What would you do?

[islandboy1965]

So, I'm thinking about purchasing an investment property, and
thought I would pose the question to this forum on what you would do.



The
property is located in BC and is for sale at just over $400,000. It
will be a holding property as the house is located on 4 lots and will
have greater value down the road. I could either build on them now, or
just hang on to it for a few years until land values go up and I can
then sell it as a package or the 4 lots individually. The income from
the rental of the house would be around $1500 per month plus taxes of
about $2500 per year, so it's not in the positive cash flow area, hence
the holding property statement. That's really not the question though,
how best to finance it?



I have $100,000 in cash and own my home
outright which is worth over $500,000. I make about $100,000 a year in
my day job and am wondering what my options are and what makes the most
sense. Borrow against my house for the down payment so I can write off
the interest? Use my cash on hand? Buy it outright with a mortgage?



I would appreciate any feedback or ideas and thank you for your time

 

[Thomas Beyer]

Why would the land value go up ? Is there economic activity and in-migration ?



Then it may make sense to buy.



You should get an LOC on your house, ideally one where you can separate business/investment oriented investments with tax deductible interest from bling-bling like a vacation or a yacht that is not tax deductible.



The decide what to do with the holding property. It may go up $200,000, then it is a good investment. If it stay flat there are better investments elsewhere.



Where is this lot ? What other lots in other areas have you researched ?

 

[islandboy1965]

Thanks for responding Thomas, I appreciate it.



The good part about it is that I can sell off one of the lots for around $130,000 and keep the house as a rental.



It is located in a rapidly expanding area outside of one of the bigger cities in BC, with growing infrastructure and lots of new houses being built.



You say to get a LOC on my house, can you speak in more detail as to what you mean. What specific breakdown would you use, buy it outright with LOC, use only a certain amount? Other options?

 

[Thomas Beyer]

Get an LOC approved first.



Then decide how much of it to use for what purposes. Since interest payments on investments are tax deductible, but on life's blingbling are not, get an LOC with different accounts ("tranches") so that you can report to the taxman properly.



Is the land already sub-divided ? Or only zoned for 4 dwellings ? Has the city approved it ? Do you have 4 separate titles ? Depending on house location that might necessitate removal or movement of the house or lot line. That happened to me when I did a similar large lot sub-division in Canmore, AB !