Canada becomes second-most popular country for rich Chinese emigrants

Chinese millionaires are flocking to Canada for its attractive lifestyle and property investment opportunities, according to a new survey.

The survey results show Canada has surpassed the United Kingdom as the second-most popular foreign country to live in for Chinese individuals worth between 10 million to 200 million yuan ($1.8 million – $37.3 million Canadian). Vancouver and Toronto were also among the most popular cities for investing, with Vancouver moving up to fifth spot and Toronto surging into eighth place in the annual survey rankings.

The survey was conducted by the Hurun Research Institute, in association with Visas Consulting group. Countries were evaluated based on investment opportunities, immigration policy, property purchasing, personal tax rates, health care, visa-free travel and ease of adaptability.

The United States remains the most attractive country on the Hurun list, although results show its popularity has dipped since U.S. President Donald Trump took over the White House.

Australia ranked fourth on the list, followed by Malta, Portugal, Ireland, Spain, Antigua and Dominica.

The Hurun Report cited pollution and education as the leading reasons for Chinese millionaires to emigrate, along with fears that the yuan will continue to depreciate.

The survey was conducted among 304 wealthy Chinese individuals who have emigrated or who are in the process of doing so. Survey respondents were questioned between April and July of 2017.





CTV news published Monday, July 17, 2017

Bank of Canada raises interest rates for first time in 7 years

“Growth is broadening across industries and regions and therefore becoming more sustainable,” the bank said in a statement.

“The current outlook warrants [Wednesday’s] withdrawal of some of the monetary stimulus in the economy.”

Explainer: How the rate hike affects homeowners and buyersRelated: Rising rates: An investor’s guide to a new era Rob Carrick: Five harsh realities of rising rates for savers and borrowersMeanwhile, the bank dismissed the recent fall in inflation as mainly temporary, dragged down by lower gasoline prices, electricity rebates in Ontario, intense food price competition and unexpectedly weak car prices.

Bank of Canada Governor Stephen Poloz and his central bank colleagues aren’t yet ready to pull the trigger on a second rate hike this year. The bank insisted that any future rate hikes would be guided by the effect of “incoming data” on inflation, according to the statement.

Many economists are expecting at least one more rate hike this year, most likely in October, when the bank releases its next quarterly forecast.

Bank of Montreal chief economist Douglas Porter said Wednesday’s hike begins a process that could see the Bank of Canada’s key rate bumped up to 1.5 per cent by mid-2018.

“And so the tide begins to turn,” Mr. Porter said in a research note. “We would expect the next rate hike in October . . . and then a brief pause before some modest follow-up moves in 2018.”

The bank said that the 3.5-per-cent annual pace of GDP growth in the first quarter will “moderate” over the rest of the year, but remain “above potential.” Among other things, the bank expects consumer spending, exports and business investment to drive growth in the months ahead.

But Wednesday’s quarter percentage-point rate increase could cool one of the key sectors that has been driving the economy – housing. Lenders have already started pushing some mortgage rates higher, which will discourage home buying.

The bank pointed out that housing activity has already abated, particularly in the Toronto area, where homes sales have fallen sharply.

The central bank also noted that while the global economy is getting stronger and spreading to new regions, “elevated geopolitical uncertainty still clouds the global outlook.” For example, the bank has removed from its forecast an expected bump to the U.S. economic growth from future personal and corporate tax cuts, which now appear less likely.

Today’s ultra-low interest rates have encouraged many Canadians to load up on mortgage debt, driving home prices and home construction, particularly in and around Toronto and Vancouver. But they have also penalized savers and made it tough for pension funds to generate healthy returns.

Inflation remains one of the puzzles facing central banks – not just in Canada, but globally. Canada’s Consumer Price Index (CPI) currently sits well below the bank’s 2 per cent target and continues to drift lower.

Economists will no doubt raise questions about why the central bank is raising rates while inflation is still falling.

But the Bank of Canada is apparently looking ahead to conditions that will likely prevail a year or two from now. Inflation may weaken further in the months ahead before getting back to the two per cent target by the middle of next year as excess capacity in the economy fades, according to the bank’s Monetary Policy Report, released Wednesday.

