My Newsletter - Download the PDF here.

Buying, Renovating Homes Key to Stimulating Economy

The federal budget 2009 announced several incentives to get Canadians spending
by buying a first time home, or renovating the one they are already in. Some of
the highlights include:

• providing first-time buyers with additional access to their registered retirement savings plan savings to purchase or build a home by increasing the home buyers plan withdrawal limit to $25,000 from $20,000
• Assisting first-time buyers by providing up to $750 in tax relief to help with the purchase of a first home.
• Implementing a temporary Home Renovation Tax Credit that will provide up to $1,350 in tax relief
• providing an additional $300 million over 2yrs to the ecoENERGY retrofit program

Investing in a Second Property

If your thinking about buying a piece of real estate as an investment property, market conditions are definitely in your favour. While the resale housing market has seen tremendous amount of activity from first-time buyers in the past year, it’s also a perfect time for existing homeowners to invest in secondary residential properties.

With record-low interest rates and significantly lower prices its hard to go wrong– unless, of course you lack the financial means to make the investment. After all, you have to be ready to meet all the obligations that come with owing more than your principal property.

For instance, keep in mind that if you intend to rent out the second property, you’ll also have to be prepared to deal with tenants and handle maintenance costs.

Leverage: Secondary home ownerships is an attractive investment option because it gives you even more leverage than you have with your principal residence. Leverage is when a relatively small amount of your money controls a much larger asset– like a property.

The more leveraged you are, the greater the financial return on your down payment becomes if the value of your property increases. There are very few other investments which can be purchased with such a small percentage of your own money.

For instance, let’s say you acquire a second property for $100,000, with a $15,000 down payment, and during the first year that you own it, the property increases by a value of 3% for a $3,000 gain. As a result, the return on your down payment of $15,000 is 20% - $3,000 divided by $15,000 Other Investments: By comparison, let’s say you were to buy a term investment of $100,000 (in cash) for one year and it increased by $8,000 over the course of the first year. Since it cost you $100,000 in cash to buy it, the return on your investment is only 8% before taxes. Obviously, leveraging is a powerful way to make yur money work for you.

If you would like more information about purchasing a second property, consult a Realtor.

Kim Bailey