The real estate market is booming around the world, with certain markets showing more growth than the others. There is no better time to consider investing in real estate than today, mainly because you can expect good long-term growth as well as steady residual income from the property. There is also the fact that long-term and holiday rentals are in high demand right now, making the real estate market that much more appealing.
Investing in a foreign real estate market can be a challenge, especially when it is your first time exploring the opportunity. That said, you can still capitalize on market opportunities in certain countries without jumping through hoops. In this article, we are going to focus on the real estate market in Canada and discuss the best tips to keep in mind for new and experienced investors alike.
The Right City
There are a lot of regulations governing foreign property investments in Canada, and many of those regulations apply to a particular city. This makes choosing the right city to invest in that much more important. At the same time, understanding the city regulations also helps you manage your investments – the costs associated with those investments – better.
Toronto is one of the best cities in Canada to invest in when you are interested in real estate. There is no foreign buyers’ tax to worry about, so you can keep most of your returns and minimize your investment in the first place. Vancouver, on the other hand, has taxes on properties sold to foreign buyers, including buyers from the United States.
The property market in each city is also different, plus there are certain things that make some cities more appealing to foreign investors. Using Toronto as an example, you don’t only get to invest without excessive taxes, but also gain the advantage of a booming property market. On top of that, finding flights to Toronto is easy no matter where you are now that you can use Fly Porter to your advantage.
One last thing to consider before choosing a city to invest in is the income potential. Some cities are prime travel destinations, either because they are business hubs or because of the many tourist attractions near them. Sticking with Toronto, you get both of these potential sources of income. Buying a property to convert into a holiday rental in the city is a good investment to make.
Understand Your Financing Option
There is another great thing about investing in real estate in Canada, and that is the wealth of financing options you have at your disposal. You don’t just gain access to mortgage loans from Canadian banks, but also loans from US banks if you are a US citizen. Many banks in Arizona will grant you a mortgage loan to fund your purchase in Canada.
Financial institutions in Canada and the US use different approaches when offering you mortgage loans. In the US, banks usually offer competitive rates and great deals, and then adjust the quote based on your risk factor. If you have good credit score, a healthy investment portfolio, and you design the loan to have the right term and amount, you get to enjoy that superb deal on interest rates and other fees. Negative factors will increase your risk factor and your interest rate as well.
Canadian financial institutions, on the other hand, offer their loans with the highest interest rate and fees possible. They will then review your personal financial state and take factors into consideration to lower the rate down. A good credit score and a healthy portfolio will lower the cost of the mortgage substantially; you can still get a good deal but remember that you are starting with the ceiling point.
One last thing to note about financing the investment is the type of mortgage loan you use. While you are allowed to use personal mortgage loans to help fund the investment, other financing options may be more beneficial in this situation. When you already have a property that you use personally, for instance, going for a buy-to-let mortgage can result in lower rates and cheaper mortgage in general.
Watch Your Revenues
It is worth noting that the Internal Revenue Service (IRS) and the Canada Revenue Agency (CRA) work together really well. They share data about your assets and income on a regular basis, which is why getting your personal finances and your tax returns in order is absolutely necessary. Once again, you are dealing with different approaches used by both countries.
In the US, any property must be reported and needs to be included in the tax return. This is because the IRS taxes any income made on the property, including the gain in value you receive; this includes properties you use personally. In Canada, on the other hand, the CRA will only tax your property income when you rent it out or decide to sell the property (to earn a gain on your capital).
The fact that the IRS and CRA work together is also beneficial for you, because you can now claim foreign tax credits depending on how your investment and personal finances are set up. If you would rather not deal with the complex business of filing tax returns in both countries, there are service providers and agencies that will handle the complex tasks for you.
Extra Layers of Security
Being able to visit your properties regularly is a huge plus. As mentioned before, investing in cities like Toronto means you can visit the property frequently due to the many flights to Toronto available. While you can do many things online, some things require you to be present; besides, being able to check your investments is always a huge plus.
Another layer of security to add to your investment is a good home insurance. This applies to all real estate investments you make, especially when they are in another country. If you decide to use a mortgage loan from a Canadian financial institution earlier, home insurance is mandatory. You will have to find a reliable insurance company and pick a suitable home insurance property. Make sure the one you use offers sufficient coverage amounts for your property.
Renting out the property to holidaymakers or long-term tenants is a lot easier now that you have services and platforms such as Airbnb on your side. You no longer have to manage everything or manually advertise the property to potential tenants. You won’t even have to spend a lot of money on marketing the property. That said, you want to consider hiring a property management service provider to help with small details. When renting out an apartment on Airbnb, for example, the property manager will handle everything from cleaning and changing the beddings before tenants arrive.
One more thing …
Investing in real estate in Canada is a lot easier than you think. Before you jump right in and start searching for great properties to buy, however, there is one more thing you need to understand, and that is the closing cost. Investors are required to cover the closing cost when making property purchases. The closing cost includes the cost of a home inspection, title insurance, legal fees, and the taxes. Use the tips we covered in this article, spend some time calculating these cost factors before buying a new property in Toronto or other potential cities, and you will end up with a fantastic investment to add to your portfolio.