The bank now estimates that the so-called output gap – a measure of excess labour, factory capacity and the like – will close “around the end of 2017.” That’s significantly sooner than its assessment in April that the gap would disappear in the first half of next year.

The Bank of Canada cut rates twice in 2015, taking out what Mr. Poloz called “insurance” against the fallout from the collapse in the price of oil and other commodities.

Recently, Mr. Poloz has said that those cuts “have largely done their work” as the effects of the oil shock receded in Canada’s oil patch.

“Higher interest rates are what is needed to reduce the vulnerability of high household indebtedness and real estate price imbalances in parts of the country,” Conference Board of Canada chief economist Craig Alexander said. “[Wednesday’s] decision to raise rates is a positive development.”

Overall, the bank’s latest projection of where the economy is headed is little changed from its April forecast. It now expects the economy to grow 2.7 per cent this year, compared to its earlier estimate of 2.5 per cent. But its forecast for GDP growth in 2018 and 2019 remains virtually unchanged.

The bank did, however, significantly underestimate the strength of consumption this year – most notably the hot housing markets in Ontario and B.C.

Likewise on inflation, the bank said CPI inflation will average just 1.6 per cent this year, versus its April estimate of 2.1 per cent. But its forecasts for 2018 and 2019 (2 per cent and 2.1 per cent) remain roughly in line with earlier projections.

The central bank warned of a series of risks that could derail its latest forecast. These include rising trade protectionism, a house price correction in Toronto and Vancouver and weaker than expected exports and business investment. Canadian businesses continue to fret about the potential fallout of The bank likewise cited a number of factors that could cause the economy to grow faster than expected, including stronger U.S. growth and more debt-fueled consumption in Canada.



OTTAWA — The Globe and Mail

Canadian dollar helping keep hot market for vacation homes for foreign buyers

Realtors who sell Canadian resort properties say the low loonie is spurring interest from American buyers who are looking to pick up cheap vacation homes north of the border.

“We’re thanking our lucky stars,” said Brad Hawker from Royal LePage Rocky Mountain Realty in Canmore, Alta.

While the housing market in Calgary — 130 kilometres to the east —is suffering due to plummeting oil prices, that hasn’t been the case in Canmore with a 70-cent Canadian dollar.

In the mountain town just minutes from Banff, an 1,100-square-foot condo boasting two bedrooms, two baths and beautiful views is listed at $429,000. But when you factor in the exchange, that’s only about US$296,000.

Hawker said he’s fielded a number of inquiries from both the United States and the United Kingdom. He’s also seen interest from Asia and Europe.

“I don’t think it’s going to be a huge flood of people immediately but it’s started,” he said.

“It takes a while. People don’t just arrive and come for a holiday and then buy something if they’ve never been here before. Usually they have to come back a second time, and that’s something I expect we’ll see over the next six to 18 months.”

Hawker said tourism is booming in the area.

“Business has not been this good for 25 years. It’s incredible.”
Whistler popular

Prices and demand remain high in the ski-resort town of Whistler, B.C.

One property — a 3,400-square-foot luxury home with five bedrooms, 5 1/2 baths, cherry floors and custom totem poles — is listed for more than $4.2 million. That’s about $2.9 million U.S

Christopher Wetaski, who is with ReMax Sea to Sky Real Estate in Whistler, says he is also seeing an increase in American clients and expects he’ll see more as people begin to realize the power of the U.S. dollar.

As loonie loses strength, Canadians staying home more

“It just takes a little while for them to realize what the value is. When they show up in Whistler and start spending money and realize it’s a deal — if they happen to be in the market — they kind of clue in.”

With the dollar close to par in the recent past, the number of Americans buying property in Whistler had been on the decline over the last five or six years — dropping to five per cent of all sales from a peak of 20 per cent.

Wetaski said the strength of the U.S. dollar is likely to push prices up and flush out more inventory.

And not all of the extra business will be from south of the border.

“Some of our buyers are also from Hong Kong,” said Wetaski, who added they’ll be coming to Canada next month.

“You get Americans, Canadians, British, French, all living in Hong Kong making American dollars, and they like to come to Whistler during Chinese New Year. They’ll probably be looking at real estate as well so that should be a good year for that.”

