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Buying an investment property in Canada: Risks, taxes, regulations and lower-cost alternatives

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Real estate is its own asset class, offering different attributes from equities and fixed income. As such, it can help diversify wealth. Investing in real estate does not require specialized expertise; most Canadians understand the basics of holding property through home ownership. Many have done very well due to home price appreciation over the past two decades.

The inflation-adjusted returns for real estate over the past 50 years in Canada are very similar to that of equities. But those returns came with much less volatility than stock markets. In addition, income forms a bigger portion of its total return compared to stocks, which are more about capital gains. So real estate may be a more suitable investment for income-oriented investors such as retirees. But young investors, too, can take advantage of the leverage uniquely available to real-estate investors; banks will readily lend you up to four times your money at favourable rates to buy real estate, where they won’t do that if you are buying stocks or bonds.

“As the property appreciates, the return on initial investment for your down payment can be much higher due to the leveraged amount,” said Sabine Ghali, managing director of Buttonwood Property Management in Toronto. Of course, as many landlords are finding this year, leverage works the other way, too; when property values come down, the loan principal owed remains just as daunting.

What are the risks of investing in real estate?

Compared to other assets, real estate is illiquid. It takes time to find a suitable property to buy or a willing buyer for a property you’re selling. When you do, the costs of the transaction are high, typically upward of 5 per cent of the price for the seller. That includes agent commissions, legal fees, inspections and other third-party expenses, but not your own time.

Because investment properties start at around $100,000 in Canada, and most cost multiple times that, it’s a difficult market to wade into incrementally. Even with mortgage financing, you have to have at least a middling net worth to participate. (See a list of lower-cost alternative ways of getting real estate exposure below.)

Though less volatile than the stock market, property markets fluctuate. Should interest rates rise while you own the property, its value could decrease even as you face higher mortgage payments on renewal. Economic and employment prospects in the community matter, too, as does quality of life. There are particular risks to your property of fire, damage and natural disasters. You can get insurance for that.

What’s harder to control is the relationship with your tenants. An exacting process to screen prospective tenants, including a credit check and interviewing employers and past landlords, can go a long way toward eliminating future problems, according to Ms. Ghali. Provincial legislation lays out a process for handling disputes between tenants and landlords, though rental tenancy laws and tribunals tend to err on the side of the former. Ally Ballam, a real-estate adviser with Engel & Volkers in Vancouver, recommends owners keep three to six months’ rent in a separate account just in case there’s a dispute and you go a few months without receiving income from the property.

Finally, there is a risk of vacancy, whether resulting from tenant churn or adverse market conditions. This risk can never be eliminated entirely but can be minimized by owning higher-quality properties in favourable locations.

“Buying a property for investment purposes that can be your primary residence if the market turns really bad is always a nice insurance policy,” Ms. Ghali said.


What taxes and regulations apply to investment property?

Unlike a principal residence in Canada, investment property is subject to capital gains tax when you sell it. You must also pay income tax on the rental income while you own the property. Both will eat into your returns. However, these taxable amounts can be partially offset by expenses incurred from financing, maintaining, managing and improving the property. It’s worth consulting a tax adviser to minimize your taxes payable, at the very least when it comes time to sell.

The pros and cons – and tax implications – of owning income property

Also make yourself aware of provincial, municipal and condo corporation regulations applicable to any property you’re considering buying. Some provinces and municipalities have controls on rent, which may constrain your ability to raise it to the market price. British Columbia and Ontario have both introduced taxes on homes purchased by foreign buyers (not Canadian citizens or permanent residents). Vancouver and Toronto both have levied property surtaxes on homes deemed to be vacant, and other cities are considering adopting similar measures as a way to increase the housing supply.

Many Canadian municipalities restrict or completely ban short-term rentals in certain housing types. Further, condo corporations may adopt restrictions, for example on short-term rentals or the proportion of units in a building that can be rented out.


Is now a good time to invest in real estate?

The good news for prospective buyers: After huge price appreciation in recent years, most Canadian markets are undergoing a turn and prices are coming down.

The bad news: The big factor pushing prices down is the increase in borrowing rates. So for most buyers, the drop in prices will be offset by higher mortgage payments.

