2024 Tax Update, How Many USA Houses We’re Buying With Cherry Chan, CPA

Happy belated Valentines Day everyone! My son and daughter could not be more different. My ten year old daughter was the only one in her class to hand make all of her valentines day cards, one for each of her classmates.  My eight year old son? Guess what he did.  He prepared nothing.  He didn’t even want to go to the dollar store for pretty awesome valentines day cards with badass Marvel or DC superheroes on them for cheap.

Daughter, thoughtful. Son? Thoughtless. Oh how hilarious it is to have a child of each sex.  The sad part is I see so much of myself in my son. LOL

Speaking of… Cherry Chan, Real Estate Accountant and I are celebrating Valentines Day the Friday after Feb 14th as we’re just too darn busy between work and the kids having after school programs six days a week.  So we’re going for a couple’s foot massage so we can chit chat while that’s going on and we’ll go for dinner at the racquet club where it’s easy to get a table.  If the massage goes well, we may make it a regular thing. One of the masseuses is registered so we even get a receipt for our benefits 🙂

Thank you to everyone who tuned in last week for our Epic Fail Episode 2 because this is the Truth About Real Estate Investing Show for Canadians, the #81 ranked Business podcast on all of itunes and we’ve been at this since 2016 interviewing many of the best investors in Canada to learn about what makes them tick, their tips, tricks and most importantly lessons so we may all learn as a collective and apply better practices to our own investment businesses and lives. 

Back to Epic Fail II, The more I read, hear about the situation, the worse it sounds.  A friend of mine who invested with the group seeking bankruptcy shared with me the address of investment property and you know how in real estate the saying is “location, location, location?” Well the location is just terrible.

The property is located in a rough, industrial area near an active train track that both Go and VIA Trains frequent I’m guessing freight trains too. In front and behind the house are car mechanic shops and you know how loud those are. If that’s not enough, a street hockey and outdoor rink is also behind the house so as long as peaceful enjoyment of your property is not important to you, you’re good to go.  Unfortunately the market does not look favourably on such locations as appreciation will be below market so please always do your own due diligence.  I was able to learn all this from the comfort of my desk using Google Maps.

On the personal real estate front, I have an accepted offer on one of my properties, the inspection was yesterday. My Hamilton student rental where the sink decided to leak and delay being listed, it’s like the house knew what was happening and forced delays. Well the listing is now live and I’ll have links in the show notes.  I am one step closer to owning a property in the landlord friendly states of the USA and to generating $100,000 cash flow which is my long-term goal.

Hamilton Student Rental: https://www.realtor.ca/real-estate/26521319/74-traymore-avenue-hamilton?fbclid=IwAR1xp-76_hmM1iu3Wo3BX7FnIPxNcUhPkWyk0MySvsQImRABQJxIdf7grAA
Brock Student Rental: https://www.realtor.ca/real-estate/26472936/8-birchwood-circ-st-catharines

2024 Tax Update, How Many USA Houses We’re Buying With Cherry Chan, CPA

Onto this week’s show! Our guest should need no introduction, it’s my lovely wife the Real Estate Accountant Cherry Chan!

Cherry Chan is here to share about the convoluted changes by our Federal government who seem to know more about what real estate we own, they keep coming out with half baked ideas only to delay, delay, make us all jump through hoops, make busy work. It’s really complicated stuff but Cherry is a talented messenger who can explain what the Trudeau, Liberal government is doing.

We also chat about our lessons from the downturn in the real estate market, how we are refocusing on at least cash neutral properties hence the decision to diversify to the landlord friendly states of the USA.  I’m hoping Cherry and I can take a trip to the south: Georgia and Tennessee in May after tax season. Romance and cash flow. Two of my favourite things in life.  I hope you all had a wonderful Valentine’s Day and find more cash flow in your lives because never forget, cash flow is what affords you freedom.  US dollars are also worth more than Canadian dollars.

Please enjoy the show!

P.S. Cherry’s team works with real estate investors and professionals across Canada proactively to ensure they’re paying the least amount of taxes possible. Schedule a Strategic One on One Consultation with a member of Cherry’s team here: https://retts.as.me/schedule.php

YT: www.youtube.com/@RealEstateTaxTips

FB: www.facebook.com/RealEstateTaxTips

IG: www.instagram.com/realestatetaxtips

To Listen:

** Transcript Auto-Generated**

Unknown Speaker 0:00
Happy belated Valentine’s Day everyone. My son and daughter cannot be more different. My 10 year old daughter was the only one in her class room to hang in, to hand out to sorry to hand make all of her Valentine’s Day cards, one for each of our classmates. my eight year old son, guess what he did? He prepared nothing. He went to school empty handed, and came home with all these lovely treats. I didn’t even want to go. You do not even want to go to the dollar store to pick up some pretty awesome Valentine’s Day cards with badass Marvel or DC superheroes on them. For the cheap, we would have paid for them anyways. Yeah, by the way, Valentine’s Day cards are so much better than they used to be. Superhero Valentine’s Day cards suck jealous. My daughter thoughtful, my son thought less.