Published by CBC News on January 20, 2016

Mortgage deals are going, going, but not gone: Why it may not be time to lock in just yet

Mortgage deals are going, going, but not gone: Why it may not be time to lock in just yet

Banks have started shaving the discount available on variable rate mortgages, but that doesn’t mean it’s time to lock in your mortgage just yet.

Royal Bank of Canada raised rates across the board last week and part of the shift included a drop in the discounting of its variable mortgage tied to the prime lending rate, which generally tracks the Bank of Canada’s overnight rate.

What it means is that instead of rates as low as 2.2 per cent, based on a 50-basis-point discount that some banks were giving last year, new customers who opt for a floating-rate product will get a 10-basis-point discount off the current prime rate of 2.7 per cent, which translates to a 2.6 per cent rate.

To be clear, by historical standards, these rates are still incredibly low. The option to lock in your rate also remains on the table, as it should, considering that even after a 10-basis-point increase, the five-year closed fixed-rate at RBC is 3.04 per cent.

“We kind of chuckled when they raised rates because we have some lenders dropping rates, said Vince Gaetano, principal broker and owner of, adding that there are lenders working through mortgage brokers still offering a 50-basis-point cut off prime for a variable product.

Gaetano maintains that the banks make less money on variable-rate mortgages compared to people locking in their loans, adding that of the 50 basis points in cuts from the Bank of Canada last year, only 30 basis points have been passed on to the consumer.

“The big banks are trying to move people out of the variable (and get them to lock in),” he said.

Based on several decades of research, variable-rate consumers generally save more money compared to those who lock in, with the downside being that they give up the security of a guaranteed rate for the period of their contract — a key consideration in a rising rate environment.

But this time around, with discounts shrinking, there is something further to consider: If you have a discounted variable-rate mortgage — older products shaved as much as 50 to 80 basis points off prime, Gaetano said — you are giving up a product not even available today.

If the overnight lending rate potentially heads lower, those consumers could benefit from banks lowering their prime rate. But, no matter what, they’ll be keeping their huge discounts.

David Madani, Canada economist with Capital Economics, suggested Friday he thinks it’s possible the Bank of Canada will have a surprise rate cut this month. He doesn’t think any of the reduction will be passed on to consumers — a stance the banks initially took in 2015 before relenting and handing over 60 per cent of the rate reductions from the Bank of Canada.

One reason for the higher interest rates has been the increased costs to the banks from new rules, including higher capital requirements and increased fees from Canada Mortgage and Housing Corp. for securitizing loans.

David Stafford, head of Bank of Nova Scotia’s real estate lending division, said increases in short-term lending rates drove Scotiabank’s decision to match RBC’s reduced discount on variable.

“The spreads were narrowing and that causes us to raise rates,” he said.

Stafford said there are still enough savings going on with variable that he expects some consumers to continue to opt in that direction — usually it’s about 35 per cent of the market.

“It’s all about the math,” said Stafford, adding that the costs of breaking needs to be measured against what savings you’ll garner. “The whole question about fixed versus variable is an advice conversation and it depends on your personal situation.”

A variable rate mortgage has the advantage of being broken by just paying three months interest.

Calum Ross, a Toronto mortgage broker, said the temptation to lock in now is strong and for most people, who can’t be bothered to stay up to date on interest rates, it makes sense.

The one exception might be those people with “artificially” low rates from deals negotiated when the banks were heavily discounted.

“Keep it if you feel comfortable,” said Ross, adding the caveat that anyone with a variable-rate mortgage needs to be able to afford an increase in rates if that happens too.

Published by Financial Post on January 11, 2016

West Island is growing

Brenda O’Farrell: West Island is growing, so let’s make some demands.

The population of the town of Kirkland has remained steady for about a decade now. But that could soon change.

A major housing development is being proposed that could give the municipality its biggest population bump since the 1970s.

The development focuses on the former Merck industrial site on the north side of Highway 40, west of St-Jean Blvd. The sprawling 56-acre, 18-building campus that was once the hub of the drug research and manufacturing giant’s Canadian operations has sat idle for years. It was purchased in 2012 for an undisclosed sum by Broccolini Construction.