Is your mortgage leaving you house poor? Use our Real Life Ratio calculator

The takeaway: This is a potentially perilous time for investors with only a 20-per-cent down payment (the minimum required by lenders on investment properties) to get into the market. If you are in that situation, you’d better be confident you are paying below market value. It may be an opportune time, however, for people who own their home outright, have some extra cash and don’t need to borrow huge sums to get into the investment property market. If financing isn’t a big worry, your dollar will go further today than it has in a while.

Keep in mind that real-estate markets are notoriously local. Different dynamics will be at play in Sudbury and suburban Montreal. Time and again, sales trends after the fact suggest there’s virtually always a type of property somewhere in Canada that is a steal right now. The challenge is finding it (or them).


How do I buy real estate?

You search for an investment property to buy the same way you might do your own home: look at listings, engage a real estate agent and/or search on commission-free sales platforms. The most comprehensive public database of Canadian homes for sale can be found at realtor.ca.

But there are other avenues to find the best deal. Ms. Ballam and sales partner Amy Leong specialize in working with developers to offer their clients pre-sale condos at prices usually reserved for insiders before they are offered to the general public.

“Make sure when you are looking to buy an investment property that you are working with an agent who specializes in investment properties,” Ms. Ballam advises. They will, for example, run pro forma cash flow projections for your rental income and expenses under different mortgage-rate scenarios so you have a better idea of what you’re getting into.

In addition to an agent, you will likely need other service providers, such as a lawyer, property inspector and mortgage broker, to get the transaction finalized.


What do I need to do after I buy an investment property?

If you have the time and inclination, you can reduce your costs and potentially increase your returns by managing the property yourself. That involves finding and dealing with tenants, collecting rent, seeing to maintenance and repairs (including after-hours emergencies), and paying property taxes as well as applicable utility and other fees. You will need property insurance; it will be somewhat higher than for an owner-occupied space. Standard lease documents can be downloaded from most provincial websites that will help reduce the risk of legal disputes, which can potentially drag out for months, interrupt your rental income and incur major costs.

Alternatively, you can hire a property-management company, which will do most or all of the tasks listed above for 8 to 10 per cent of rental income on long-term rentals and 12 to 15 per cent on short-term ones. Your real-estate agent can refer you to such a firm in your area, but like anything else, it’s worth shopping around. Some real-estate sales and finance companies have their own property-management services arms.

Like any major investment, you should have a strategy. Do you intend to flip the property in a fast-rising market? Hold it long-term? Renovate it in the hope of raising the rent? For investors committed to the asset class, Ms. Ghali recommends banking rental income with the aim of buying another property every three to five years: “This power of compounding added on top of the leverage aspect of real estate investing can create potentially huge gains over a longer period of time.”


There are a number of ways for investors of modest means to gain exposure to real estate without buying a second home or the hassle of managing the property.jhorrocks/iStockPhoto / Getty Images

Are there lower-cost ways to get exposure to real estate?

The millennial lament about buying a home, epitomized by the hashtag #donthaveamillion, is also a big hurdle for would-be investors. Fortunately there are a number of ways for investors of modest means to gain exposure to real estate without buying a second home or the hassle of managing the property.

REITs

Real-estate investment trusts are securities that trade on stock markets. They are designed to hold and manage a basket of properties and pass on income through distributions (similar to corporate dividends) to investors. With REIT units or an exchange-traded fund (ETF) invested in them, you can benefit from both land value and rent increases in the real-estate market for as little as $100. Being traded on stock markets, they still tend to be highly correlated to equities.

Fintech

For the last decade or so, financial technology startups have been trying to come up with ways for small investors to buy crowdfunded properties fractionally for as little as a few thousand dollars per investor. Canadian examples include Addy Technology Corp., BuyProperly, NexusCrowd and Willow Real Estate Technologies. On the plus side, these platforms promise to be true diversifiers, where your investment’s value is tied to real assets. Still, they have a short track record and are competing with well capitalized landholding companies owned by pension funds, REITs, private-pooled funds and wealthy families and individuals.

Real-estate pooled funds

For a minimum investment as high as $100,000 and a lock-in period, private real-estate investment funds allow investors to participate in owning (and sometimes developing) rental properties around North America. Stick to general partners with a history and good reputation; there are some shady operators in this niche. Beware promotions promising suspiciously high or “guaranteed” returns and always demand to see financial statements before putting your money down.

