On Feb. 20, Finance Minister Carole James unveiled the NDP’s 2018 budget plans which included a 30-point plan in hopes to establish a fairer housing market – by stabilizing it, cracking down on real estate fraud and in creating more rental housing units for citizens.
With new implementations taking place, we thought it’d be handy for fellow real estate investors to know about these changes.
For those who currently don’t pay income taxes in the province of BC, this new policy may affect you. The tax rate for 2018 will be $5 per $1000 of assessed value, with rates proceeding to rise to $20 per $1000 of assessed value in the following year of 2019. A good example of this can be found in a $500,000 condominium, where it will incur $10, 000 in property taxes per year. This could indefinitely affect any positive cash-flow that your property currently has.
As for those who are out of town investors, it would be an opportunistic time to sell your property within this year to avoid being subject to the 2019 speculation tax.
- Tax Reporting for Condo Assignment Sales
Occasionally, some investors choose to not report their taxes for their condo assignment sale(s) so they can keep a larger portion of their financial gain – this is no longer possible as the provincial government now requires condo developers to collect and report comprehensive information about their assignments; this information will thus be shared with federal and provincial tax authorities to ensure no one evades their taxes on property assignments.
It is advised that you have your accountant report all sales and purchases of any condo assignments to the CRA on your behalf and to pay the taxes amounted from them. Paying capital gains taxes means you have made money, and by living a more righteous life we’re sure you will be rewarded in the future with more opportunities of capital gains! 🙂
- Allowing Online Accommodation Providers to apply PST and MRDT (Hotel Room Taxes) on short-term rentals
If you currently have any rental listings on online accommodation platforms such as AirBnb, VRBO and others, you are now enabled to collect and remit both the PST and MRDT amounts payable to the provincial government. As for those who have listings on Craigslist or Kijiji, it is also recommended to collect and remit both taxes, though there are currently no regulations in place that requires you to do so at this moment.
- Making a $6 Billion-plus investment in affordable housing to deliver 114,000 affordable homes and building more than 14,000 units for middle-income earning individuals, working families and low-income seniors
With more affordable homes and units being built for the middle and working class, there will be a decrease in competition of renting from us real estate investors – we can then market to higher income tenants and working professionals who are less likely to be unable to afford to living in our properties. This saves us from the headache of receiving bounced cheques and drastically decreases the likelihood of evictions. This is awesome!
- Government is partnering with post-secondary institutions to deliver at least 5,000 new spaces in student housing
Though the NDP government is hopeful about the additional amount of at least 5,000 new spaces in post-secondary institution housing – specifically because they expect more rental housing would become freed up, we believe this goal is not as easy to obtain. Based on our knowledge, the majority of students attending our post-secondary institutions live at home and their relocation will only result in a room becoming freed up in their family home. Additionally, these proposed student housing units will only be implemented with the full cooperation of post-secondary institutions with the government as they require additional funding to carry out establishing these student homes. More so, there is also the added factor of whether or not there is land available nearby these campuses. All of the procedures required to making this possible would surely take quite some time, so us investors can still sit back and enjoy the cash flow gains from our student rentals for the time being!
- Increased funding for the Residential Tenancy Branch
An increase in funding will result in reduced wait times for solutions to landlord/tenant disputes which is a huge plus for us Landlords, as should we be unfortunate to encounter a bad tenant, it ensues a tedious process until we can evict them out of the rental property.
These are just some changes to keep in mind on how it may either affect you now or on your next income property.
To read more from the 30-point plan geared towards housing affordability in B.C., click here.
And as always, if you ever have any questions about real estate investing or need help choosing the next best income property, please contact us.
In October 2017, the Bank of Canada announced that new mortgage rules will be taking place beginning Jan 1, 2018. This will drastically affect borrowers if they are currently putting a minimum of 20% towards their down payment as of right now as they are enjoying the benefits of qualifying for the lower rate of their mortgage contract. As of next year, it will become mandatory for borrowers to qualify for a greater benchmark rate either at 4.99% or their contact rate with an additional two percent on top – therefore reducing the amount you can borrow by around 20%.
For example, if buyers currently qualify to be a in fixed term mortgage contract at a discounted rate of 3.14%, under the new rules they would have to add an additional 2%, thereby, they would have to qualify at a rate of 5.14%.
Borrowers however may be able to be exempt from the new mortgage rules should they either:
- renew their current mortgage with their existing lender where their amortization period stay the same and where no additional funds advance;
- if they purchase a property before the new rules take into effect (completion can be in the new year);
- if they get a mortgage with credit unions such as Coast Capital or Vancity due to the fact that they are not federally regulated banks, and as of this writing, only federally regulated banks are affected by this new rule.
With that being said, it is important that as real estate investors you understand how the new mortgage rules taking place will affect you so you can prepare for any changes ahead of time. Happy mortgage shopping!
The City of Vancouver is implementing an Empty Homes Tax due to a lack of rental properties available. Properties deemed vacant will be subject to a tax of 1% of the property’s assessed taxable value.
