Canadian real estate market is lucrative, profitable and a safe investment opportunity!
The real estate market in Canada is considered to be one of the most reliable and stable investment markets! And that is mainly due to its regulatory transparency, verifiable accounting and strict rules of obtaining a mortgage.
Surely, the investment market is always cyclical as well as the real estate market since there are always ups and downs, with usual economic fluctuations. As a rule of thumb you should always buy when the market is going down and you should sell when the market price is rising. Buyer’s market substitute seller’s market and vice versa, and there are times of equilibrium.
Income property will also have its special cycles that we need to know, understand and consider when buying and owing a property. Thus, if real estate market fluctuations affect the price of purchase or sale of the property in general, rental properties market fluctuations also affect conditions and pricing of a lease.
Overall, income property always provides a good and stable asset growth and, with proper management, a good monthly income. However, the most important is to make the right choice of a property early on during a purchasing phase of your investment decision.
While shopping for a property you should consider many different factors, e.g.:
- location of the property,
- physical condition of the building,
- type and reliability of average tenants in the area,
- state of the real estate market depending on the area, demographics etc.
All these factors affect both the net income and the subsequent selling price of the property. Therefore, the proper purchasing decision in conjunction with competent real estate management makes it possible not only to obtain a solid capital gain, i.e. an increase in the cost of the building for a specific period of time, but also to get a good monthly income.
How much can you earn by investing in profitable income property?
An example is suggested below, based on figures of one of our customers. In this example, you can see potential for investment, for return and for capital growth.
Of course, every property must be considered separately, and exact figures can only be seen in the analysis of specific case. Well-maintained and profitable real estate property must be carefully chosen, and sometimes anticipated for it to appear on the market.
Property price is 3’000’000$ and we plan to sell it in three – five years.
In order to purchase income real estate property, on average you need to invest 25-30% of the price as an initial down payment, which is 750 000$ – 900 000$ correspondingly.
- Annual net income after all expenses and mortgage payments is about 60’000$.
- In addition, principal payments on mortgage equal about 36’000 per year (based on today’s average mortgage interest rates). Which totals up 96’000$ per year, and is 288 000 for three years.
- The property goes up in value by an average of 8% a year => after 3 years, price of a property is 3.8 million.
Conclusively, if the property is sold within three years, we have an ROI of 800’000$ (increase in the asset price) + 288’000$ (net profit earned in three years) = 1’088’000$
On this amount, you will have to pay taxes for around 251’680$
Thus, after three years: net profit of 836’320$ plus a return on investment 750’000$ – 900’000$
On average you are earning 20 to 30% return per year on investment, which is a fairly high yield on investment with relatively low risk.
These types of investment opportunities are quite lucrative for non-residents of Canada, as for them the tax bracket is fixed, which allows them to pay fewer taxes than residents of Canada, for whom income is taxed at a progressive taxation rate.
In our example above, non-residents will pay 201’280$ taxes, resulting in a net profit of 886’720$ plus a return on investment 750’000$ – 900’000$
Depending on the purpose and timing of investment, there are varieties of patterns that can allow you to save and increase your capital, in addition to earning stable profit. One of the most common tactics is refinancing your existing property, which makes it possible to preserve already acquired property and further increase your portfolio, purchasing a new property with money obtained through refinancing.