Investing in your own home

Homeowners in Canada’s pricey, big-city markets already know about “mortgage helpers” such as basement suites. Adding or improving a rental suite in your own home or building a laneway home represents a way to leverage your existing primary residence to provide additional income and increase the equity in your property. It’s essentially an investment property tacked onto your home.

As such, be mindful of costs that can erode your rate of return. Though small, new laneway homes still require the most expensive components of any house, namely kitchens, bathrooms and HVAC systems. But it should still be cheaper than buying a separate property.

No room for a separate suite? Now that COVID-related travel restrictions have been lifted, foreign students are coming back to Canada. You can generate income by renting out a spare room. There are various agencies that match students to host households under a variety of terms.

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Investment regulator imposed $14M in enforcement penalties in latest fiscal year

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TORONTO — Canada’s investment product regulator says it imposed more than $14 million in fines and other financial enforcements in its last fiscal year.

The Canadian Investment Regulatory Organization (CIRO) says the total also includes imposed costs and the forced return of ill-gotten profits.

The regulator says it also ordered suspensions and permanent prohibitions in a significant proportion of proceedings against individuals.

Enforcement efforts included a $2 million fine against Fortrade Canada for recommending a high-risk product to unsophisticated retail clients, and a $1.7 million fine and permanent ban on securities-related business against Paul Walker for a range of misconduct including soliciting more than $1.5 million in investments for an outside business activity.

CIRO was created at the start of 2023 through a combination of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada.

The new self-regulatory organization says it is focused on harmonizing its regulatory approach to create more consistency and timeliness with enforcement action.

This report by The Canadian Press was first published July 16, 2024.

The Canadian Press

 

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Conditions on Simandou investment now satisfied

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LONDON, July 15, 2024–(BUSINESS WIRE)–All conditions have now been satisfied for Rio Tinto’s investment to develop the Simandou high-grade iron ore deposit in Guinea, including the completion of necessary Guinean and Chinese regulatory approvals. The transaction is expected to complete during the week of 15 July 2024.

Along with the recent approval by the Board of Simfer1, this allows Simfer to invest in and fund its share of co-developed rail and port infrastructure being progressed in partnership with Winning Consortium Simandou2 (WCS), Baowu and the Republic of Guinea.

More than 600 kilometres of new multi-use trans-Guinean railway together with port facilities will allow the export of up to 120 million tonnes per year of mined iron ore by Simfer and WCS from their respective Simandou mining concessions in the southeast of the country3. Together, this will be the largest greenfield integrated mine and infrastructure investment in Africa.

Rio Tinto Executive Committee lead for Guinea and Copper Chief Executive Bold Baatar said: “We thank the Government of Guinea, Chinalco, Baowu and WCS for their partnership in reaching this milestone towards developing the world class Simandou project.

“Simandou will deliver a significant new source of high-grade iron ore that will strengthen Rio Tinto’s portfolio for the decarbonisation of the steel industry, along with trans-Guinean rail and port infrastructure that can make a significant contribution to the country’s economic development.”

Under the terms of the transaction, Simfer will acquire a participation in the WCS project companies constructing rail and port infrastructure, commit to perform a portion of the construction works itself and commit to funding its share of the overall co-developed infrastructure cost, in an aggregate amount of approximately $6.5 billion (Rio Tinto share approximately $3.5 billion)4.

Chalco Iron Ore Holdings Ltd (CIOH) has now paid its share of capital expenditures incurred or required by Simfer to progress critical works up to completion. A first payment of approximately $410 million, for expenditures until the end of 2023, was made on 28 June 2024, and a second payment of approximately $575 million, for 2024 expenditures, was made on 11 July 2024. These amounts settle all expenditures incurred up to date.

The co-developed infrastructure capacity and associated cost will be shared equally between Simfer, which will develop, own and operate a 60 million tonne per year5 mine in blocks 3 and 4 of the Simandou Project, and WCS, which is developing blocks 1 and 2.

Under the co-development arrangement, Simfer and WCS will deliver separate infrastructure scopes to leverage expertise. Simfer will construct the approximately 70 kilometre Simfer spur rail line and a 60 million tonne per year transhipment vessel (TSV) port, while WCS will construct the dual track approximately 536 kilometre main rail line, the approximately 16 kilometre WCS spur rail line and a 60 million tonne per year barge port.

