Dominion Mortgage Pros

When it comes to investing in real estate

Especially rental properties in Edmonton, it’s important to understand the ins and outs of financing, taxes, and property management. At Dominion Mortgage Pros, we want to empower you to make informed decisions, ensuring that your journey into real estate investing is as smooth as possible.

Why Invest in Rental Properties?

Investing in rental properties can be a great way to build wealth and achieve financial freedom. With Edmonton’s growing economy and population, the demand for rental housing is consistently on the rise. According to the Canada Mortgage and Housing Corporation (CMHC), the rental vacancy rate in Edmonton is hovering around just 6.3%. This means there’s a good chance you can find tenants easily and keep cash flowing.

Understanding Mortgage Options

Before diving into property management, let’s talk about financing your rental property. As an Edmonton mortgage broker, we at Dominion Mortgage Pros can help guide you through various mortgage options that are available:

• Conventional Mortgages: This is a standard mortgage which usually requires a down payment of at least 20% if you’re buying an investment property. This means you are not putting it under mortgage insurance.
• High-Ratio Mortgages: If you plan to put down less than 20%, you’ll have a high-ratio mortgage and will need to pay for mortgage default insurance.
• Portfolio Lenders: These lenders might be worth looking into if you already own several rental properties. They’ll consider your entire portfolio for a new mortgage, which can be helpful in securing better rates.
• Refinancing: If you already own a property, refinancing can help you pull equity out to invest in additional properties. Mortgage refinancing could give you cash to reinvest while potentially reducing your monthly payments.

Understanding the various options available helps you make the best choice based on your financial situation.

Pre-Qualification and Pre-Approval

Before you start your property search, it’s advisable to get pre-approved for a mortgage. Pre-qualification is a preliminary step that gives you a rough estimate of how much you might be able to borrow. Getting pre-approved, however, involves a deeper dive into your finances, reviewing your income, debts, and credit score.

Why does this matter? Having a pre-approved mortgage shows potential sellers that you’re a serious buyer, which can give you the edge in negotiations. You’re also protected from last-minute surprises in your budget.

Financing Your Rental Property: Key Statistics

To give you a better understanding of what financing might look like, let’s take a glance at the numbers:

• The average home price in Edmonton as of late 2023 is around CAD 400,000, which may require a down payment of about CAD 80,000 if you’re going for a conventional mortgage.
• Mortgage interest rates in Canada average around 5% as of October 2023, but they can vary based on lender and your financial health.

By knowing this information, you can better gauge the property value you’re aiming for.

Tax Implications of Rental Properties

Owning a rental property has its tax implications, which is why it’s essential to consult a tax professional who understands real estate in Canada. Here are some key points to consider:

• Rental Income Tax: You must claim all rental income on your tax return. However, this is countered by allowing certain expenses to be deducted (think repairs, maintenance, and property management fees).
• Capital Gains Tax: When you sell a rental property for profit, you may incur capital gains tax on that profit. However, if the property is your principal residence, you might be exempt from this.
• GST/HST Considerations: Depending on the type of rental agreement, GST or HST may apply. It’s vital to check how these factors unravel with your property type.

Understanding the tax environment will aid you in effective budgeting and planning, ensuring your investment remains profitable.

Property Management Essentials

Once you’ve secured financing and found a property, the next step is management. While many first-time investors manage their properties themselves to save money, it can be time-consuming.

Here are some responsibilities you’ll need to consider if you choose to self-manage:

• Finding Tenants: Solid screening is critical. Check credit reports and previous rental histories to avoid troublesome tenants. It’s estimated that bad tenants can cost landlords around CAD 4,000 – CAD 5,000 in losses.
• Maintenance and Repairs: Be prepared for emergency repairs and regular maintenance. Establishing a good relationship with contractors can help ensure your property stays in good condition.
• Legal Obligations: Familiarize yourself with tenancy laws in Alberta. This includes understanding tenants’ rights, eviction processes, and setting rental agreements that meet legal requirements.

If this feels overwhelming, hiring a property management company might be wise. Their experience can help alleviate stress and save you time—over 78% of landlords using property management companies report overall satisfaction.

Conclusion

Investing in rental properties in Edmonton can be a significant step toward financial success if done right. From securing financing through an established Edmonton mortgage broker like Dominion Mortgage Pros, to understanding taxes and management, every detail counts. We’re here to help you navigate these decisions, ensuring you have the information you need to feel confident moving forward. The real estate market is ever-changing, but with the right knowledge and support, you can take advantage of all it has to offer.