Lets talk about the Calgary home rental market

[squiggs96]

Originally Posted by Red

How does that help him pay for the new place?

To quote Seinfeld about Kramer:
"it's easy to not pay income taxes when you have no income"

In the end I think you just re-confirmed what I told CS. Renting the condo out will not help you much, if at all.

I never once stated anything about how this would help his new place. You said that income taxes would shave 30-40% off your earnings. I have shown you how this is incorrect, which was my point. He will likely not have any income taxes from renting out the place. He won't have any capital gains at this time. All that will happen is he will receive some income, which should cover his cash outflows, and maybe even put a little extra money in his pocket or help out with the living costs of moving in with his girlfriend. No taxes are being paid from any of this at this time or as he continues to rent it out. It will allow him to keep an asset, that hopefully appreciates in value. The goal is to want to pay capital gains, as this means you sold your property for more than you paid for it, and capital gains are only taxed at 50% of the gain, unlike other investments, which the whole amount is taxed.

[Red]

Originally Posted by squiggs96

I never once stated anything about how this would help his new place. You said that income taxes would shave 30-40% off your earnings. I have shown you how this is incorrect, which was my point. He will likely not have any income taxes from renting out the place. He won't have any capital gains at this time. All that will happen is he will receive some income, which should cover his cash outflows, and maybe even put a little extra money in his pocket or help out with the living costs of moving in with his girlfriend. No taxes are being paid from any of this at this time or as he continues to rent it out. It will allow him to keep an asset, that hopefully appreciates in value. The goal is to want to pay capital gains, as this means you sold your property for more than you paid for it, and capital gains are only taxed at 50% of the gain, unlike other investments, which the whole amount is taxed.

I still don't see how you showed that. If he has a 3K income after all expenses then he still needs to pay tax on it. No?

And the capital gains point was already established. I was merely pointing out that he shouldn't just move out and rent out the place as there may be tax consequences.

[squiggs96]

Originally Posted by Red

I still don't see how you showed that. If he has a 3K income after all expenses then he still needs to pay tax on it. No?

And the capital gains point was already established. I was merely pointing out that he shouldn't just move out and rent out the place as there may be tax consequences.

Check out my example post where I stated this:

Take amortization equal to earnings of $3,000 to reduce rental income to nil. (Side note: you cannot create a loss by taking more amortization than your earnings figure.)

Earnings less amortization (CCA) = rental income

3,000 - 3,000 = 0

You then have zero rental income, which goes to your T1, and thus you do not pay any taxes on it, because your rental income is zero.

[Temporary_User]

Should you buy or rent, NYT has a calculator that factors in time spent living there, rent, price, etc.

http://www.nytimes.com/interactive/b...alculator.html

Fun to play around with. I'm happy renting right now.

[squiggs96]

Originally Posted by Temporary_User

Should you buy or rent, NYT has a calculator that factors in time spent living there, rent, price, etc.

http://www.nytimes.com/interactive/b...alculator.html

Fun to play around with. I'm happy renting right now.

There are so many good reasons for renting, and other good reasons for owning.

I hate when you go to an open house and the realtor asks you if you own/rent. Even though I currently own, I usually say rent, just to get their reaction. When they give me the "paying someone else's mortgage" line, I like to ask what's wrong with paying less in rent than I would be with a mortgage, not having to worry about property taxes, strata fees, special assessments, roof repairs, dishwasher conking out, fluctuations in property value, coming up with a down payment, opportunity cost of the extra money, and the freedom to leave with one month's notice if I want to move?

Renting makes sense for a lot of people.

[cracher]

Originally Posted by kaotik

I use Premiere Executive for my rental properties (high end - furnished) - the management fees are quite high but they get premium rental rates (way more than I could get if I was trying to rent it on my own) and they get cleaners in every two weeks... My two units have pretty much been rented every day for the last 3 years...

While I have used them in the past for a DT income property, I personally am better off doing it myself. They can find big numbers, but it's all a wash after you figure in the monthy % and a share of the start-up fee. The market does seem to be heating up in the core. Not even a full day on rentfaster and I had a 6 month lease signed (this was a couple months ago).

[rd_aaron]

Originally Posted by polak

You'll be behind renting if you count the equity you would gain from owning over 2-3 years as your savings from renting are not enough to make up the gap through even the most successful investing.

You can't just make a broad generalization without running the numbers. You may gain equity, but you also lose some of that equity on closing costs & realtor fees when you sell. You also lose out on opportunity cost of the downpayment had it been invested.

There are examples where even after 3 years, if the value of the property stayed mostly flat, you could still end up with nothing at the end of the sale, after the CHMC fees, closing costs, & realtor selling fees eat up all the equity you gained.

Originally Posted by Temporary_User

Should you buy or rent, NYT has a calculator that factors in time spent living there, rent, price, etc.

http://www.nytimes.com/interactive/b...alculator.html

Fun to play around with. I'm happy renting right now.

I'm glad you posted this Temp.. as it can be a pain to run the numbers myself. Here's a super easy example to disprove you Polak.

The condo I live in is worth about $280,000 (recent sale of identical unit). With 10% downpayment, 3% interest rate, $380/month in condo fees, rent at $1400 (what I pay). Also made some other assumptions.. 5% rate of return on investment, 36% marginal tax rate, 3% inflation rate, closing cost of 3%, selling cost of 5%, 25 yr mortgage, and the rest I kept default.