Once complete, all co-developed infrastructure and rolling stock will be transferred to and operated by the Compagnie du Transguinéen (CTG) joint venture, in which Simfer and WCS each hold a 42.5% equity stake and the Guinean State a 15% equity stake6.

First production from the Simfer mine is expected in 2025, ramping up over 30 months to an annualised capacity of 60 million tonnes per year5 (27 million tonnes Rio Tinto share). The mine will initially deliver a single fines product before transitioning to a dual fines product of blast furnace and direct reduction ready ore.

Simfer’s capital funding requirement for the Simandou project as a whole is estimated to be approximately $11.6 billion, of which Rio Tinto’s share is approximately $6.2 billion, broken down as follows.

US dollars in billions (nominal terms) Simfer

capex

  Rio Tinto
share
Mine and TSVs, owned and operated by Simfer
Development of an initial 60Mt/a mine at Simandou South (blocks 3 & 4), to be constructed by Simfer $5.1 $2.7
Co-developed infrastructure, owned and operated by CTG once complete
Simfer scope (funded 100% by Simfer during construction)

Rail: a 70 km rail-spur from Simfer mine to the mainline, including rolling stock
Port: construction of a 60Mt/a TSV port

$3.5 $1.9
WCS scope (funded 34% by Simfer during construction)

Port and rail infrastructure including an approximately 552 km trans-Guinean heavy haul rail system, comprised of a 536 km mainline and a 16 km WCS rail spur

$3.0 $1.6
Total capital expenditure (nominal terms) $11.6 $6.27

Rio Tinto’s share of expected capital investment remaining to be spent from 1 January 2024 is to be $5.7 billion. Rio Tinto’s expected funding requirements for 2024 and 2025 are included in its share of capital investment guidance for this period, with project funding expected to extend beyond this timeframe.

Further details on the Simandou project can be found in the 2023 Investor Seminar presentation at https://www.riotinto.com/en/invest/investor-seminars.

As Chinalco, Baowu, China Rail Construction Corporation and China Harbour Engineering Company are Chinese state-owned entities, and given Chinalco indirectly holds 11.2% of shares in the Rio Tinto Group, they, and WCS, may be considered to be associates of a related party of Rio Tinto for the purpose of the UK Listing Rules. Rio Tinto’s funding commitment pursuant to the infrastructure co-development arrangement (Rio Tinto share $3.5bn) is a smaller related party transaction for the purposes of Listing Rule 11.1.10R and this announcement is, therefore, made in accordance with Listing Rule 11.1.10R(2)(c).

___________________________
1 Approval has been granted by the Board of Simfer Jersey Limited, a joint venture between the Rio Tinto Group (53%) and Chalco Iron Ore Holdings Ltd (CIOH) (47%), a Chinalco-led joint venture of leading Chinese SOEs (Chinalco (75%), Baowu (20%), China Rail Construction Corporation (2.5%) and China Harbour Engineering Company (2.5%)). Simfer Infraco Guinée S.A.U. will deliver Simfer Jersey’s scope of the co-developed rail and port infrastructure, and is, on the date of this notice, a wholly-owned indirect subsidiary of Simfer Jersey Limited, but will be co-owned by the Guinean State (15%) after closing of the co-development arrangements. Simfer S.A. is the holder of the mining concession covering Simandou Blocks 3 & 4, and is owned by the Guinean State (15%) and Simfer Jersey Limited (85%).
2 WCS is the holder of Simandou North Blocks 1 & 2 (with the Government of Guinea holding a 15% interest in the mining vehicle and WCS holding 85%) and associated infrastructure. WCS was originally held by WCS Holdings, a consortium of Singaporean company, Winning International Group (50%) and Weiqiao Aluminium (part of the China Hongqiao Group) (50%). On 19 June 2024, Baowu Resources completed the acquisition of a 49% share of WCS mine and infrastructure projects with WCS Holdings holding the remaining 51%. In the case of the mine, Baowu also has an option to increase to 51% during operations. After Closing, Simfer will hold 34% of the shares in the WCS infrastructure entities during construction with WCS holding the remaining 66%.
3 WCS holds the mining concession for Blocks 1 and 2, while Simfer S.A. holds the mining concession for blocks 3 and 4. Simfer and WCS will independently develop their mines.
4 A true-up mechanism will apply between Simfer and WCS to equalise most of their costs of constructing the co-developed rail and port infrastructure. The figures shown here are pre-equalisation.
5 The estimated annualised capacity of approximately 60 million dry tonnes per annum iron ore for the Simandou life of mine schedule was previously reported in a release to the Australian Securities Exchange dated 6 December 2023 titled “Simandou iron ore project update“. Rio Tinto confirms that all material assumptions underpinning that production target continue to apply and have not materially changed.
6 Ownership of the rail and port infrastructure will transfer from CTG to the Guinean State after a 35 year Operations Period, with Simfer retaining access rights on a non-discriminatory basis and at least equivalent to all Third Party Users.
7 By the end of 2023, Rio Tinto spent $0.5 billion (Rio Tinto share) to progress critical path works. Rio Tinto’s share of expected capital investment remaining to be spent from 1 January 2024 was $5.7 billion.