Now, Broccolini wants to do something innovative. Details of the development plan were going to be publicly unveiled this evening, but the event has been postponed until next month. The general picture of the plan is already known, however.

According to a story in last week’s West Island Gazette by reporter Cheryl Cornacchia, the development that is being considered includes a mix of industrial and residential construction. The area fronting the Highway 40 service road would be a row of industrial buildings. Behind them would be a row of six condo towers. And behind them would be another row of low-rise condominium buildings. And moving further north, toward Brunswick Blvd., would be a row of townhouses. Included in the deal would be a linear park that runs the length of the sector, from east to west. In all, about 800 new residential units are proposed, which means the area would become home to about 2,000 new residents. That represents about a 10-per-cent increase in Kirkland’s population.

Of course, the entire plan hinges on needed zoning changes, which is why all of this is subject to public consultations.

One of the best parts of this plan is that it includes a non-residential component. Maintaining a vibrant industrial zone in the town is good planning. It provides non-residential tax revenue and offers the prospect of jobs.

Also on the up side, the plan does not put houses in existing green space. The site is a prime piece of real estate that needs to be redeveloped, not allowed to collect dust.

Also on the plus side is the fact that new residents will have a direct link to the highway. Of course, this will mean more cars on the expressway, but at least they won’t be adding to the already overburdened north-south arteries in this region.

And there might be another hidden plus. We just have to bring it forward. And it could benefit the entire region.

Perhaps there is a way to twist some arms and corral a few people around a table to discuss how a development like this could be used to expand discussions on regional rapid public transit.

Let’s not forget that all of this is happening in a context: there are also plans — which have been approved — to build between 5,000 and 6,000 new homes in western Pierrefonds. The West Island is a growing place.

And let’s add to this context. Our new prime minister who swept through the region during the federal election campaign making promises of investments in transit. The province and the Caisse de dépôt is working on a commuter train line for the region. Now, is the time for West Island interests to be bold. Train service that caters to both the lakeshore to the western tip of the island and the northern growing areas is not too much to ask for.

Published by Montreal Gazette on October 28, 2015


CMHC sees housing market moderating in coming years (CANADA MORTGAGE AND HOUSING CORPORATION)

Canadian housing market activity is likely to moderate over the next two years, the country’s housing agency said on Monday, though 2015 was forecast to be modestly stronger than previously anticipated as low borrowing costs helped offset the drag of weaker oil prices.

The Canadian Mortgage and Housing Corp (CMHC), a government-owned entity that helps some home buyers insure their mortgages, also forecast home prices will continue to climb, though not at as steep a pace as is forecast for this year.

Canada’s housing market boomed in the years since the global financial crisis, boosted by historically low interest and mortgage rates. The Bank of Canada cut interest rates twice this year as the economy shrank in the first half on weaker oil prices.

Some commentators have warned the sharp run-up in prices and sales activity means the market is at risk of a U.S.-style crash, though most economists and policy makers have predicted a soft landing.

Increased activity in the hot markets of Ontario and British Columbia this year have offset slowdown in oil-sensitive provinces such as Alberta, said CMHC chief economist Bob Dugan.

Ontario and British Columbia have benefited from declining energy prices, the weaker Canadian dollar and on-going low mortgage rates, Dugan said.

“We expect, however, that this counterbalancing effect will decrease over time,” Dugan said.

For 2015, CMHC sees housing starts in a range from 162,000 to 212,000, with a point forecast, or most likely outcome, of 186,900, stronger than the point forecast of 181,618 it gave in its last housing market outlook released in May.

It nudged down its 2016 point forecast to 178,150 from 181,800 and sees starts moderating further in 2017 to 173,650. The high levels of completed but unsold units are expected to prompt some builders to put demand for new homes toward existing inventory.

The CMHC lifted its point forecast for sales for this year to 494,700 from May’s 475,400 and expects sales to taper only modestly to 479,500 units in 2016 and 476,000 in 2017.

The agency expects home prices will rise 7.2 per cent this year, with a point forecast of C$437,700 ($333,206.46). Prices will likely rise by a slower 1.3 per cent next year and 1.4 per cent in 2017.

