or another and politicians hear about peoples problems and look for someone to come after. With the higher interest rates impacting food, gas, and other essentials. The cost of purchasing a home having outpaced wage growth by almost 4x. It is likely to put a target on the backs of people who have already found their success as governments search for a solution to these issues and try to find people to help pay for their programs and chosen investments.

So if this change does pass what will happen? I think this change most likely won’t cause any major exoduses out of capital markets. It’s unlikely that people with strong ties to their families and communities will end up jumping ship. After this change, capital gains are still going to be taxed at a lower rate than equivalent earned income theoretically still making it a good idea to invest. I also doubt that it will cause any investors to change their long-term plans and sell all their investments this year. Investment is a long-term game and takes detailed planning. So even with this change I don’t see it having an outsized impact on the markets.

I’m not a politician, not an economist either, so I can’t say whether or not this new tax will actually provide a meaningful contribution to the deficit or if maybe the better approach is to simply spend less. There could also be a variety of other solutions out there that don’t require a tax like this. No one enjoys paying higher taxes. Another point I think is worth mentioning is that the current government has lost some popularity among constituents. Therefore, if I was a prudent politician looking at my odds to win the next election, I would likely try to be a bit more aggressive on what could be one of the last budgets I get to table to see if I can push through some final big changes before I get the boot. We’ll see how this pans out, and I will be following the news on this change closely. While I do have further thoughts on this topic it is a bit of a challenging one to discuss so I’ll leave it there for now. Feel free to let me know your thoughts via email or leaving a comment below.

All the best,

Oliver

Newsletter Email Archive Sent: April 28, 2024

Newsletter #13: The Proposed Capital Gains Change, Other Real Estate News.

April is coming to a close! The big news the past few weeks has been the federal governments 2024 budget. The big discussion in the business and real estate communities has been the proposed increase to capital gains tax. I write about that in my blog post. As far as real estate goes there were some proposed increases in spending on building new housing. The government also wants to introduce accelerated Capital Cost Allowance acceleration (faster depreciation) for certain purpose built rental housing, which could incentivize more builders to take on those projects. The home buyers plan for using RRSP towards a down payment has increased from $35,000 per person to $60,000 per person.

This Weeks Blog Post:

How the Proposed 2024 Federal Budget Could Impact Investors:

  • Discussing what financial impact the tax increase will have
  • Will the change cause lower investment? Maybe some people to leave the country?
  • If this changes goes through it could send an interesting signal to people who are well off and prompt them to get ahead of further changes by moving elsewhere.

Read the full blog post here: https://oliverfoote.ca/2024/04/28/how-the-proposed-2024-federal-budget-could-impact-investors/

Market Performance as of close Friday April 26, 2024:

S&P 500: 5,099.96 (+7.53% YTD)
NASDAQ: 15,927.90 (+7.87% YTD)
S&P/TSX Composite: 21,969.24 (+5.26% YTD)

Canada CPI Inflation Mar 2024: 2.9% (0.1% Increase from Feb 2024)
Current BoC Benchmark Interest Rate: 5% NC (Next Meeting: June 5, 2024)
Unemployment Rate Mar 2024: 6.1% (0.3% Increase from Feb 2023)

See you in two weeks! Oliver

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How to Set up Property Management Systems for your Real Estate Portfolio

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

This post is going to be more of a guide on how to set up a Property Management System. This can work even if you just have 1 property to manage although the payoff is a bit better where you are dealing with more than 1 property. I’m going to assume a few things in the post, that we are mainly talking about property management for residential rentals, this could be any number of rentals, single family, multi-family. I’ll even have a section on short-term rentals like AirBnB or self managed BnBs. I do plan on discussing commercial real estate property management in a later post, but that will be focusing more on people who own retail, industrial, or office spaces.

Property Managers:

So you own a few residential properties and it’s starting to become a bit much to self-manage, or maybe would just rather have someone else handle tenant issues when they come up. The first and most important thing you will need is a property manager. They usually charge between 8-12% of rent in order to look after the property for you. You will still have to pay the expenses to hire the professionals if/when something breaks. But the property manager basically steps into your role and handles the coordination for you. There are different forms of property management. You can hire it out to a larger company who manages multiple properties for multiple landlords. You could try to find someone who operates more independently, small business style where it might just be one person that you sub-contract out the property management to. Finally, you could outright hire your own property manager on a salary, if you have the properties to warrant it.