This announcement is authorised for release to the market by Andy Hodges, Rio Tinto’s Group Company Secretary.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240621382292/en/

Contacts

Please direct all enquiries to media.enquiries@riotinto.com

Media Relations,
United Kingdom
Matthew Klar
M +44 7796 630 637
David Outhwaite
M +44 7787 597 493

Media Relations,
Australia

Matt Chambers
M +61 433 525 739
Jesse Riseborough
M +61 436 653 412
Alyesha Anderson
M +61 434 868 118
Michelle Lee
M +61 458 609 322

Media Relations,
Americas

Simon Letendre
M +1 514 796 4973
Malika Cherry
M +1 418 592 7293
Vanessa Damha
M +1 514 715 2152

Investor Relations,
United Kingdom
David Ovington
M +44 7920 010 978
Laura Brooks
M +44 7826 942 797

Investor Relations,
Australia

Tom Gallop
M +61 439 353 948
Amar Jambaa
M +61 472 865 948

Rio Tinto plc
6 St James’s Square
London SW1Y 4AD
United Kingdom
T +44 20 7781 2000
Registered in England
No. 719885

Rio Tinto Limited
Level 43, 120 Collins Street
Melbourne 3000
Australia
T +61 3 9283 3333
Registered in Australia
ABN 96 004 458 404

riotinto.com

Category: Simandou

 

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BlackRock Pulls Ad Featuring Trump Rally Shooter Thomas Matthew Crooks

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A screengrab of Thomas Crooks from the BlackRock ad that aired in 2022.

Thomas Matthew Crooks, the 20-year-old who shot at former president Donald Trump at a rally in Pennsylvania, had briefly appeared in a 2022 advertisement for BlackRock Inc, the world’s largest money manager.

The ad, filmed at the Bethel Park High School in Pennsylvania, featured Crooks and several other unpaid students in the background, said the investment giant in a statement. Crooks graduated from the school in 2022.

BlackRock said it has pulled the ad but the video will be available to authorities. The ad, however, is being widely shared by social media users.

“The assassination attempt on former President Trump is abhorrent. We’re thankful former President Trump wasn’t seriously injured, and thinking about all the innocent bystanders and victims of this awful act, especially the person who was killed,” the company added in its statement.

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BlackRock, whose earnings figures are expected today, has faced scrutiny after shooting incidents since some of its index funds own shares in gunmakers.

Trump Assassination Attempt

Trump survived an assassination attempt on Saturday after a gunman opened fire at him at a rally in Pennsylvania ahead of the Presidential elections. The attack left him with a bloodied face as the former president said the bullet pierced his “upper part of right ear”.

Latest and Breaking News on NDTV

A bystander died in the attack while shielding his family and Crooks – a registered Republican – was shot dead by a Secret Service sniper.

Trump, whose Republican candidature will be finalised today, shared a message of unity after the attack and said Americans must not allow “evil to win”. “It was God alone who prevented the unthinkable from happening,” he said on social media.

Biden, too, appealed to the nation to “lower the political temperature” in a rare Oval Office address. “Politics must never be a literal battlefield, God forbid a killing field,” he said.

The US markets are expecting Trump trades to gain momentum after the attack. It has already been pinning hopes for the return of Republicans, especially after Biden’s poor performance in last month’s debate. Those trades are likely to take deeper hold as the attack sparks a wave of sympathy and support for Trump.

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