Canada’s ‘baby boomer’ generation is the most affluent group ever seen in Canada. The ‘boomers’ have either already inherited, or are poised to inherit, their parents’ wealth. The result is a transfer of assets and an increase in discretionary income on a scope never before seen in this country. And many of these newly affluent people are deciding to invest in a second property – either a vacation home such as a cottage or ski chalet, or an investment property to appreciate in value, or generate rental income.
If you’re one of the many Canadians who’s thinking of buying a second property, your Coldwell Banker Coldwell Banker® real estate professional will tell you that you need specialized knowledge and planning to do it right. Here are just a few of the many things to take into consideration:
• Unlike your principal residence, any appreciation in value realized on the sale of a second property is considered taxable income. Therefore, the name you use to purchase the property (for example, whether it’s put in your spouse’s name) could have major tax implications at time of sale.
• Similarly, any revenue generated by an income property is also taxable.
• The good news is that most expenses incurred in the operation and maintenance of the property can be written off against income earned.
• Your insurance coverage and costs may also be affected by how you use the property. Make sure your insurance broker knows all the facts, so you won’t be caught in a situation where a future claim is denied due to using the property off season or for commercial purposes.
• Resale values for vacation properties can vary dramatically depending upon the community you choose and the services and features of the property. For example, a year-round road access cottage will generally appreciate at a higher rate than a water access cottage.
Unlike other more volatile investments, real estate has traditionally been a sound long term investment for Canadians, even in times of economic downturn. Better still, it’s also one of very few investments that you can actually enjoy while it increases in value. However, when it comes to second properties, you need to be prepared before you start if you want to avoid surprises down the road. It’s a good idea to consult your tax advisor before you buy to develop an ownership strategy and tax plan that makes the best sense for your situation. Your Coldwell Banker real estate professional will be glad to tell you more about the ‘ins-and-outs’ of buying a second property. Why not call today to find out more?