How does the Federal Election Impact Your Rental Property?

Canada’s Federal Election is on October 21st, and each party is in the final days of campaigning for your vote. For people who own investment real estate, this time of year is important to know how the federal election will impact their properties.

We have gone through the Conservative, Liberal and New Democratic Party platforms to see how they impact you. Take a look:

The Conservative Party of Canada

The Conservative Party’s approach has typically been to reduce taxes in order to ensure there is more money in your pocket. The logic being that you know what you need better than the government. This election is no different

Removing GST from Home Energy Bills

One incentive that landlords will use, especially in slow markets, is to include the utilities in the rent. While it may cost them a few hundred dollars more per month, especially in a house, it is often less than leaving a property vacant. This proposal, if passed, could be very good for landlords.

Reviewing the Mortgage Stress Test

In 2018, the Federal Government put in place a stress test on all mortgages. A homebuyer would have to be able to afford a mortgage two points higher than their current interest rate or the average interest rate as calculated by the Bank of Canada, whichever is greater.

This limited the number of people who would be able to qualify for a mortgage, and especially first time homebuyers. It also affected people who wanted to switch their mortgage to a new lender, leaving people locked in at higher rates.

The Conservative Government wants to remove the stress test on pre-existing mortgages, and allow first time home buyers to take out a 30 year mortgage, provided it is insured. The New Democratic Party also wants to allow first time home buyers to take out a 30 year mortgage.

For rental property owners, this is both good and bad news. On the one hand, it would make it easier for landlords to switch their mortgage to whichever institution gives them the best rate, however, it limits the supply of people who are going to rent.

Most Canadians still prefer to buy than rent, and by making buying easier, less people will choose to rent, driving rents down. This particularly impacts rentals in the middle and upper brackets, as those had seen some growth since the stress test was first introduced. However, it likely will not impact the less expensive rentals, as those who rent in those brackets will still be unable to afford to buy a home. Investors who are looking to buy a rental property may want to look at their investment strategy if home ownership is made easier

Green Home Renovation Tax Credit

The Conservative Party also wants to make it easier for people to make their homes more efficient. Capital improvements are expensive, especially for owners of rental properties, but making a home more efficient can save on utility costs and can make a home more desirable for tenants. This tax credit is for 20% of the cost of a renovation between $1,000 and 20,000 that makes your home more efficient. This would include things like efficient heating systems, solar panels, new windows, or other major projects.This would increase the value of a home, and likely make it easier to rent, as it would decrease a tenants utility costs

Liberal Party of Canada

The Liberal Party also understands that home ownership is a major part of The Canadian Dream, and something that directly impacts most people.

Prioritizing Low Income Housing Support

One of the major points that the Liberal Party has talked about is making housing more affordable for Canadians. The majority of their plan revolves around increasing the number of affordable places to live across the country. This includes working with developers to build new low income housing, allocating underutilized Federal land to develop new programs, and working on Housing First initiatives to help people get off the street and into long term homes.

For landlords with properties with lower rents, this increases the pool of potential tenants. Organizations that support people in moving into their own home will likely have more resources to do so. It likely will not impact those working in more expensive brackets as much.

Removing GST On Capital Projects

The Liberal Party, if elected, wants to help the supply of affordable rental units. To do this, they are proposing to remove the GST on capital investments in affordable rentals. While it is unclear as to whether this will apply strictly to new builds or to pre-existing rental properties, this could save owners hundreds of dollars if they choose to upgrade their property. At Amhurst, we find that properties that are more modern rent easier.

The New Democratic Party

The New Democratic Party has a number of suggestions that will directly impact landlords in Canada. Their general approach historically has been to increase taxes in order to increase the number of government services.

Increase Capital Gains Inclusion Rate

For investors, this is a big one. In Canada, investors are taxed for any gain they may have from stocks, property or otherwise once they sell, however they are only taxable on half of what they gained, not the full amount. The NDP want to increase the inclusion rate (how much you are taxed on) from 50% to 75%.

If you bought a home for $300,000 and sold it for $400,000, you made $100,000 on that sale. By current capital gains rules, you are taxable on only $50,000 of that amount at your tax rate. Under the NDPs proposal, you would be taxed on $75,000.

Investors in real estate buy properties to make money off of the rent, and to see some sort of gain upon dispossession. An increase in the capital gains inclusion rate is bad news for the latter point. This would decreases a property’s overall yield, and make investing in real estate a less enticing option. Not only would it drive down housing prices, it would also decrease the rental pool, as investors would be less keen on buying more properties. This could increase rental prices, especially in the middle and upper brackets.

Foreign Buyers Tax

The NDP also want to make it harder for foreigners to buy properties in Canada. This proposal is in place to limit huge changes in price, as has happened in Toronto and Vancouver, but also to limit money laundering. However, it makes it harder for non Canadians who would like to invest in Canada, either buy buying single units or whole buildings, to do so legitimately. By decreasing returns for foreign buyers, it may decrease the purchase price for some properties, particularly in the aforementioned cities, but when these units are used as rental properties, it could decrease the number of rental properties available. This particularly impacts the upper echelons of the rental market.

What does it all come down to?

At the end of the day, a party’s platform is a series of proposals of what they would like to do if elected. None of this is set in stone, or something that they necessarily will do if elected. The real answers of what they will do will become clearer once the government is formed and they release their first budget.