Published by THE GLOBE AND MAIL on Oct 26, 2015

‘Scarily overpriced’

‘Scarily overpriced’: Outsiders fear for Canada’s housing markets

Alarm bells

Observers outside Canada are ringing (loud) alarm bells (again) over inflated house prices.

Both Moody’s Analytics and The Economist issued fresh warnings within days of each other, each citing swollen household debt.

Moody’s Analytics, the rating agency’s sister group, pointed fingers specifically at Vancouver and Toronto, which have long been the focus of angst.

“The risks are less around the rapid house price appreciation per se than the fact that, relative to incomes, homes in Toronto and Vancouver are increasingly becoming unaffordable either to own or to rent,” Moody’s economist Paul Matsiras said in his report.

“Canadian household debt has risen faster than disposable income since 2011, greatly increasing the debt burden for consumers and the risks of a pullback in spending as interest rates rise.”

He warned of difficulties as the key measure of household debt to disposable income rises, now standing at almost 165 per cent.

“The song I’m Forever Blowing Bubbles, popularized by English soccer team West Ham United F.C., describes how extravagant dreams fade away once reality sets in,” Mr. Matsiras added.

“Increasingly, it seems this is being felt in Canada, which has seen some of the fastest house price growth in the world over the past year in cities such as Toronto and Vancouver.”

As for The Economist, its big fear is that the uncertain economy “makes inflated debt and housing values more dangerous.”

Indeed, homes are overvalued to the tune of 34 per cent against disposable income, as measured by the magazine’s indicators, it said, saying Canadian housing now appears “scarily overpriced.”.

Canadians can juggle those debts now, but an economic shock would spell trouble.

Economists at home don’t fear a housing crash. Nor does the Bank of Canada, although it’s keeping a close eye on the market The Economist, too, said we shouldn’t fear a U.S.-style meltdown because, even amid all this, Canadians are still “relatively sober,” with only about 5 per cent of mortgages deemed subprime and two-thirds are insured either by Canada Mortgage and Housing Corp. or private firms.

Not only that, we don’t use our properties “as ATMs” to borrow for what we spend. And our banks know what we’re borrowing because they operate on both the mortgage and home equity line of credit sides of things.

But while any economic slump might not mean doom, it would be “very unpleasant.”

Published by The Globe and Mail on October 19, 2015

Bank of Canada

Stephen Poloz says Bank of Canada not responsible for record debt.

It’s not the Bank of Canada’s job to fix bad decisions consumers make with regard to debt loads in the current low rate environment, Stephen Poloz says.

In his last scheduled public appearance ahead of Monday’s election and the central bank’s latest interest rate decision on Wednesday, Canada’s top central banker told a Washington, D.C., banking audience on Monday that the bank’s main job is to fight inflation — not clean up any messes in the consumer debt market.

Poloz said the central bank is the last line of defence against “bad decisions” in consumer debt, behind lenders and borrowers themselves and various regulatory bodies. But the bank is keenly aware of the impact its policies can have on the so-called “real economy” and strives to find the best way of achieving its monetary policy objectives without contributing to imbalances elsewhere.

The central bank has come under fire in recent years for repeatedly warning Canadians about the dangers of taking on debt once rates inevitably increase, but then failing to actually move rates higher.
Inflation targeting

That seeming dichotomy comes about because the bank’s actual mandate is to keep inflation within a comfortable range of between one and three per cent. But the bank doesn’t have the specific tools to make lending easier for some, but not others.

All else being equal, the bank cuts rates when it wants to encourage businesses to borrow to invest and expand the economy. The bank hikes rates when the economy is getting too hot, and the bank wants to discourage that type of activity. The impact of the bank’s rates on consumer lending and borrowing is in many ways a byproduct of that — but not a primary goal.

ANALYSIS: Should Stephen Poloz be more worried about the Canadian economy?

“Since we are an inflation-targeting central bank, our policy tool must always be directed first at our inflation target,” was how Poloz summed it up.

That poses a problem when the cheaper lending tailored to the business community spills over into other parts of the economy, such as the housing market, where it sometimes encourages recklessness.

There’s evidence that’s happening, as housing prices set new record highs with each passing month, especially in large, hot markets in Toronto and Vancouver. But if buyers are buying more than they can swallow thanks to cheap rates that make monster mortgages look temporarily manageable, that’s not the central bank’s fault, Poloz said.

