buying new built property questions

[23994]

Hi,

recently I heard the story as follows:

Somebody bought a new going to build property in GTA Toronto area and wait for its ready, once closing, put it on MLS and sold it, within less than 2 years, he made quite good money on it...I have the following questions:

1. what do you think of this kind of activity? cons and pros?
2. will bank treat it as personal or rental property or does Not matter and you should be able to get mortgage no problem?
3. after sold, will it be 100% taxable of the income or 50% capital gain?

I heard a few happened now in GTA Toronto area, not sure the other areas...

Thanks,

Sue

 

[Thomas Beyer]

The INTENT matters. If you do it frequently, certainly it is business income and not a capital gain. If you do it once in a while once can probably argue it is capital gain.

Many folks of course "forget" do file at all. I think we lose billions annually in tax revenue by non-declaration of real estate gains.

Getting a mortgage is a function of your other income and networth which is best discussed with a mortgage broker.

Pre-sales work well in a rising market, but with speculation tax (possibly to come in BC), land transfer taxes (both city and province in ON), real estate fees and legal fees it may or may not make sense in slowly rising markets. Many have been caught off guard in 2008/2009. Always have a plan B in mind, i.e. what would you do if the price is not higher in 2 years or 5-10% lower. Would you rent it ? Would you move in yourself ?

 

[Matt Crowley]

Many folks of course "forget" do file at all. I think we lose billions annually in tax revenue by non-declaration of real estate gains.

Justin is investing $500 million into CRA to crack down on tax revenue. He expects to make make $1.2 billion more.

1. what do you think of this kind of activity? cons and pros?

You are probably going to lose money, so plan for that. There is no rule that real estate or any other investment always goes up. Since you are putting no productive value into the asset, you are totally speculating and fueling overbuilding. I'm not sure what the stat is in Toronto but in Edmonton 1 in 3 downtown condos is already a rental...so if you have a bunch of speculators in a market that falls you are going to end up with a glut of supply of rental housing (eg. Edgewater: its a condo, its a rental, its a condo, its a rental)...which is what we are absorbing right now. Big problem is that smaller investors buy the flashy condos which are terrible investments because they are designed to glitter and not for long term maintenance.

As long as you are pretty sure real estate will never go down, this is probably a good plan.

That being said, if you think Toronto is going gangbusters for a while why not invest in a proxy to real estate with some assembly of stocks? This way you can lose some money, be highly leveraged, and not end up bankrupt if prices do not go up forever. Real estate is great but is no golden ticket to riches.