However, a party’s platform is a good indicator of the types of ways in which they would solve problems. The fundamental values under which each policy point is made are often more important than the actual points that they do make. Looking at how they have chosen to solve issues surrounding housing will give a good indicator of what they might do if elected.

Each party has a different vision for Canada, and each differs in key ways on what is best for Canadians and how best to accomplish it. The best thing to do is to become educated on what each party is detailing, and how it will impact you and your family’s lives.

Photo Credit: The Toronto Star

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Diversifying Your Investment Portfolio

Recently, Saadat and I were at a seminar on economic trends in the global economy, and how that impacts investment strategies. One of our key takeaways was the value of alternative investments.

What is an alternative investment? An alternative investment is anything that is not a stock or a bond, can make you money, and does not tie directly to the investment market. Having alternative investments in your portfolio helps you to manage in turbulent economic times. While they may not necessarily provide you as great a return as investing in stocks, they provide a safe, steady and stable return. These can include currencies, pair trading , or even roulette! However, many of our clients have found success in owning investment properties.

When bought and managed well, rental properties provide stable cashflow to the owner in the form of rent, and strong appreciation upon sale. In most market conditions, having a good rental property should cover your operating costs, and leave you with some money in your pocket at the end of the day. If managed well, they can be used to fund your retirement down the road, as they become incredibly profitable once the no longer have a mortgage.

The biggest risk with buying an investment property is buying the wrong one. So often, clients have come to us with investment properties that they have bought and are disappointed when they do not see the yield they had expected. Often they expect a higher rent than what the market can bear. In these cases, an owner may be covering some of the costs of renting the property out. Buying the right property with the right advise can minimize this risk.

Whether buying a single investment property or making a larger investment in an apartment building or a commercial space, having the right advice is of prime importance.

Looking to diversity your investment portfolio, or have an investment property that needs managing? Contact us today

Photo Credits: Rob Berger: Dough Roller

Does Your Property Manager Understand Your Needs?

When you own a rental property, it is important to have a property manager who understands your objectives and makes strategic choices to meet those needs. Broadly speaking, there are three major groups of people who own investment properties:

Owners by Circumstance

Life changes. As families grow and change, dispossession of real estate is not always in one’s best interest. It is common, especially in low markets, for people to move to a new home, but choose to rent out their property because the price of selling would not be worth their while. In other cases, work or life could take one to another part of the world for a number of years, and they may choose to rent their property out for the time being.

Whatever the circumstance may be, having a property manager that understands your circumstances is important. Because the rental is likely a shorter term move than if it were a strict investment property, making large capital improvements may not be ideal right away- assuming the property is rental ready

Additionally, putting a tenant into the property on a very long term lease (greater than a year) may not be in your best interest. In Alberta, on a fixed term lease, the tenant has rights until the end of the term. Unlike in other provinces, an owner cannot force a tenant out of a property in order to reoccupy their home prematurely. Having a manager who understands your timeline is imperative.

Owners by Inheritance

As difficult as a family member passing away can be, having to deal with assets and wills adds additional complications. Sometimes, families are left with real estate that needs to be managed. It can be anything from a single condo unit to a whole apartment building, but because family members may not want or be able to, hiring a property manager may be a wise decision.

“Your property manager should not be getting involved in family matters, but should be making life easier during difficult times.”

In these cases, your property manager should be adept enough to consult with decision makers to understand ownership objectives. Because these situations can be turbulent, ensuring that the property is well taken care of and any potential risks are mitigated are primary concerns for any owner. If it is an investment property, your property manager should ensure that money is paid to the right people, per the terms of the trust arrangement, and that decisions are made by those empowered to do so. Your property manager should not be getting involved in family matters, but should be making life easier during difficult times.

Owners by Choice

Owners who buy a property as an investment look primarily at two factors: What does the property rent for and what type of property appreciation will I see when I sell? A good property manager knows that keeping the property occupied is most important. Not only does it minimize costs to the owner, it minimizes risk as between the tenant’s insurance (which a good property manager ensures they have) and them being in the house to notice issues can often catch issues more quickly.

A diligent property manager also looks for ways to enhance the value of your investment property. Not only do they inspect your property to look for issues, they can also advise you on capital improvements that you can do to upgrade the property. And because they manage multiple properties, they may be able to get you a better price on these projects and work with trusted trades that will get the job done right the first time. Not only does this increase the value of your investment, it often increases the asking rent for your home, putting more money in your pockets.

Having a property manager who works for you also optimizing major costs to your property through strong preventative maintenance programs. From ensuring your roof is inspected to ensuring the tenant is maintaining your home properly, they work to ensure you do not have to make capital upgrades too often.

“Retaining tenants is a best practice in property management”

A good property manager will also employ strategies to ensure tenant retention. Keeping a tenant in your home for more than one year decreases your leasing costs, and is also less onerous on your house. If a tenant is in your home and generally comfortable living there, it saves you the cost of doing major upgrades. Additionally, moving furniture and boxes both out and in takes a toll particularly on your carpets and walls. Retaining tenants is a best practice in property management, and something your manager should have strategies for.

Signs Your Property Manager Is Working For you

Every owner has different needs. Your needs may be different from the needs of an owner who has a similar ownership structure. Regardless, your property manager should be aware of your objectives, and work towards achieving them. Starting from an initial consultation with a manager who asks about your objectives, right until the day that you choose to sell the property, it is important that they are on the same page as you.

If you are looking for a manager who will work with you to meet your management objectives, do not hesitate to contact us directly.