Category: Renters

Real Estate Financing, Renters

Incentives to Build Rentals in Ottawa

Are you a builder considering, or already building rental units in Ottawa?

In the past few months, various stages of the Government have introduced incentives to help encourage more development of rental housing, and even student and long term care housing in some instances.

Here is a QUICK summary of what’s being offered:

  1. HST Scrapped

BOTH the Federal Government and the Provincial Government have agreed to scrap the total amount of HST they would have charged on the sale of new construction of Rental Housing, Student Housing and Long Term Care Housing. For Rental housing specifically, that would mean 4 or more self contained units (think fourplex and up….all the way up). These programs harmoniously apply to developments that begin construction by the end of 2030 and finish no later than the end of 2035.

What if the builder is keeping the rental for themselves and NOT selling it? Good question. The part to be careful of here is that as SOON AS the builder/developer/owner rents the units, the Government deems that the property has been sold and purchased at fair market value – kind of like you are buying the asset from yourself. This means that they want their cut – the tax. Under this new rebate they will let it slide for the time being.

2. Rental Construction Financing

For Residential Rental Construction, CMHC will loan a minimum of $1,000,000 for construction of 5 units or more (subject to other conditions) and up to ONE HUNDRED PERCENT of the cost to build.

That’s right – they may finance the whole thing.

3. MORE CMHC Insurance on Financing

This one is a little more of an indirect benefit to Builders, so let me (try to) explain this.

When builders finance rental construction by other means (than self financed or by taking advantage of the above mentioned program), they require CMHC insurance on their loans. One of the ways CMHC raises funds to underwrite the insurance is by selling CMHC Mortgage Bonds, and they recently decided to UP their available bonds for sale from 40B to 60B – making 20B MORE available for sale so that they can generate MORE money and therefore underwrite MORE insurance. MORE insurance means MORE favourable financing from lenders, which means MORE builders can get MORE good financing on rental construction.

To summarize: No tax charged on the construction/sale, between 1M and 100% of value of financing available, and more favourable lending available via more and favourable insurance for lenders.

For more information on these programs please feel free to reach out, and of course – before making any drastic decisions, consult your accountant and lawyer.

Renters, Uncategorized

Making Money with a Townhouse

Here’s another one for you.

Buy a townhouse within walking distance to a major public transportation route. 97, 95, 96, O-train, and if you’re feeling confident in the Lightrail project – along it’s proposed path. Walking distance means a distance that you wouldn’t mind walking in bad weather.

Ideally the property is no more than a few years old so you can hold it for a solid 10 years without having to replace or repair anything.

Advertise the property for rent as a 4 bed townhouse perfect for mature students (3 beds upstairs and a lower level as a bedroom). The going rate of a student bedroom for something like this is about $550 a room, so you can try to push for 600 for the basement and master, and 500 for the other smaller rooms – $2200/month and advertised as such (no room by room leases – just one big lease). You should be able to make some great cash month over month. Now more money also means more risk – as I’m assuming you first thought when you read the word “student” – so do a thorough check on them and use your gut instincts. Get their parents all to co-sign as well. I also tell my student tenants that I’ll gladly give them references once they leave and do my best to help them get great rents on their next place. That usually keeps them wanting to be in my good graces. Finding and keeping good tenants is a topic for another blog.

Now what’s great about this strategy is that if you do this right, not only will you be able to make some fantastic cash month over month, but in the event you need to sell this asset at the 10 year mark or sooner – according to a recent CMHC study, townhouses are set to appreciate a little more than all other property types due to the amount of further aging baby boomers and influx of immigrants that want a home but not too much to maintain for their own reasons.

A nice cash flowing asset and a good looking exit strategy with a serious chunk of equity at the end.

Now don’t get ahead of yourself and go running out there thinking this will all work out without some serious diligence and a little risk taking. Consult your trusted professional salesperson.

If you would like some of the finer details of how this could work and a personal step by step walk through, complete with examples of what could work – send me an email at mevans@evanselattar.com