Don’t tell them, but our government is effectively lending real estate investors millions of dollars interest-free year after year.
This is another reason to hold and rent the property you own. Holding on to these real estate investments is one of the ways you can use the government’s money to earn you and your family money for years to come.
As soon as you sell your real estate investment you have a tax consequence on the increased value of that property. As long as you hold that investment and rent it you are effectively enjoying an interest-free loan from the government. Holding on to your real estate Investment and renting it out means you’re earning a return on the money you’d otherwise have to give to the tax man.
As an example, a client bought a 1 bed + den condo in Yaletown in 2003 for $365,000. At that time they rented it out for $1200 a month, which could rent for 2,500 today. If they sell that property in today’s market for $800,000 with a gain of $435,000 they would have a capital gains tax based on a 50% inclusion rate.
They would have to add $217,500 to their income and be taxed on that amount at their taxable income rate. The owner would easily lose $105,000 to taxes. In the end, the owner would be left with $665,000 investable income from the $800,000. ($800,000 less taxes $105,000 and commissions and legal fees approx.$30,000)
By holding the real estate and renting it out they are enjoying the return on a $800,000 investment. Liquidating would mean they need to find a way to enjoy equal or better total return with only $665,000 to invest.
Smart long-term investors hold on to their real estate investments, rent them out through professional property management companies and enjoy the hassle-free gains and returns on what would otherwise become the government’s money!