Looking to make money in Langley’s real estate market? Investing in property can be a highly lucrative endeavor if done with much forethought and planning. Speak to your team of real estate professionals-realtor, lender, lawyer and accountant to ensure you are taking the proper steps in making wise investment choices.
INVESTING IN FRASER VALLEY REAL ESTATE – THE BASICS
Procuring a mortgage for a second property isn’t as easy as borrowing for your primary residence – you’ll need at least 20% of the purchase price for a down payment, and only a portion of the income you get from rent will be considered in qualifying you for a mortgage (usually 80%). Speak to your mortgage professional who will provide you some lending options to finance your purchase.
In Canada, any money collected from rent is considered taxable income. Increases in the value of your investment property (from the time it becomes an investment property to the time you sell it) will be subject to capital gains taxes. Nonetheless, there are also several tax breaks available to owners of income properties. If you’re thinking of buying an investment property, make sure to talk to your accountant to fully understand the tax implications.
Most real estate investments should have longer-term objectives. Because of the unpredictability of the real estate market, expecting to profit in a short period of time is risky. If playing the long game in the market, there is a very good chance your investment will become profitable.
What are trying to achieve through investing? Here are some options:
- Cash flow (cash return) – Cash flow is the difference between what you collect in rent and the expenses you pay out. Cash flow positive properties (purchased with 20% downpayment) are hard to come by in Langley though it’s fairly common for investors to break-even on a monthly basis (meaning that the rent they collect is equal to the expenses they pay). Cash flow is affected by factors outside of the real estate market, for example, it depends on your down payment and mortgage terms.
- Appreciation – When you a sell your investment property for more than you paid, that’s called appreciation. For example: you buy a single detached house for $750,000 and later sell it for $900,000, that $150,000 difference is the appreciation in the value of your investment. Langley properties have historically appreciated favourably for investors. Appreciation can also be achieved through property flipping wherein a ‘fixer upper’ is purchased, renovated and sold for profit as a result of the properties appreciation in value as a result of the renovations. Home flipping is considered to be high risk if not done by highly experienced and qualified individuals.
- Equity (mortgage paydown) – When a tenant pays down your mortgage, you’re building equity. For example: you buy a property for $400,000 with an $80,000 downpayment and you apply the rent to the mortgage and rent it for 25 years. Eventually, you will have a mortgage-free property. When you then sell that property for $450,000, you’ll have built up $370,000 in equity (and you’ll get your original investment of $80,000 back).
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