Any and all advice would be much appreciated — thanks Kindly!

Till then,

Jean

With regards to cash flow, if it’s a concern, then you can get the HELOC to pay for itself.

Hard to say….if we want to sell the rental in 5 years. It was the strategy, but who knows what time will bring….

Yes, keeping the rental, creating a HELOC from it seems very attractive.

I think I’ll need to talk to some banks about this – find out more, how it would work, etc. Keeping my interest payments on the HELOC tax deductible seems like a good idea, and like you said, I could buy more dividend-payers
this way.

True, I am concerned about the extra cash flow required to pay-back the HELOC, but I don’t have to borrow any more than I want to, right?

FT or Sampson – are there certain (best) HELOC products and banks that I could look into? I want to do my research. Thanks.

Hey Sampson-
No, no real reason we aren’t using the equity within the rental now (we don’t have an existing HELOC)….maybe we should. Do you think this is a better method, pull the equity out now vs. waiting to buy dividend-payers???

Again, my strategy was the following…
1) get the rental mortgage almost paid off (via renters) in another 5+ years
2) sell the rental
3) pay capital gains, as required, should be ~$10,000 @ FMV
4) take the equity/value of the rental (hopefully close to $200,000) and buy a whack of CDN dividend-payers (adding these payers to my existing non-registered DRIP portfolio stocks).

Regarding # 2) above, the market should be consistently growing, no major spikes nor major valleys I predict.

The only reason I’m not sure about the HELOC, is a) we enough to pay with our principle residence (no need to borrow more) and b) don’t you have to pay back the principle at some point (end of draw period) AND interest??

If you guys know the details, I would love to hear about them to improve our situation….

Cheers!

Or as FT alludes to, you are thinking of selling the property? If that’s the case, do you believe the housing market in your area to be strong over the next 5 years?

Either a HELOC, or we’ll decide to pay the capital gains outright and then take the money leftover and put it into dividend-payers. I haven’t decided which yet….time will tell. Capital gains shouldn’t be too bad since the property hasn’t skyrocketed in price since conversion from principle to rental unit.

Thoughts?

Good post. Certainly lots of folks in real estate, or considering…

cmj, as other have mentioned, you can “choose” who claims the expenses and the income. The key is to keep it consistent throughout the years. When we were landlords, we simply spilt everything 50/50 because for us, it wasn’t always clear who would make more money in any given year.

If you have a rental unit, IMO, you have to be prepared to stomach the hard times when things go wrong (and things will).

Our plan is to have the renters pay off our mortgage over the next 5 years…until the unit is almost paid off. We’ll take the equity (and the small capital gains hit) and our equity will be used to buy as many dividend-paying stocks as we can.

What do folks think of that strategy??? FT???

cmjxj – we did exactly the same thing about 2 years ago. Yes, you can have one person “claim” all rental incomes and expenses, but you can’t go back-and-forth with ownership. Either you enter a partnership (50/50, other) and claim so on your tax return, or, you enter it as 100% ownership. Flip-flopping will surely cause the tax-man to audit you and explain yourself.
Needed to say, you don’t want that….

I would advise you to claim it as 50/50 with your wife and take advantage of other income tax-deduction measures (RRSPs, spousal plans, other) to lower the taxable income for the highest earner.

Cheers!

London Rental Man:
Sorry, I’m not familiar with UK tax laws, but you could ask your tax agency whether or not loans used to aquire rental property are tax deductible, as they are in the US and Canada.

Basically we bought our first home, knowing that we would keep it as an investment. We were actually renting the basement apartment in this house, and our Landlord mentioned that he was selling his properties and retiring. WE had lived there for 2 years with no problems. So we bought it, and he gave us a below market value price, don’t ask me why, but he did. It already had a basement apartment, all the windows had been upgraded to vinyl. (The market value of the house has almost doubled in 5 years).

I have a friend, who is a home inspector (and has his own contracting company), inspect the home throroughly before we bought it…….just to be sure.

It was great, all we had to do was move upstairs, and rent the downstairs. We have had a long-term tennant (4 years so far), who says she is never going to move.

We have gradually done work on the house over that period of time, bit-by-bit, so that we could get the work done in cash and didn’t have to use any credit, I also did as much of the work myself as I could (i.e. upgrade the deck, minor plastering, painting, bathroom Renos). Plus my father is a red seal certified carpenter…so that helps too. Make sure there is cold beer in the fridge, and a steak on the bbq and it’s all good.

Our first baby was born last year, and we felt that we were “outgrowing” our current home, but we waited a year for the 5 year fixed term to be over so that we wouldn’t be penalized by the bank.

We are currently trying to get tennants for the 3 bedroom upstairs part of the house. I posted an add yesterday and have already received 18 responses. The mortgage (including insurance,and all fees) is approx 850 per month, downstairs appartment is renting for approx $500 pou, and upstairs will be rented for $1100 pou……any suggestions on what to do with the extra money? First year I am planning on just saving the cash for emergency funds for the property. I was thinking that after the first year I would do some more investing and put chunks of cash down on the mortgage of our new house.

About a month ago we bought a newer, bigger, nicer, house. And we actually bought it $10,000 below the asking price by using the same real estate agent as the seller, and also by being flexible on the closing date. They had a new baby, and wanted to stay there a bit longer than 30 days….so we waited 60 days.

Also the Real Estate agent did a horrible job of advertising the house,he didn’t list the hardwood flooring, ceramic tile, the whole house was pre-wired with high end speakers/audio equpment, all rooms wired for internet etc……none of this was listed. So this worked out in our favour.

I think keeping Real Estate as a rental is usually a good idea as long as you bought the investment below market value, or at least not during a housing boom when houses tend to be overprice. You should do a check on the rental vacancies, high = bad, low = good:) Picking a house that isn’t need of a lot of repair is also key. It needs to be in a good location close to bus Routes, Grocery Stores, Schools etc. And you have to be extremely ‘picky’ about your tennants. Proof of emplyment, 2-3 references, credit check, lease contract (done properly by a lawyer), no smokers, no pets, and post dated cheques are requirments that I have.

Luck never hurts either.