In this video we'll look at buying a home versus buying an investment property.
Should your first home be an investment property?
Is it better to rent and buy an investment property and more. That's starting right now.
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So today I'm joined by Kevin French, realtor with RE/MAX Realty,
and the question we're gonna answer is, buying your first home versus an investment property.
So Kevin, I guess my first question is does an investment property actually count as your first home?
Maybe from the financial sense.
Well the only advantage to buying to first-time homebuyer financially would be the the first-time home buyers plan,
where you can withdraw your RRSP stones free. That would not apply you would need to occupy the property
And if you are purchasing the property for rental purposes you have to put down 20% at a minimum.
The lenders might require different it'll varies from person to person
but it's going to be 20% as a minimum if you're not occupying the property,
or have a family member occupying the property.
I never knew that because I thought that even if you bought home you just have to pay a
minimum of 5% down regardless but if you don't actually plan to live there you have to have to pay the full 20%.
Yes. The lenders taking on more risk, is their position. So you're gonna put in more for them to take on that risk
In your opinion should your first home be an investment property if you can actually afford it?
In Calgary it's kind of difficult to find the property that cash flows positively from day one
I would if somebody is looking for investment potential but also
considering right owning a property themselves to do they don't have to pay
rent any more. I would just encourage them to buy a property that has rental
potential as well so that could be a carriage suite in the backyard it could
be a basement suite with a side entrance private
everything's completely separate, that would be the best bet to give them the
opportunity to build equity in the property have the investment income
coming in as well but stop wasting money renting.
And is there an opportunity so let's say you set up your purchase, regardless if it's a first time or not,
as an investment property, can midway through can you go and say
hey you know what it's no longer investment property I want to move in
there, is there financial implications or any kind of implications on that?
You can do that of course it's just if there's an increase or decrease in value then
you would want to get it appraised for tax purposes so basically if it's not
your principal residence then you're going to be taxed on capital gains so if
you buy the property for 200 you sell it for 300 then you have a hundred thousand
dollar gain you'd be taxed on 50% of that so if you're going to move into the
property you have to get it appraised at that time and then essentially pretend
like you've sold it and pay taxes on the gain. You can't turn investment property
that's been an investment for 10 years into a principal residence for a year to avoid taxes.
Does your appraisal then, not that I was thinking of doing that but, does your appraisal impact if you live there or not?
The appraisal would be done when you decide to occupy the property.
So if you just you know, you buy it and you never move in and continuously of investment property you
have to disclose on your taxes every year whether or not you've moved the
sold property so when that year comes that you do sell the investment property,
you pay capital gains at that time from the difference got in the purchase to the to the sale price.
Would it be then better to I guess buy an investment property before you buy your first home?
I don't see the advantage of doing it unless you're living for free otherwise.
It'd be better to purchase a property that you have investment potential in so I'm sorry
a rental potential in and using it as your own principal residence and then as an
investment property as well rather than just paying rent and then renting that out.
In Calgary it's difficult to positive cash flow a property right after purchasing it.
That's assuming that you're not putting down more than 20%.
If you put down the minimum it's hard to make a profit
every month and not pay out of your pocket and then you'd be paying on your
pocket in addition to rent but it's better to purchase a property
than rent on the whole encounter if we consider the detached market
specifically and then we go over the last five years when it was your purchase at the peak,
let's say you bought a home at $550,000, which I have a client right now that's in this boat,
bought at $550,000 probably sell it around $490,000 so it's a $60,000 loss,
but they lived in the home for approximately 60 months.
So to rent a comparable home would be about $2,500 a month, so then you pay utilities and went on there on top of that.
Let's take that out of the mix and go with the $2,500 rent times it by 60.
$150,000 and then if we say that your mortgage on a $500,000 property,
on a $500,000 mortgage, let's just say it's about $500 for every $100,000 borrowed.
So you're about the $2,500 mark anyway, Half of that will go to principal every month.
So you're still at about a $75,000 paid in principle, $75,000 lost in interest and
then you've lost over a little since the peak of the 2014 market till now,
you've lost $60,000 you're still $15,000 ahead.
You've lived in your own home the entire time you've had control over what happened and
there was also strong potential that the value could have increased or not gone down as much.
And you gotta also remember that the assumption is the rent will continue at that price right.
And I've never seen rent for ten years stay at that rate.
And it depends on your landlord as well, they may not they might not call you back,
they might not fix things as you need to.
And if you wanted things change, you wanted the larger deck, you wanted a
nicer bathroom, any improvements that you made to the property would stay with it
and you would get no. No return on it.
And remember if you want to know more about the advantages of owning a home versus renting,
check out our video above and description below.
So the question of the day I have for you is,
did you buy a property as an investment and how did that work out?
Let us know in the comment section below.
And if you want to know more about buying a house as your first
investment property check out this video as well as other home buying videos here
and don't forget to subscribe and hit the notification so you keep learning from the experts
Thanks for watching and we'll catch our next video