Unknown Speaker 0:49
Oh, how hilarious it is to have a child of each sex. Is that a part is I see so much of myself and my son which makes me laugh and disappointed in myself.

Unknown Speaker 0:59
Speaking of family, cherry chan real estate accountant and I are celebrating Valentine’s Day on the Friday after February 14. As we’re just too darn busy between work and the kids having after school programs six days of the week, we’re just yet we’re not getting things done on time. So we’re going to go for a couple’s foot massage. So we can chit chat while that’s going on. And we’ll go for dinner at the Racquet Club where it’s easy to get a table. But also the the meals are subsidized by the club membership. So it’s, it’s I’m frugal.

Unknown Speaker 1:34
If the massage goes well we make the may make this a regular thing for our date night. Again, it’s it’s super cool that we get to you know, relax. And

Unknown Speaker 1:43
I have a lot of issues with my discipline getting old. And also I could use a lot more help for my ankles that are pretty beaten up from all the basketball used to play. And one of the one of the misuses that we’re getting tonight is also registered. So we’re getting a receipt for for our benefits. Thank you for everyone who tuned in last week of epic fail episode two because that was our most downloaded episode of the year. So far. This is the truth about real estate investing show for Canadians, the number 81 and ranked business podcasts on all of iTunes. And we’ve been going at this since 2016. So well over 300 interviews, interviewing many of the best investors and best selling authors in Canada to learn about what makes them tick their tips, tricks, and most importantly, the lessons including from loss. So we may learn as a collective all of us, you, you the 17 listeners and myself, we are able to learn a bit to better apply better practices to our own investments and our own lives. Now back to Epic Fail per app. So to the more I read and hear about the situation, the worse it sounds. A friend of mine who invested with the group seeking bankruptcy protection shared with me the address of the subject investment property. And you know, the thing in real estate, location, location, location. Well, the location is just terrible. The property is located in a rough industrial area. It’s a residence sir. It’s a residential property, apparently a duplex. So it’s residential people live there. And it’s located in industrial industrial area near an active train track that’s frequented by both go and via train, and I’m gonna guess freight trains as well, because I can see how busy how many rail my lingerie line goes right into the states. So it’s likely high traffic that in front of the house and behind the house, our car mechanic shops, so you know how loud loud those can be. And if that’s not enough, also behind the house is a street hockey and outrank street hockey business, something like that and an outdoor range. So so as long as peaceful enjoyment of your property is not important to you, you’re good to go. Unfortunately, the market does not look favorably on such locations. Appreciation will be stunted below market. So please always do your own due diligence. I do not care what anyone says or endorses about the property. I do not care how many Instagram followers they have. I do not care if they speak on stage, or I’ll have their own podcasts or guests of other podcasts or owns 400 600 800 doors. Prove to me you can make money. And in all this due diligence, this location, location, location stuff I told you about the property. I was able to do it from the comfort of my desk while using Google Maps. On the personal real estate front I have an accepted offer on one of my own properties. The inspection was yesterday I just answered a bunch of questions on it. They’re all pretty benign mice Hamilton student rental where I

Unknown Speaker 4:35
where the sink the sink just two weeks ago decided to leak

Unknown Speaker 4:40
to digital to delay being listed. It’s as if the House knew of what was happening and forced delays. In all seriousness, the house is 100 years old. So there are things will break and whatnot. So I had a lead fitting leak. So I got that fixed. Everything’s all patched up passes on for as available for sale and

Unknown Speaker 5:00
I’ll have links in the show notes should you be interested in having a look, because the reason I’m selling them now as well is that these are student rentals. So the market is on absolute fire. There’s nothing to buy out there, and there’s nothing to rent either. So I’m trying to take advantage while the while the supply situation is, is incredibly sad, and the demand is high for both rental and for property to buy. Because if you can’t find something to rent, hoping a rich parent will want to buy this house for their kid to live in, so they actually have somewhere to live.

Unknown Speaker 5:30
I am one step closer to owning property in landlord friendly states of the USA in generating towards getting towards my goal of generating, generating $100,000 cash flow, which is my long term goal. Again, I’ve linked in the show notes to my listings. onto this week’s show. Our guests should need no introduction. It is my lovely wife. This is the this is the Valentine’s Day episode. So my lovely wife, the real estate accounting cherry Chan is our guests. Terry Chan is here to share about the convoluted changes by our federal government to seem to to know they seem to want to know more about our real estate. They keep coming up with half baked ideas only to delay delay. It’s funny because like they the deadlines coming for filing and then they delay the another deadlines coming up and then the delay while Yeah, well I had actually had a friend had to pay out his accountant overtime to get his under under US housing tax filing completed on time. The government’s making us jump through hoops, all this make busy work. It’s really complicated stuff. But cherry is a talented messenger who can explain what the Trudeau Liberal government is doing in in the level at a level that at least I can understand. We also chat about lessons from our from our portfolio portfolio and owning through properties through the downturn in the real estate market, how we are refocusing to at least cashflow neutral on properties. Hence the decision to diversify to the landlord friendly states of the USA. I’m hoping cherry and I can take that trip to the South, the other to Georgia and Tennessee in May after tax season. romancing cash flow to my favorite things in life. I hope you had a wonderful Valentine’s Day and find more cash flow in your lives because now please never forget cash flow is what affords you freedom. US dollars are also worth more than Canadian dollars. Please enjoy the show

Unknown Speaker 7:22
Happy Valentine’s Day My Valentine? What’s what’s keeping you busy these days?

