Watch The Trends:
It is important as you move forward in real estate investing that you create a system for tracking and recording trend data. An investor needs to be aware of the trends in the neighborhood he is purchasing in. Investors should research some common trends such as:
- Are rental rates in the area increasing or decreasing?
- Is the area stable, improving or declining?
- What are the units in the area selling for and how long are they on the market?
- What are the vacancy rates in the area?
- What is the average rent data by bedroom type, by type of building and by sub-market?
The Canadian Mortgage Housing Corporation (CMHC) website is ideal for investors because it allows you to gain insight on trends impacting housing in Canada- the economy, mortgage rates, forecast tables and statistics. (http://www.cmhc-schl.gc.ca). Some recent highlights include: strong first-time buying activity is prompting more action in the move up market and multi-unit residential income properties are in high demand (fuelled by lower borrowing costs, rising monthly rental rates and small stock market returns) small investors are buying up properties across the country. As you move forward it is important that you watch for these types of trends.
Here are just a few rental market trends:
Vacancy Rates: Take a drive around the neighborhood, to see what the vacancy rates are like. What is your competition going to be like? What are others charging for rent and which ones tend to remain occupied and why? Are there many “For Rent” signs posted? Does it look to be a declining or improving area to live in? The CMHC Rental Market Reports cover all major centres with detailed data and analysis of each local rental market.
Annual Rent Increases: The Ministry of Municipal Affairs and Housing releases the rent increase guidelines every September. This is the amount that a landlord can increase a residential tenant’s rent without making an application to the Ontario Rental Housing Tribunal. Currently landlords can apply for an above –guideline rent increase if utility costs are higher than anticipated. The current rent increase guideline for 2005 is 1.5 per cent. This is calculation reflects the average increase in building operating costs. The government is reviewing how this guideline should be calculated.
It is also important to watch out for tax benefits and liabilities.
Tax Deductions: All expenses relating to the rental income such as mortgage interest, condominium maintenance fees and utilities are deductible. Capital expenses such as the cost of purchase are not directly deductible, but may be partially deductible as depreciation. Speak to your tax accountant about deductions that are commonly missed: did you pay your children to do minor repairs to your rental property such as cutting the lawn, painting or clean up? Did your children help you with banking, record-keeping or making phone calls to your tenants? Did you get professional tax or legal advice? Did you attend seminars? Ensure that you hire an accountant that will be able to verify these types of expenses along with all tax benefits and liabilities.