Buying an Income Property; A Primer

Buying an Income Property

Purchasing real estate is a proven effective long-term investment strategy.

There are several types of residential income-producing real estate, each offering different levels of revenue potential and carrying varying degrees of risk. The most basic of these types of real estate include:

• Duplex (two apartments)
• Triplex (three apartments)
• Multiplex (multiple apartments)
• Rooming house (many rooms with shared kitchens and bathrooms)
• Low-rise apartment building
• Mixed-use commercial and residential
• Properties that need to be fixed up for resale

Whether you are an investor who is looking to purchase a property that nets you a profit each month or a home buyer who wants to find a smarter way to bear the cost of home ownership, we have the information you need.

Why choose to own and live in a building with tenants?

• Cash Flow: Rental incomes generate cash flow from other units in the building. That income can lower or completely offset property expenses and carrying costs.
• Location: Income properties may allow individuals to live in neighbourhoods that they may otherwise not be able to afford by reducing the monthly carrying costs of mortgages.
• Accommodations: Inhabiting an income property may allow individuals to live in a larger or more luxurious suite that costs less than if they were renting the same suite.
• Mortgage Eligibility: A lender in assessing eligibility for a mortgage may use the income from a property.
• Capital Appreciation: The potential for capital gains if the property can be sold for more than was bought.
• Tax Benefit Potential: Gained by writing off mortgage interest against income. When you sell, capital gains may be taxed at a lower rate than other forms of income and there may be tax exemptions if the property is the principal residence.
• Beat Inflation: Land becomes more valuable every year. As your property appreciates, it can provide a good hedge against inflation.

Buying an Income Property as an Absentee Investor

Why invest in residential real estate that you will not live in?

• Cash Flow: Rental incomes generate positive cash flow - The monthly net proceeds after all expenses and carrying costs on the property.
• Leverage: Income properties allow for positive leveraging - a situation where the yield to an investor exceeds the overall rate of return that would have been realized on a property had no financing been put in place.
• Return on Investment: The intention to achieve a strong R.O.I. - the dollar amount returned on an initial cash investment expressed as a percentage.
• Capital Appreciation: The potential for capital gains if the property can be sold for more than was paid for it.
• Tax Benefits: Potential for tax benefits by writing off mortgage interest against income. In addition, capital gains on reversion may be taxed at a lower rate than other forms of income.
• Tax Benefit Potential: Gained by writing off mortgage interest against income. When you sell, capital gains may be taxed at a lower rate than other forms of income and there may be tax exemptions if the property is the principal residence.
• Beat Inflation: Land becomes more valuable every year. As your property appreciates, it can provide a good hedge against inflation.