BY JAY BRIJPAUL

Properties were taxed temporarily to raise cash during the war. Today, real estate taxes are one of the government’s most significant revenue sources. There are many tax-saving strategies in real estate; let’s look at a few.

Buy RRSP’s. Many first-time buyers have their downpayment in a saving account or short-term deposit. It’s better to open a self-directed RRSP account. If you were contributing yearly, then you can top it up. If you still need to, you will have room to transfer a large sum which will trigger a tax refund. A first-time buyer can take up to $35,000 (or $70,000 as a couple) from their RRSP. The funds must be in the RRSP account for 90 days. The buyers must withdraw the funds within 30 days before closing the deal.

Build a basement apartment. Income from a basement apartment is taxable. Similarly, the operating expense is deductible. However, having a basement apartment on a principal residence property can change the use and limit your principal residence exemption. CRA has three criteria to determine that the use has not changed:

• The rental use of the property is secondary to the principal residence
• There are no structural changes done for income generation
• There is no capital tax deduction on the secondary suite (You cannot write off the cost to build the suite)

If one or any of these criteria are not met, then, upon sale, the secondary suite portion of the property will be taxable. You can only claim some expenses if you rent a part of the property. If the basement apartment is 1/3 the size of the property, you can claim 1/3 of the utilities, mortgage interest, property taxes, insurance, etc.

Buy a rental property. Let’s assume that you have $100,000 saved up as a downpayment to buy an investment property and that your principal residence has a remaining mortgage of $400,000. It’s better to use the $100,000 to pay down your principal residence’s mortgage and then borrow $100,000 from the property for investment. You must set up a Home Equity Line Of Credit (HELOC) on the principal residence to borrow. The interest paid on the HELOC is tax deductible. With an investment property, an investor can write off the interest on the mortgage, rental insurance, some legal costs to purchase the property, property taxes, and other related expenses.

Split your rental income. If you are in a high tax bracket, consider splitting your rental income with your spouse or adult child. The party with the lower income must be actively involved in the day-to-day activities of the rental property. Some duties include bookkeeping, communicating with tenants, and collecting and depositing rent.

Claiming an expense on a rental property. There are two types of expenses, and they are called operating and capital expenses. Operating expenses are expenses incurred in the day-to-day operation such as accounting fees, maintenance, minor repairs, management fees, etc. Capital expenses are called capital improvements. For example, when you install a new roof. You can claim Capital Cost Allowance (CCA) and deduct the cost over time.

Claiming a rental loss for the property. When the gross rental income is lower than the rental expense for the year, that is known as a rental loss. You cannot claim rental loss when you rent the property to a family or friend below fair market rent. If a tenant has been living in the property for a long time and the rent is lower than reasonable market rent, that loss can be considered a rental loss. Rental losses that originated from a tenant who failed to pay rent are also tax deductible.

There are many more tax-saving ventures available. The government of Canada website, www.canada.ca, is resourceful. You cannot claim your labor and services in real estate, and it is better to use the services of a professional. I recommend finding an accountant who specializes in real estate taxation. The accountant’s fees are tax deductible.

BY JAY BRIJPAUL

Picture a stream. You can stop the flow by building a dam. The stream before the dam will swell while the other side will fall. As the swell continues, the dam will collapse under pressure. The resulting flow will be turbulent.  Rising interest rates are like a dam that inhibits the natural flow of buyers into the marketplace. It’s an artificial solution to a bigger problem. When interest rates decrease, the dam will crack, and the market will explode. The answer is to boost immigration.

Between 2023 to 2025, the Canadian government plans to welcome half a million permanent residents. As a result, we need to build more homes. To keep up with the demand, we have to add approximately 200,000 new homes in 2023 and 2024.  Currently, there are around 100,000 new homes being built across Canada yearly. The swell is growing rapidly.

The GTA is a city of ethnic diversity. Many immigrants want to live there, but the infrastructures are not in place to handle the influx. We cannot build enough accommodations to offset the flow. As a result, house prices will continue to surge.

Increased immigration is not the only reason for the drastic climb in house prices. Policies such as exclusionary zoning, heritage designations and high development charges slows growth. When other factors such as supply chain issues and lack of skilled labour, are added, housing becomes expensive.

Usually about 10% of the current resale home stock is from senior citizens. Seniors are choosing to stay at home instead of selling and moving to retirement residence. Many seniors are taking reverse mortgages, where they can live at home and withdraw equity to supplement their income. This trend creates more shortages and as a result there is upward pressure on housing.

Jason Mercer, chief market analyst for The Toronto and Regional Real Estate Board (TRREB) said, “It would be a year of two halves in 2023. The first half will feel similar to the fall of 2022 due to lingering effects of higher borrowing costs and related economic uncertainty. However, recent polling by Ipsos suggests buying intentions are edging up. The second half of 2023 should be characterized by an increase in demand for ownership housing supported by the lower mortgage rates, a relative resilient labour market, and record immigration.”

It is estimated that over the past year, one of every three homes sold in the GTA are bought by investors. This trend will continue because investors are benefitting from high rent and surging prices. As a result, the stock available for other buyers are depleted. Lack of adequate supply will cause prices to increase which in turn benefit investors and homeowners.