“It is not the role of monetary policy to protect individuals from making bad choices,” he said, adding that borrowers and lenders themselves are “the first line of defence” against those sorts of risks to the financial system.

Why Stephen Poloz is finding it hard to fix Canada’s weak economy

But Poloz acknowledged the bank keeps a close eye on debt loads and tries to do a better job of gauging how monetary policy can have unwanted effects in the real economy.

“I’m not trying to diminish the threat posed by elevated household debt. We are continuing to watch this closely,” Poloz said. “The point is that there is more to the story than the debt-to-income ratio,” which rose recently to a record 165 per cent, Statistics Canada said last month.

Poloz noted that while the debt-to-income ratio has risen to 165 per cent, another closely watched metric known as the debt-service-to-income ratio is near where it was seven years ago, in 2008. Put simply, the service ratio measures not overall debt loads but our ability to pay back our debts, and a ratio that has remained steady for seven years is a sign that consumers acted rationally in the face of cheap lending — they borrowed more.

But getting Canadians to borrow more wasn’t the bank’s intention.

Indeed, Poloz’s main message in the speech was that the bank is trying to do a better job of balancing all the needs of Canada’s complex economy, from macroeconomic to microeconomic.

The bank is currently mandated to target inflation, but the five-year term of that mandate is set to expire next year. If politicians want to redefine the bank’s role in the economy, Poloz’s speech made it sound like Canada’s top central banker is open to it.

“The idea that central bankers should pay little heed to financial stability issues and simply ‘stick to our knitting’ of inflation control — a position once advocated by many — seems quaintly naive,” Poloz said.

Published by CBC news, Business on Oct 13, 2015

Tax Strategy

House can be left to child at death or later

Bequeathing property to a child and deducting interest for a real-estate purchase were among the topics raised in the latest batch of reader letters. Here’s what they wanted to know.

Q: “I am 56 and the sole owner of my house, worth $450,000. I am preparing my will and would like to know what the tax implications would be if I were to give the house to my son when I die. He is 25 and already owns a house with his spouse. Another scenario I’m considering is leaving it to my common-law spouse (who lives with me), conditional on him leaving it to my son upon his death. Can you make such a stipulation in your will?”

A: François Bernier, director (advanced planning) for Sun Life Financial, says it is possible to put such a condition in your will, if you so choose. “There are different ways of doing it: through a mechanism called substitution, through a testamentary trust, by a right of usufruct or by conceding your spouse a right of reserved use. You should consult a notary or lawyer to see which would work best for you.” If you opt to give the house to your son now or upon your death, there is no tax consequence, but he’ll need to pay capital gains on one of his two properties for the years he owned them simultaneously, Bernier said.

Q: “I am planning on buying a condo for $200,000, to be financed by a mortgage on a $400,000 income-producing property that I own. Would the interest on the mortgage be tax-deductible if I use it to buy a condo as principal residence?”

A: No. Mathieu Ouellette, partner at accounting firm Crowe BGK, says interest normally is deductible when the borrowed money is used to earn income. “In the situation presented, the direct use of the borrowed funds is to buy a condo for use as a principal residence, a personal asset, not a revenue-producing property. As such, interest would not be tax-deductible.”

Q: “We presently own two homes, one in the suburbs that we plan to sell in the next couple of years and will declare as our principal residence. We’ll then move to the other home in the country. (It was built 15 years ago and is worth more than our other residence). What are the tax implications if we sell the country home at some point?”

A: For tax purposes, couples can only have one principal residence at a time. So appreciation of one of your properties is creating an eventual tax obligation as long as you own two of them. Ideally, the principal-residence exemption (from taxes) gets used on the house where it provides the biggest benefit. If you proceed as planned with your suburban home, the exemption will spare you from taxes when you sell, but you’ve locked in the tax obligation on the country home for those years. If the country home actually gained more value than the other house over that time frame, it might be worthwhile to retain the exemption for that property and pay the applicable taxes when you sell the other.

Published by Montreal Gazette on October 12, 2015

Investment Property

Investment property won’t work out ‘if you’re greedy’

An asset that can appreciate in value exponentially and produce a sizable monthly income sounds like a dream come true.

