It’s been said a hundred times before, but it’s as true as ever – an informed and knowledgeable realtor is a reputable realtor in the eyes of a client who’s purchasing real estate as an investment. Much of this knowledge is the type that comes over time as a realtor moves over the course of his or her career, but of course there’s plenty you can do to speed up the process and become more in-the-know about the housing market and what is possible within it.
The success you’ll have as a realtor is going to have a dollars-and-cents relation to the number of new clients you’re able to prospect. With over 10,000 realtors licensed and working in Canada, it’s very fair to say that a larger slice of the pie isn’t going to be easy to come by. That’s a big part of why our online real estate lead generation system for Canada here at Real Estate Leads is so advantageous for realtors. It gives you more in the way of the opportunities you need to turn prospective clients into established clients. And yes, being perceived as a ‘knowledgeable’ realtor will go a LONG way in that regard.
This will be true of clients buying homes as residences, but it’s especially true for those buying homes as investors. Any piece of information you can share with them that will benefit their bottom line in both the purchase and future resale of the property will be most welcome and put you in the most favourable light.
Which leads us to today’s topic – Helping clients pay less tax on real estate investments.
Fewer Taxes – Happier Clients
There’s no getting around the fac that taxes have the potential to cut into the profits on a real estate investment. Investors who have an understanding of complexities of the modern tax landscape have the potential to make significant tax savings. If you can be the individual who guides them to having that understanding, you’re going to have satisfied clients and, fortunately, satisfied clients are often inclined to be repeat clients.
Here are two tax strategies that can be put to use by your investor clients:
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Make Purchase Mortgage Tax Deductible
In Canada, investors are allowed to transfer the proceeds from a home mortgage loan over to a loan used to buy a rental property, and once that’s done then this loan is tax deductible.
For example, let’s say an investment property is purchased for $500,000 with a mortgage for $400,000 for the first year in a variable mortgage. Once the market value of the investment property has increased and the mortgage is paid down, there is now the option of refinancing or selling the property.
Let’s now assume that in the 5th year the investment property is sold for $600,000 – creating a profit of $100,000, plus the proceeds of the pay down in the mortgage for another $35,000. After fees and capital gains tax, the $90,000 coming from this sale could be used to pay down the mortgage on your principal residence. Provided the mortgage is set up to allow a re-advance, the $90,000 could be re-invested.
Now that the interest on the $90,000 portion of the home mortgage would be tax deductible, and is that way because it was used to purchase the investment.
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Reduce Taxes by Setting Up a Company or Family Trust to Operate Investments
It’s helpful to know that there is usually a minimum level of income or asset base that is required before the accounting and legal cost of setting up those planning options become worth the tax savings. One simple tool that is at investors’ disposal here in Canada is the ‘Section 85’ roll over.
This is a tax deferred roll over in Section 85.1 of the Tax Act, and it makes it possible for a Canadian to transfer real estate holdings and other kinds of investments into a company while not paying any recapture or capital gains tax at that time. For a family looking to grow their investment holdings and then aiming to manage those assets for the next generation, the section 85 roll over approach is a solid choice because it allows for the required taxes to be deferred at the outset.
Then over time the investor will be able to create a family trust, which could be used to manage the ownership of the new holding company long term. Of course, investors should seek professional advice from a Chartered Professional Accountant (CPA) or tax lawyer before implementing any tax strategy – and ideally you’ll be able to refer a good one to them!
Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads that are delivered to you exclusively and for your very own and privately-served region of any city or town in Canada. That region is all yours, and the leads are all yours alone too. It’s an excellent way to really supercharge your client prospecting efforts, and you’ll almost certainly be pleased with the opportunities it creates for you.