Bidding wars are resurging, and affordable homes are selling above market value. Buyers have a strong appetite for resale homes that are renovated. Homes with rental potential are more desirable. When there are multiple offers, sellers will choose a firm offer with strong deposits. Buyers should do their due diligence, such as obtaining a pre-approval before purchase.

There are buying opportunities available. Look for homes that are sitting on the market for over a month. You can negotiate the price down. Always make your offer subject to obtaining appropriate financing and inspection. When buying a home, first choose the location, then the type and style of home and finally the upgrades.

I represented some buyers who had two homes to choose from. One was a semi-detached, 5 days on the market and nicely upgraded. The other was a fully detached that had less upgrades and was on the market for 35 days. They were both priced at $799,000. The semi-detached had 10 offers and sold for $900,000. My clients bought the detached for $750,000. With some upgrades over time, they are ahead because they bought a detached home for far less than that semi-detached sold for.

If you are buying a home, it is better to buy in the first half of 2023. Go short term on interest rates. Once the rates drop, you can lock it in. If you are planning on selling your home, then re-evaluate the reasons you want to sell. Instead of disposing of your current home to buy another, it is better to refinance it and use the equity as the downpayment on the other one. You can then collect rent from one of the homes.

Homes in the GTA are becoming increasingly expensive. Over the long term, it’s a great investment. Prices will continue to climb. Own as much real estate as possible. It’s better than mutual funds and the good thing is, you can live in it or collect rent from it. It’s a win-win.

BY JAY BRIJPAUL

Title in real estate is a form of ownership. It’s not a specific document. It brings you the right to use the property. In a way, it’s a journal of that property. A deed, on the other hand, is a legal document that declares ownership. When you buy a property, you will receive the deed which affirms that you have title to the property. When there is a mortgage in place, the deed is transferred to the lender and the owner receives a document called a transfer deed.

Title fraud results when someone snatches a property by altering a deed. They immorally transfer ownership. The thief can now sell the home or arrange a mortgage against it. Usually, the real owner is unaware of the crime until they receive notices from the lender. Title fraud has increased drastically over the years.

A scammer’s prime target is seniors. Many seniors are mortgage free or have small mortgages. For the scammers, there is a ton of loot. Small investors are good targets for scammers as well. Investment properties are usually tenanted. Landlords generally pay less attention to their investment properties and may miss important documents such as bank notices. Knowing this, scammers have extra time to clean the safe.

When fraud is committed, the property does not belong to the fraudster or the new buyer. The documents are fake. However, it is expensive to correct the problem. Court can be costly and take years to resolve. The answer is title insurance.

Title insurance is a one-time purchase that is good for as long as you own the home. The best place to start is to check whether you already purchased title insurance. When you bought the home, your lawyer would have provided you with a stack of real estate papers. Among them, you may find a copy of the title insurance certificate. There are two kinds of policies. These are homeowner policy and lender policy. A lender policy protects the lender and not the homeowner. It’s important to have a homeowner policy. If you do not have homeowner’s title insurance, then its best to purchase it as soon as possible. The insurer will not cover you if the insurance is taken out after the fraud has happened.

You can purchase title insurance from First Canadian Title (FTC). Their website is Ftc.ca and their phone number is 1-866-804-3122. You can also email FTC at residentialsolutions@ftc.ca. If you bought the home over six months ago, then you can buy title insurance directly from FTC. Other than that, contact your lawyer. When buying title insurance, the owner must provide the date when the home was purchased and the estimated market value of the property. In the event of title fraud, FTC will step up and pay the costs plus legal fees to restore a homeowner’s title.

When a buyer unknowingly purchases a home from a fraudster, the buyer cannot resell that home to recover the losses. The home still belongs to the original owner. If the buyer has bought title insurance during closing, the insurer will take on the duty to defend that client. They will investigate the claim, retain council and compensate the buyer.

In addition to protecting the title of the property, title insurance has more advantages. A buyer’s lawyer has to research the entire history of the property. With title insurance, the lawyer does not require to research the entire history. The lawyer can view the last four or five entries. This saves time and costs the buyer less.

Prior to title insurance, lenders wanted a survey of the property. If the seller could not provide one, then the buyer would have had to hire a surveyor. This cost thousands of dollars. With title insurance, lenders have ditched the requirement for a survey.

There are many incidents where improvements are made to a home without obtaining a building permit such as building a deck or finishing the basement. If the home is inspected by a city inspector and the improvements are not up to code, the owner ought to apply for a building permit and retrofit the improvements. This can be costly. Title insurance covers that cost.

Sometimes, exterior structures, such as a garden shed, partly sits on the neighbouring property. When there is a disagreement, title insurance will take over and cover the cost.

A common problem occurs when a previous owner is in arrears for property tax. That responsibility runs with the property. The arrears are transferred to the new owner. If the new owner has title insurance, the insurer will pay that cost.

We are living in a time where internet pirates can ruin our ship. Homeownership in the electronic age is under protected. A hacker can sell our home or remortgage it and bag the cash while sitting on a beach in a different country. Let’s protect ourselves. Let’s buy homeowner’s title insurance.