Your Home: Your Best Investment!

Monthly Blog


Topic: Your Home: Your Best Investment!
An Income Property: A Retirement Savings Plan

For most of us our home will be the biggest and best investment we will ever make. It is one that we can enjoy, improve and cash in on whenever we like without income tax implications.


An investment in an income property can make a valuable part of a retirement savings plan. Over time the mortgage on such a property can be paid down with the rental income gaining equity and also increase with any appreciation in the market. Residential real estate has significantly appreciated historically in Canada over time and even more noticeably in our market.


We did have a downturn most recently in the early 1990’s when interest rates hit 14% in 1990 combined with an overheated market in the late 1980’s due to demographics; the baby boomers came through the market quickly creating a lack of supply. The market bottomed out by the end of 1995 and by the year 2000 we were back at the peak and every year since then house prices have increased on average in Canada making it a 20 year run.


To me it is the best advice to maintain and update a home continually and systematically. I know from experience as a Realtor that the demand for a so called ‘turnkey’ home attracts the most interest from buyers and a premium sale price. One of the best returns on investment is basic, paint!


Going forward the demand for rental housing in our market is going to increase significantly due to demographics, economics and migration/immigration. Economically many new positions in the labour market are contract positions or are ones that do not qualify the individuals for a standard type mortgage so they choose to rent. Also, in our area we benefit from a migration every year from the Toronto area and from immigration from other countries translating to population growth. Many of these people choose to rent while they establish
themselves in the community.


This brings me to the topic of owning a rental property. As an example a freehold townhome is purchased for $200,000 with 20% down ($40,000) leaves a mortgage of $160,000. At a 3% interest rate, monthly payments would be $757.19, and taxes approximately $230 for a total of $987.19. To this add cost of insurance and hot water tank rental of approximately $112.81 for a total of $1100 to cover mortgage, taxes, insurance and hot water tank. A reasonable rent would be $1200 per month plus utilities leaving $100 per month surplus. In the first year the principle would be paid down by $4375 and this would increase year by year. This would cover the initial closing costs of legal and land transfer tax so the first year would be break even. The first year return on equity increase would equate to a 10.9% on the $40,000 investment. However if the market went up say approximately 5% as it has for the last number of years this would add another $10,000 in equity which equates to another 25% on the $40,000 investment. These numbers are attractive however accurate relevant to the market for the last several years. An income property is not for everyone however it can be very beneficial and worth a consideration.


Please feel free to contact us anytime.