WOW we have had a heck of a year and a half in the Global covid-19 pandemic, with governments having to put billions into the economy to support workers and businesses alike.
The Canadian election has been called, now I normally do not like to comment on politics often – however this election will be a real barn burner with the announced platforms of the different parties. Some of these proposed changes to tax law in Canada are HUGE for investors.
Our American friends have enjoyed one of the best tax advantages on earth for many years called the 1031 exchange. What the heck is that? This is a tax exemption that states if you sell an asset, for example an apartment building and have a 1,000,000 capital gain you would need to pay the tax on that normally if you put that cash in your bank account. However, if you buy a like for like asset within an approved amount of time then you defer the tax.
This is an incredible advantage to scale your business without having to incur the tax all the time. In Canada there has been a rental housing shortage for many years as developers focused on for sale product such as condos and single family homes.
Conservative government politicians have realized this is a problem, and making it a campaign issue. The solution they have proposed is for rental property owners who sell to re-invest in additional rental property and defer the capital gains just like the 1031 exchange!
This would be a game changer for Canadian real estate investors, and the renters that would benefit from more supply of better housing. Let’s face it our rental stock is very aged in a lot of cities in Canada with a lot of deferred maintenance. All that deferred maintenance is partly due to the fact that owners can’t sell and buy something larger or similar to extract that equity to perform the repairs – also rental controls which in my opinion also contribute negatively to this problem.
Look at New York’s history of rental control, which has basically forced landlords to not spend money on the buildings there because they are held hostage by rental policy. (that is a whole other post for another day!)
Financial services and investment industry what I like to call “retail investments” offered by banks and mutual fund companies could be shaken up as well. The feds are pushing for more transparency on fees that are charged to consumers when speaking about returns on products such as mutual funds, bonds, EFTS.
What impact would that have on real estate investing? Hard to call, however with a better informed consumer they may choose to look at different investments more often once they know the fixed costs of the alternatives.
Real Estate IMHO is one of the best ways to build wealth for multiple generations, which is 1 of the 3 pillars of wealth
- real estate
- stocks/bonds
- Business investments
They are all needed for a well rounded portfolio, and you have to be at least somewhat active in 1 of the 3 to really crush it. There is no such thing as a great return on investment that is totally passive – 100% passive does mean lower returns than being active, what you put in for effort you get back in higher ROI.
Investing in real estate does not need to be complex or difficult, if you are thinking about real estate investing book a discovery call with our team today to find out how to get started or grow your current investment in real estate.
To your success
Tim Reid
-Respect The Hustle