But buying an investment property isn’t all upside, experts say. An uncertain real estate market, tenant woes, unexpected costs and hassles can make it a real nightmare, especially if you’re at, or close to, retirement.

“It’s a tricky business being a landlord,” says Trish Bongard Godfrey, an agent at Bosley Real Estate Ltd. in Toronto who deals with clients looking for investment properties in the hot residential and commercial market there. “It’s a good idea, but it isn’t for the faint-of-heart.”

People interested in investment properties include those who have significant funds and are looking to diversify their portfolios, who don’t have pensions and are looking for a fairly steady income, or who want a nest egg to cash out of and reinvest when they retire.

Others might want to “bank” property so their children have a toehold in the market. Or they might purchase a student place for university-aged children to use.

But investment properties often “sound good on paper,” says Jeanette Brox, a certified financial planner who is a senior financial consultant at Investors Group in Toronto. “You’ve really got to know what you’re getting into.”

Investors who might want to reconsider buying an investment property are those who intend to depend solely on the rental income from it, who don’t have a significant amount to invest up-front or who might need to liquidate their assets quickly.

Potential buyers should look at market projections and prospects for the area where they want to buy, then consult an accountant about tax advantages and available write-offs, as well as the capital gains they will incur when they eventually sell.

“If you understand what you’re going to be getting into with the property, and you hold it for a long time, and you have good tenants and they’re not wrecking the place and you’re making money, it can be good,” Ms. Brox says, suggesting that investors draw up a 10-year business plan for the property and resist the urge to cash out quickly. “This is not a short-term thing.”

One of her clients bought a property near the university his son was attending. It was held in the son’s name so it wouldn’t trigger capital gains, and he rented out rooms to fellow students while building equity.

An investment property can be a retirement project for some, Ms. Brox says, although most retirees want to simplify their lives. “They don’t want to get those phone calls at 10 o’clock at night saying the stove’s not working.”

Ms. Bongard Godfrey says it’s important for investment property owners to be patient and maybe even handy, to understand the real estate market, be willing to manage the property (or hire others to do it) and to hold it for the long term to realize its capital appreciation.

“I don’t think people should be too ambitious,” she says. “It doesn’t work out if you’re greedy.”

Some people in Toronto’s pricey market are looking for duplexes, or larger homes to turn into duplexes, either because they are first-time buyers or couples looking to downsize, Ms. Bongard Godfrey says. That way they can live in part of the property and generate income from the rest.

Those looking to fix up and flip investment properties should have a sharp eye for cost control and a good design sense, she advises. “I see a lot of bad renovations.”

Hiring a property manager is smart, both to look after things that break or need regular maintenance and to screen tenants and follow up with those who are difficult, although such a service will cost one or two months of rent each year. Ms. Bongard Godfrey points out that a real estate agent can help with everything from market intelligence to details such as rental applications, credit checks and lease agreements. A financial planner and a mortgage broker are critical to ensure you have a reasonable plan.

It’s especially important not “to go into it with the view that it’s going to create a positive cash flow every month and then rely on it,” Ms. Bongard Godfrey says. “You can’t budget down to the last dollar.”

Sheena Steenhart, a financial planner at the Royal Bank of Canada in Airdrie, Alta., says investment properties are usually leveraged investments, with risks involving interest rates and issues such as vacancies, property damage and non-payment by tenants. “Any investment has risks, and the higher the rate of return you’re anticipating, the higher the risk involved.”

Ms. Steenhart suggests investors draw up an exit strategy at the same time they are buying such a property, in consultation with an accountant and financial adviser. The plan should address taxes, the length of time the property will be rented out, and issues to consider in its eventual sale.

An investment property can bring diversity and significant wealth to a portfolio, but of course many people are already invested in their own homes as a significant part of their net worth, she points out. “For the average Canadian, that’s good enough.”

It’s important to have professional guidance and consider a strategy in which the investment property can be sold when you are retired and the funds redeployed into something that creates additional cash flow, she adds, “so you can enjoy that retirement you’ve been dreaming about.”

Published by The Globe and Mail on Oct. 08, 2015