If you’re in the market to invest in an income property, you’ve got the right idea. Though the economic conditions in Canada have been and will continue to be turbulent in the wake of COVID-19, commercial real estate remains a stable long-term investment opportunity for investors of all experience levels.
If you don’t have an income property in your investment portfolio, now is the time to add one. Below, we unpack the reasons why now is the time to get your foot in the door with commercial real estate.
Investing in an Income Property: Key takeaways
- Income properties can become cashflow positive very quickly, making it possible to recoup your initial investment through monthly rent collection.
- To lessen the financial burden associated with real estate investing, investors can join forces with other investors or consider investing with a REIG. First-time buyers can apply for incentive programs.
- Real estate investors qualify for tax deductions when operating an income property. Income property owners can claim short-term operating expenses as well as capital expenditures that improve the property’s value. Investors can also claim depreciation (known as capital cost allowance) as a tax deduction.
- Through the Canada Mortgage and Housing Corporation (CMHC) multi-family real estate investors can access low-cost and forgivable loans programs, as well as affordable rental housing mortgage loan insurance.
- Markets across Ontario are experiencing seller’s conditions, translating to strong demand for housing. That said, more sellers are entering these markets at a very rapid rate, reflected in a drop in the sales to new listing ratio from January to February 2021. As a result, inventory is beginning to accumulate, boding well for investors hoping to purchase property.
Buyer and Tax Incentives
Cost is often a major barrier to entry to real estate investing. Not only is there a sizable initial investment required to acquire an income property, but investors also have to factor in expenses such as legal fees, inspection fees, taxes, and costs associated with renovations. With that said, income properties can become cashflow positive very quickly, so if you can find a way to finance those obligatory costs and the initial down payment you can recoup your initial investment (and then some) through monthly rent collection. One way to do this is by joining forces with other investors or investing with a REIG. If you’re a first-time investor, you might also qualify for a number of buyer incentive programs.
Real estate investors also qualify for certain tax deductions when operating an income property. For instance, income property owners can claim short-term operating expenses as well as capital expenditures that improve the property’s value. You can find out more about these kinds of considerations here. Additionally, income property owners can claim depreciation (known as capital cost allowance) as a tax deduction.
Loan Programs and Low Borrowing Costs
In an effort to encourage investments into multi-family housing, the Canada Mortgage and Housing Corporation (CMHC) has come out with funding opportunities geared at supporting the construction, purchasing, and refinancing of rental properties. Through the CMHC, multi-family real estate investors can access low-cost and forgivable loan programs, as well as affordable rental housing mortgage loan insurance.
This is in conjunction with Canada’s mortgage rate, which was set at a record low of 0.99 percent, effective December 2020. The Bank of Canada has stated that this low rate will persist until at least 2023. For real estate investors this means two things: (a) the buyer will need to pay less to borrow a mortgage, and (b) a smaller portion of the buyer’s monthly mortgage payment will be put towards interest.
Seller’s Market Conditions
Markets across Ontario are experiencing seller’s conditions, indicated by high sales to new listings ratios (SNLR). A seller’s market occurs when there is a housing shortage and/or more potential buyers than homes available to purchase. As we’ve discussed on the blog before, it’s a real estate investing myth that investors should wait for a buyer’s market to purchase real estate. In reality, a seller’s market means that there is strong demand for housing. So, though real estate might come at a higher price to acquire, it’s also a great time to purchase property because demand is so strong.
Inventory is Accumulating
In spite of the seller’s conditions across the board, the SNLR in several Ontario markets dropped between January and February 2021. For instance, Sudbury’s SNLR experienced a 10.4 percent drop, from 110.1 percent in January to 99.7 percent in February. Similarly, Niagara’s SNLR dropped by 9.7 percent, from 95.6 percent in January to 85.9 percent in February. Meanwhile, Hamilton’s SNLR dropped a whopping 25.6 percent between January and February 2021. What this means is that more sellers are entering these markets at a very rapid rate. As a result, inventory is beginning to accumulate, boding well for those looking to purchase property.
Invest in an Income Property with Crescendo Equity
The great thing about real estate investing is that anyone can get their foot in the door. That said, it helps to be backed by an experienced team of investors. So, get in touch to find out how you can get in on the action and invest through Crescendo Equity. Crescendo Equity is made up of a team of dedicated senior real estate investors committed to identifying high potential assets, repositioning them for maximum cash flow, and offering exceptional investment returns to partnered investors. Find out more about how Crescendo Equity makes real estate investing simple by visiting our website.