Jared Pilon
Real estate investment offers numerous opportunities for you to accumulate wealth and gain financial independence. With careful financial planning and the assistance of a professional accountant, you can get the most out of your investment.
Maximizing Your Real Estate Investments
Bryce Kander, a seasoned realtor with Realty Executive Alberta Elite and the founding member of the Central Alberta Real Estate Investor Network, has provided some effective strategies for both aspiring and seasoned investors.
From buying your first home and converting it into a rental property to unlocking capital through a Home Equity Line of Credit, there are many investment strategies for you to learn.
Leveraging Tax-Advantaged Accounts to Get Into Your First Home
Are you looking to purchase your first home in Canada? Two primary savings vehicles stand out: the First Home Savings Account (FHSA) and the Home Buyer's Plan (HBP).
First Home Savings Account (FHSA)
This account allows prospective homeowners to contribute up to $8,000 annually, with a lifetime limit of $40,000. Contributions are tax-deductible, and the funds grow tax-free. When withdrawn to purchase a first home, these funds are not taxed, and there is no requirement to repay the amount.
Home Buyer's Plan (HBP)
Through the HBP, you can withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. Unlike the FHSA, the withdrawn amount must be repaid into the RRSP over 15 years to avoid tax penalties.
Combining these two programs can significantly boost your ability to afford your first home. It’s also worth considering properties with additional income potential, such as those with basement suites. Using these strategies as a first-time buyer, you can acquire a rental property for only five percent down on your investment.
Understanding Property Flipping Rules
If you are interested in flipping a property, it’s important to be aware of the tax implications.
As of January 1, 2023, the Canada Revenue Agency (CRA) mandates that properties held for less than 365 days are subject to business income tax, meaning 100% of the profit is taxable and may be subject to Canada Pension Plan (CPP) contributions.
On the other hand, holding properties beyond this period may qualify your profits for capital gains treatment, where only 50% is taxable. It’s important to understand these rules to avoid unexpected tax liabilities. Legacy Accounting LLP’s expert accountants can help you navigate regulations and avoid unnecessary taxation.
Vendor Take-Back Mortgages: A Win-Win Strategy
A Vendor Take-Back (VTB) mortgage is a financing arrangement where the property's seller provides a loan to the buyer to cover a portion of the purchase price. This strategy can be beneficial in scenarios where traditional financing is challenging.
If you are selling a property, offering a VTB can make your property more attractive and potentially yield higher returns. Your patience can pay off, as you’ll earn more money in the long run from the interest on your loan.
Rent-to-Own Agreements Create Flexibility for Buyers and Sellers
Rent-to-own agreements allow tenants to rent your property with the option to purchase it after a specified period. This arrangement can benefit buyers who need time to secure financing or improve credit scores. You benefit by securing a committed tenant and potential buyer down the road.
Collaborating for Success with Joint Ventures
Joint ventures involve partnering with others to invest in real estate, combining resources, expertise, and capital to undertake projects that might be challenging individually. While joint ventures can amplify your and your partners’ investment potential, they require clear agreements and understanding between partners to navigate challenges effectively.
To ensure your joint venture is structured for success, always ask an accountant to review your contract or agreement. Contractual peace of mind makes for lasting partnerships.
Use Private Lending for Alternative Financing Solutions
Private lending involves borrowing funds from non-institutional lenders, such as individuals or private companies. These arrangements often mean you’ll pay higher interest rates but with more flexible terms. This option can be beneficial if you need quick financing or don’t meet traditional lending criteria.
Home Equity Line of Credit (HELOC) Financing: Unlocking Property Value
A HELOC allows homeowners to borrow against the equity in their property. As a homeowner, you get a revolving line of credit to put towards other investment opportunities.
This strategy can be part of the Smith Maneuver, which converts non-deductible mortgage interest into tax-deductible investment loans. You can refinance your mortgage multiple times, and if you think the value has gone up again, you can refinance again.
The BRRRR Strategy: Building Wealth Through Real Estate
How the BRRRR strategy works:
- Buy
- Renovate
- Rent
- Refinance
- Repeat
The BRRRR strategy sees investors purchase undervalued properties, renovate them to increase value, rent them out to generate income, refinance to pull out the increased equity, and then repeat the process with additional properties. This approach enables investors to scale their portfolios efficiently.
Build a Strategy and See it Through
Real estate investment offers diverse strategies to build your wealth, each with its own considerations and potential rewards. Whether you’re leveraging tax-advantaged accounts for a first home, understanding the nuances of property flipping, or exploring creative financing options like VTBs and joint ventures, informed decisions are crucial.
Do you need help determining which investment strategy is best for you? Does navigating your chosen strategy’s regulations seem like too daunting a task? Legacy Accounting LLP can help. Book a consultation today and take the next step towards growing a robust portfolio.
Also, for assistance in buying or selling an investment property or for more information on real estate investing, contact Bryce Kander at Realty Executive Alberta Elite. You can reach Bryce at 403-896-7331 or .
Want to hear more about this topic? Check out the Tax Talk Podcast
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Posted: 4/4/25