Assuming a 2% per year increase in home value, and 3% increase in rent (default numbers), you would only break even at year 4 so if you sold before year 4, you'd be behind a renter in the same situation. If the value of the condo stays flat for a couple years, you're waaay behind by buying.

If you're going to stay in the property long term, it's almost always a good idea to buy but buying & selling fees eat up too much equity for it to always be a good idea short term.

[polak]

Originally Posted by rd_aaron

If you're going to stay in the property long term, it's almost always a good idea to buy but buying & selling fees eat up too much equity for it to always be a good idea short term.

Sorry I didn't transfer my line of thinking to a 2-3 year scenerio. You are correct that for 2-3 years, renting/buying is a much more difficult choice. Do people actually buy primary residences for 2-3 years? That never even crossed my mind.

When someone says short term to me in real estate terms, I think 5 years minimum.

[rd_aaron]

Originally Posted by polak

Sorry I didn't transfer my line of thinking to a 2-3 year scenerio. You are correct that for 2-3 years, renting/buying is a much more difficult choice. Do people actually buy primary residences for 2-3 years? That never even crossed my mind.

When someone says short term to me in real estate terms, I think 5 years minimum.

Sometimes they do. Situations change. Maybe newlyweds buy a one bedroom condo, and then get pregnant in year 2 or 3, so they want to upgrade to a house. Sometimes people buy a property and then move to a different city for one reason or another a few years later.

I mostly just don't like the argument that renting is paying someone else's mortgage so you should buy. Getting a mortgage is just renting money from the bank.

I actually would like to get into investment properties eventually but for the next year or two, renting is by far the smarter choice for me.

[valo403]

I've been considering buying a rental property in Calgary for awhile but this thread has picked up my interest a bit. Does anyone have any good resources on some of the more general considerations of getting into it?

[Travis Munroe]

I work with a handful of investment clients always looking for a property that will turn a profit even during a typical rental market.
Im a big fan of the 200k give or take 20k 2 bedroom places downtown that leave the option to renovate right away or rent out and then renovate down the road.
PM me if you are further interested.

[Red]

Originally Posted by squiggs96

Check out my example post where I stated this:



Earnings less amortization (CCA) = rental income

3,000 - 3,000 = 0

You then have zero rental income, which goes to your T1, and thus you do not pay any taxes on it, because your rental income is zero.

Sorry, I didn't know you were talking about CCA. When applying to Real Estate, CCA does not really allow you to not pay taxes, it allows you to defer taxes.

[Jing]

Originally Posted by Bertuzzied

I'm getting $1200 for a 525sq ft bachelor suite!!! insane!! I was originally renting it to a fellow cp'er for $795 4 years ago.

Just curious, what is the location of your property?

[squiggs96]

Originally Posted by Red

Sorry, I didn't know you were talking about CCA. When applying to Real Estate, CCA does not really allow you to not pay taxes, it allows you to defer taxes.

You can always opt to take zero CCA if you want to have rental income now. There is no law you have to take it. The only restriction is you can't create a loss with it.

[I-Hate-Hulse]

Whoa - I've always believed you wouldn't want to claim CCA on a rental condo least you trigger recapture and have to include the difference into income. After all, you're in the business of seeing your condo increase in value and you should exit the deal with a much higher resale value (hopefully).

[bizaro86]

Originally Posted by I-Hate-Hulse

Whoa - I've always believed you wouldn't want to claim CCA on a rental condo least you trigger recapture and have to include the difference into income. After all, you're in the business of seeing your condo increase in value and you should exit the deal with a much higher resale value (hopefully).

Recapture means you pay income tax at your marginal rate on the amount of CCA claimed when you sell. You can avoid this by not claiming CCA.

If you don't claim CCA, you pay income tax on the amount of CCA you could have claimed, at your marginal tax rate this year.

Since money now is better than money later, I prefer to take my CCA and defer the taxes into the future. Of course, if you expect to be in a much higher tax bracket in the year you sell, you may wish to not claim the CCA.

[I-Hate-Hulse]

Originally Posted by bizaro86

Since money now is better than money later, I prefer to take my CCA and defer the taxes into the future. Of course, if you expect to be in a much higher tax bracket in the year you sell, you may wish to not claim the CCA.

I guess its situational. If someone has a mortgage for your personal home I think you'd be better off increasing your mortgage borrowings on your rental to get you close to breakeven after deducting interest, and decreasing the mortgage on your personal home. Call it a variant of a Smith maneuver.

[squiggs96]

Originally Posted by I-Hate-Hulse

Whoa - I've always believed you wouldn't want to claim CCA on a rental condo least you trigger recapture and have to include the difference into income. After all, you're in the business of seeing your condo increase in value and you should exit the deal with a much higher resale value (hopefully).

Pay tax on the income now or pay tax on the same amount in the future. Since I expect to be in the same bracket both now, and when I sell, that's an easy decision for me to pay the tax in the future.

I talked about recapture in one of my earlier posts. I'd rather keep my money now and defer payment of taxes as far as I can.

[squiggs96]

Originally Posted by I-Hate-Hulse

I guess its situational. If someone has a mortgage for your personal home I think you'd be better off increasing your mortgage borrowings on your rental to get you close to breakeven after deducting interest, and decreasing the mortgage on your personal home. Call it a variant of a Smith maneuver.

This is very easy to do if you have an NBC All-In-One account, Manulife One or similar that holds your personal account and your rental accounts as subaccounts. The calculations are clear and it holds up strongly under an audit.

[Bertuzzied]

Originally Posted by Jing

Just curious, what is the location of your property?

3111 Varsity. A block away from the U of C.