Regardless which option you choose, it’s important to interview whoever you’re thinking of going with and do some background research on them. Make sure they already have pre-existing systems and a good track record of success in place. I’d also recommend interviewing some other people they manage property for to make sure they are good at what they do. Lastly, I would recommend whoever you work with putting some rules in place for the way that you want problems handled, you are paying them after all. Ask them if they already have standard operating procedures, if they don’t you can always work with them to build a manual of operations dealing with problems that come up at your properties specifically, spend limits on small issues, etc. Building a manual for dealing with problems is a good practice anyway especially if you’re planning to expand and hire your own in house property manager at some point. If you have a smaller number of properties it may be worth asking your Realtor. If you’ve bought an investment property with them in the past there can be some benefits to working with your Realtor. They have access to the MLS for finding tenants, they have worked with many investors and may even have investments of their own, and they may already have a property management wing to their business. From a Realtors perspective its good business to continue working with their past clients in any capacity so down the line you buy or sell your investments or primary residence with them, this can sometimes include property management. Either way they are likely to have some recommendations for you if you are looking for property management and they themselves don’t provide that service.

Tenant Screening:

With the value of properties across Canada continuing to climb, it is important to find great tenants. There are many different ways to screen Tenants, you can add this to your property managers manual. Nowadays the “standard” rental documents are last 3 paystubs or income tax return, Photo ID, landlord reference letter, employer letter, credit report and score, and occasionally bank statements to verify income. That’s a lot of stuff to sort through and depending on the market and the amount of demand in the market, you may not want to be the one doing the background checks and calls to employers. That is where your Realtor or Property Manager comes in. They can do a round of preliminary screening for you, and once they have found a candidate and screened them they can leave the final decision up to you, or you may decide to allow the property manager to handle the entire process. Nowadays it is also prudent to see what you can find from Googling or checking social media platforms to verify what you can about the tenants you are considering. Again, all of the steps of doing this should be added to an manual of operations if you want a property manager to handle everything.

There are many software’s out there nowadays that can do a secondary check, and I would recommend using one of these, the one that I have been using recently to screen tenants is called SingleKey. It costs about $25 per tenant to screen, but it goes in depth and checks criminal records, credit scores, and more. It gives that extra layer of security that makes sure the tenants are who they say they are by doing a deeper dive into databases that the public general doesn’t have access to.

Trusted Tradespeople:

When you are first starting out you many not have a list of tradespeople that you can trust to do a good job if something comes up at your property. Again, if you are unsure where to find someone I would recommend asking your Realtor if they have someone they can recommend. Otherwise if it is your first time using a particular tradesperson I would do a bit of a background check online about their business and see if they are established and legitimate, see if you can talk to past clients about their work. Over time you will build up a list of tradespeople that you know can get the job done right, on time, and at a good price and this would again be something you add to your manual of operations and who to call if something or other breaks, goes wrong, or needs to be repainted after tenants move out. A list of tradespeople that you might want to consider gathering are as follows: painter, plumber, electrician, cleaner, movers or junk removal (to swap appliances etc.), lawyer or paralegal (in case you need to evict a tenant), and Realtor to help find tenants.

Student Rental Property Management:

If you are planning to run a student rental near a University or College campus, the property management of this can get a bit more complicated since you are likely to get calls that maybe working professionals wouldn’t make, like changing lightbulbs, or fixing a hole in the wall. When working with student rentals it’s very very important to factor in the extra expenses that you will come across. This means painting every year if needed, possibly hiring cleaners every quarter to make sure the property stays in a liveable condition, having the correct (more expensive) property insurance, and ensuring the property is above and beyond fire code standards with regards to alarm systems. Student rentals can be a very profitable enterprise, but the management of them also requires more work. The manual of operations for the property manager will likely be different from a traditional rental  and take a bit more time to develop. You’ll have to consider getting co-signers on the leases, which is twice the paperwork and twice the screening. You’ll have to make sure that you either come to an agreement with the tenants about garbage, lawn maintenance, and snow removal, or you hire that out as well. You’ll have to consider to a greater extent how you want to manage utility expenses, baking it into your rent, or requiring each tenant to pay a portion (again adding overhead and time to the process). There are many considerations when dealing with student rentals, and you may get charged a bit more by the property management to manage these types of properties, but the one great thing with student rentals is that their rent default rates are extremely low. Parents are supporting them, the government and banks are happy to hand out loans. So it’s more unlikely you’ll be in a situation where someone isn’t paying their rent, but they may forget once in a while so you’ll have to stay on top of things. I will likely make a longer post detailing student rental considerations in the future and how to retrofit and property for it, finding good deals etc.

Medium or Short-Term Rentals (AirBnB):

If you are considering a short term rental business, you will again have different considerations from the other types of rentals I mentioned above. The biggest change is that you will have to have a cleaner basically on call all the time after each persons stay. Many companies exist that specialize in short term rental cleanings, and they will even send pictures after each cleaning, which I would recommend you request no matter the cleaner you work with. This can be even more profitable than the Student Rental business, but it also comes with more risk. If you are considering doing this and hiring a property manager, the fees will likely be closer to 20%. You also have to look into the area you plan to host your AirBnB and see what the rules are for doing so. For example Toronto has tried to crack down on AirBnB’s requiring a license, and only allowing people to rent out their primary residences. There are also many condo corporations in many cities that ban AirBnB or short-term rentals in their bylaws, so if you are looking to purchase a property in a condo specifically for short term renting, you have to confirm whether they allow this.

There are also many many intricacies to getting your AirBnB at the top of the rankings; such as uniqueness of the property, photos of the property, reviews etc. There are websites that can assist in your market research if this is something that you are considering doing. One website that is well known for researching the AirBnB market is called AirDNA. There are also software’s and websites that are built specifically to assist people who are looking to manage or operate their AirBnB’s which can help with managing bookings, cleanings, etc. You also want to make sure that your guests have someone responsive they can contact at all times to deal with their issues in a timely manner since your reputation is everything.

There has been a lot of talk about AirBnB fees becoming a bit excessive in recent years, and while it is a great search engine for posting your short-term rental, once you have more experience and more properties you may want to consider creating your own website, with your own booking system to avoid these fees. This works very well for many kinds of short-term rental operators. For example, there are many “mom and pop” more traditional bed and breakfasts that have minimal websites, a phone number to call, and an email to send an E-transfer to. This can work surprisingly well, and seems to be somewhat more common in rural areas that have been hosting people this way since before AirBnB’s were a thing. Niagara Falls or Niagara on the Lake are great examples of areas where this is more common. But this can also work in more populated areas like Toronto for example. There are some pros and cons to doing things this way, AirBnB has a system of dealing with guest issues that somewhat circumvents you as the host, but if someone is booking directly you don’t have that extra layer of security. But on the flip side, you get a direct line to people, and have more control over their experience and what happens during their stay and depending on the vibe you are going for some people may prefer the feel of a small local booking, compared to booking through AirBnB. Did I mention that this saves on the AirBnB fees? This does come with it’s own host of challenges, where instead of competing on the AirBnB rankings, you are competing on the Google rankings, which could arguably be more difficult. You are also going to have to work harder and operating your business this way will likely require a lot of word of mouth, whereas getting started with AirBnB is very low barrier to entry. Many people choose to do both, or start with AirBnB and then find a way to transition once they have become more established.

Conclusion:

There are many approaches to property management and many different types of rentals out there which is great as an investor because that means you can have a number of strategies for a property that you are considering purchasing, if one doesn’t work out, maybe the other will. Look out for slightly more in depth posts about each of these types of investments in the future. As well as posts about investing in retail or other commercial properties and how to go about evaluating those properties as investments. Hopefully you found this short Property Management overview useful and at the very least it got you thinking about the various ways to property manage and building out your own systems for your portfolio. If you have any comments or questions I’m available by email: oliver.foote@royallepage.ca.

Thank you for reading and have a great day!

