Revenue generating properties are a beautiful thing. Money comes is, equity builds, and the owner is left with very little cost each month while the property builds a nest egg.
There are additional considerations to factor in when considering the purchase of a revenue property. First, the profit made between the purchase and sale of the property will be treated as capital gains by revenue Canada and therefore, will be partially taxable. Moreover, some expenses incurred on the property are deductible from tax returns and the income received is treated differently than other forms of revenue..
For all mortgages that will be generating a source of income, there are two ways of calculating the value of that income – each of which comes with its own advantages and disadvantages:
Given the above, applicants will easily qualify for much higher value mortgages by applying the rental income to the mortgage payments rather than to income. To illustrate the point, a person with an annual income of $60,000 who is applying for a $300,000 mortgage with $1,000 in monthly rental income will be evaluating an estimated $1,500 monthly payment with a $66,000 annual income. Conversely, by using the more aggressive approach, the applicant will be looking at an estimated $700 monthly payment with a $60,000 annual income.
Clearly, the rental income is much more powerful when applied to the mortgage payment than it is on the income side of the equation. The risk becomes apparent if the rental value drops or the property is unoccupied for an extended period of time. Each individual’s situation is unique. The above and more techniques can be used to make sure that your dream becomes a reality in the most comfortable way possible for you.