Mayor Gregor Robertson said,“Vancouver renters are in crisis, with the rental vacancy rate hovering over zero for years. The city will not sit on the sidelines as more than 25,000 empty and under-occupied properties hold back homes for people who live and work in Vancouver. We need a tax on empty homes to encourage the best use of all our housing, and help boost our rental supply for locals.”
Consequently, it will now be mandatory for each Vancouver homeowner in the city to submit a declaration of their annual property status – determining if their property will be subjected to the empty homes tax policy by February 2, 2018.
Most properties will not be subject to the Empty Homes Tax, including those:
- Used as a principal residence by the owner, his/her family member, or a friend for at least six months of the current year
- Rented for at least six months of the current year, in periods of 30 or more consecutive days
- Meeting the criteria for one of the exemptions https://rem.ax/2B0AbH4 .
Nonetheless, upon failure of submission or meeting any of the exemption criteria, your property will be reckoned as vacant and will be subject to the one percent tax rate based on the 2017 assessed taxable value of the property. This is sure to impact the vacancy of homes as based on the assessed value of an average home in Vancouver now to be $1 million the tax subjection would cost owners at least $10,000.
In addition to this, the homeowner will also be charged with a $250 penalty for not adhering to the declaration requirements.
As Real Estate Investors, we’re sure your Vancouver home will be full of tenants at all times, but we just thought we would give you this interesting update. Happy Landlording!
One of the most frequent questions my clients ask is, “Should I incorporate or use my personal name to invest?” There is no hard and fast answer for this, as everyone has different circumstances.
As an Investor myself, and someone who has helped hundreds of investors purchase their real estate, all I can tell you is that about 90% of my clients, even the wealthy ones with over 10 investment properties, have invested in their personal names.
Drawbacks of Incorporating
Of the 10% who invest through their corporation, there are a few who wished that they had just invested in their personal names. When I ask those clients why they regretted investing through their corporations, this is what they have told me:
Difficult Mortgage Approvals
“Mortgage financing became harder as only a handful of banks will finance an investment property owned by a corporation. It also takes longer to get the approval, and there pages upon pages of criteria for us to fulfill. We were nervous that we would lose the deal because we couldn’t remove subjects.”
“The start-up costs of a corporation and the annual accounting and filing fees are a few thousand dollars. That eats up all our positive cash-flow on our properties.”
“I was told by my accountant that taxes for rental income is over 49% as the exemption only applies if I have 5 or more full-time employees in my real estate business.”
For the above three reasons alone, I can see why so many people shy away from incorporating. Having said that, there are benefits to incorporating too.
Benefits of Incorporating
For investors who do joint ventures and have many partners, investing via a corporation can add a layer of protection in the event of a legal dispute. Owners of a corporation wouldn’t likely be impacted by any remedy or judgement.
Upon hearing this, investors usually follow up with, “What about tenants suing me?”
If your property is managed by a property management company, they should have insurance to cover liability claims. You should also have tenant insurance on your home insurance policy, and make sure that it includes liability coverage. It’s always best to check with your property manager and your home insurance company to know what you are covered for.
It’s also wise to keep your investment property in good shape and do repairs as soon as possible after the tenant reports it to you. That way, you will avoid most tenant claims for injury.
Assess Your Situation to Decide What’s Best for You
In general, if you plan on investing in under 5 income properties, its probably better to invest in your personal name. But if you plan on making real estate investing your business and invest in many properties with various partners, then having a corporation could be beneficial for liability reasons.
I invest in both my personal name and through a corporation. For my joint venture deals, it’s through my corporation. When investing on my own or with my family, I invest in my personal name. That’s the best scenario for me.
If you have any other questions regarding this topic, it would be best to speak to your real estate lawyer. They can determine what is the best scenario for you.
As investors, one of the first things we should look into when choosing where to purchase income properties is the economic fundamentals of an area. Does the area have a strong population growth? How is the job growth in the region? Are vacancy rates high or low?
BC currently shows a strong population growth, job growth and low vacancy rate. Here are some excerpts from the CHMC Vancouver Housing Update and Urban Analytics Futurecast presentations which we can use to determine where to purchase next.
Surrey lead BC’s population growth, adding 4000 households, while Vancouver was second with 2836 new households.
BC had the highest job growth in Canada at 3.2%.
Most of BC has rental vacancies of less than 1%
This means that for every 100 properties that are rentals, only 1 or less than 1 is available to rent. This makes it easier for us to find and choose the best tenants.
The most affordable homes in 2016 were in Squamish, Abbotsford, Mission and North Delta
Here at Point B Real Estate Investments, we focus mostly in Abbotsford. We find a higher quality tenant profile living there due to the various industries located in Abbotsford, like the University of the Fraser Valley, cancer research facility and rehab centre, and the Abbotsford Airport.
These are just a few things to consider before buying your next income property.
To view the full Futurecast presentation, click here.
And as always, if you have any questions about real estate investing or need help choosing your next income property, please contact us.