Oliver Foote

Newsletter Email Archive Sent: April 14, 2024:

Newsletter #12: Setting up Property Management Systems, BoC Rate Update, March Market Data

April is here! Hope everyone got to enjoy the Solar Eclipse last week, at the very least peeked outside for the totality. I drove out to Niagara and the drive to Mississauga was a cool 3 hours, I’m not sure there will ever be that much traffic on that stretch of highway again. It was a fun adventure nonetheless. In this weeks blog I discuss how to property manage various types of residential property from long-term to short-term rentals, how to build out systems, and what to know or consider when hiring out property managers. Another reminder that we are approach the tax deadline on April 30. Inflation continues to come down, but the bank of Canada isn’t anticipating it reaching 2% until 2025 with housing being the holdout to inflationary pressures. I’ve personally noticed in grocery stores that the weekly sales and promotions seem to be popping up more and more, grocery bills are still high, but the sales are helping if you are a savvy shopper and I’m noticing a different in the total cost of my cart.

This Weeks Blog Post:

How to Set up Property Management Systems for a Real Estate Portfolio:

  • What to consider when looking for a property manager
  • How to find trusted tradespeople
  • Creating an “operations manual”
  • Different types of rentals and their different property management considerations (Long Term, Student Rental, AirBnB)

Read the full blog post here: https://oliverfoote.ca/2024/04/14/how-to-set-up-property-management-systems-for-your-real-estate-portfolio/

Housing News:

  • The Bank of Canada announced on Wednesday April 10 that they will continue to hold their benchmark interest rate at 5%. From my reading of their announcement it does not seem likely to me that they will be lowering rates at the next meeting in June. It does appear that their main concern continues to be how housing is contributing to inflation.
  • A somewhat significant change that may influence interest rates is the unemployment rate rose form 5.8% in February to 6.1% in March. Since the Bank has a double mandate to keep inflation low and unemployment low, if unemployment continue to climb they may be willing to cut rates sooner than later. This is going to be an important indicator to watch.
  • Federal Government to Allow 30 Year Mortgages for First Time Buyers: CTV
    • This change will come into effect Aug 1
    • Affects new build homes and insured mortgages (a.k.a. High ratio mortgages) where buyers put less than 20% down.
    • My thoughts: While this may help some buyers enter the market, I think it may just result in even more homes becoming out of reach. This also may just be a targeted approach by the government to revitalize the new-construction industry, since sales of new construction hit decade lows recently due to the higher costs of borrowing.
    • From a banks perspective this is likely a good thing for them since they get to collect more interest for a longer period of time. But by that same token this could also allow higher risk borrowers to put themselves in an even longer term debt situation. As a general rule, I don’t think that more borrowing and more leverage should be the way we are approaching our housing needs. Canada already has one of the highest debt to income ratios in the world. So allowing people to take on more debt is not a good thing in my view.
    • March housing market data shows that prices increased in the GTA 1.9% to $1,121,615 from this time last year. New listings are up 23.1% from last year to 12,459. While inventory has climbed from last year, the overall inventory to sales ratio is lower than historical averages in some markets, meaning we could see upward pressure on prices here soon.
  • Condo prices have either declined or stayed flat from this time last year, which is good news for First Time Buyers. The condo market continues to have higher supply than other sectors. This means that buyers have more choice and with fixed rate mortgages slowly coming down, we are likely to see a pickup in activity once buyer realize their increased buying power.
  • Investors in Condos may also be looking to sell, since low pandemic rate mortgages may be coming up for renewal and could result in renewal scares and no longer make the investment cash flow positive as a result.

Market Performance as of close Friday April 12, 2024:

S&P 500: 5,123.41 (+8.02% YTD)
NASDAQ: 16,175.09 (+9.54% YTD)
S&P/TSX Composite: 21,899.99 (+4.92% YTD)

Canada CPI Inflation Feb 2024: 2.8% (0.1% Decrease from Jan 2024)
Current BoC Benchmark Interest Rate: 5% NC (Next Meeting: June 5, 2024)
Unemployment Rate Mar 2024: 6.1% (0.3% Increase from Feb 2023)

Hope you have an amazing week! Chat soon!

Best regards, Oliver Foote

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