Unknown Speaker 7:28
Um, definitely not Valentine’s Day celebration.

Unknown Speaker 7:34
These days, our business has been focused on essentially two things. One is to gear up preparation, preparing for the upcoming tax season, we expecting to have a lot of filing obligation that we need to fulfill for the latest rule change, particularly all the trust relationship that we now have to report to the government. So that has to be done now is a new rule that was just implemented and started last year, January 1 2023. And the first deadline is April 2 2024. So we have a deadline coming up. And we’re trying to essentially have everyone trained and prepare for the upcoming tax season.

Unknown Speaker 8:19
All right, are investors excited to be able to have to do more reporting to our government? Yeah, it really sucks. Over the last few years it has been change after change after change. I think in 2022 for properties owners that owned properties triplex and under if they own it in a trust, in partnership or in Canadian corporation, private corporation, then they also needed to file something called under US housing tax form. And although that was completely eliminated before as of December 31 2023. B, it was eliminated but then a year or going forward going forward for not eliminated as in you don’t have the filing obligation. Because under US housing tax act when it was first introduced, it was really targeting our non residents. But the way that that is the under under US Housing Tax Act was written, it was including people who are Canadian corporations, Canadian partnership and Canadian trust these people they’re all Canadians, they’re not non resident, not non. They’re not not they’re not Canadian.

Unknown Speaker 9:33
They’re not non resident, non Canadian citizen. So these people because of the way the act was written, they all have filing obligation. Now to clarify the rule and say hey, like if you’re a Canadian resident or Canadian tax, Canadian citizen, mostly Canadian citizen, you own your properties through a corporation you no longer need to file for December 31 2023 When you

Unknown Speaker 10:00
We’re still have filing obligate obligation for the previous year. So it gets really confusing, but that’s practically gone. Unless you own that property as of December 31 2022, then you have filing obligation, you still should file for it, if you miss it, and the penalty would still be there $10,000 for Canadian corporation

Unknown Speaker 10:23
$5,000 penalty for Canadian person?

Unknown Speaker 10:29
How much does it cost them to file? It could be anywhere between $500 to $700 per form. That seems sorry, we need a form per property.

Unknown Speaker 10:42
That’s a lot. Yeah, well, you can do it yourself too. But then you have to go through and understand it and get the proper number and do the following, you need to know that you’re doing it right. Our team had gone through lots and lots of training just to get the better understanding and make sure that we interpret it the way that is being intended intended. And so majority of accounting firms out there are charging, like going rate of 500 to $1,000 perform. And some people would just do do it by themselves, which is totally fine. As long as you feel that, you know, you’re capable, and you are able to do it. So that is gone. The for economic update, done by the federal government basically removed that filing obligation for 2023 and forward.

Unknown Speaker 11:31
But then it was replaced by this trust reporting rule that we mentioned earlier. And this trust reporting rule, it has a different NET. But basically, it requires anyone that is in a trust relationship to file something called a trust return.

Unknown Speaker 11:49
Whereas previously, if you have a trust relationship, you’re not necessarily required to file a return if there is no income passing through. So right now, this new rule requires specifically Bae a trust arrangement to be reported to CRA on an annual basis.

Unknown Speaker 12:08
So in plain English, who needs to file for this, in plain English, there are some common examples. Number one is

Unknown Speaker 12:18
people were family trust. So if people who have trust, but even though people have family trusts, you and I have a family trust last year, we just said that one up, that family trust, even though there is no income going through in the past, you didn’t have to file this year, you will have to file that’s number one. Number two is if you have a Trust Agreement, signed, a lot of real estate investors out there are using this trust agreement to buy properties in trust for a corporation or interest, or buy it in a corporation in trust for them. So this type of relationship, they have a bare trust agreement that’s signed, those people you will have the filing obligation, those are really simple one. And then there are people who own properties in a joint venture relationship. Now, those people who sign joint venture agreement, you could be the one that’s on title.

Unknown Speaker 13:10
But then you and I are actually reporting income and expenses as as an liabilities 5050. So there is a joint venture relationship happening between the two of us. But you’re the one that’s on title, my name is not on title. So that

Unknown Speaker 13:27
is also a trust relationship, because you own 50% of the property in trust for me. So now there is a trust relationship, and there was a filing obligation.

Unknown Speaker 13:38
And other common one is, we don’t have anything formalized, you and I,

Unknown Speaker 13:45
a couple one of us make more money than the other person. So that person go on title, both of our name on title, and but only the lower income spouse is reporting 100% of the income and expenses. That higher income spouse is only going on title essentially to help to qualify for the mortgage. Now, there’s no formalized agreement, no trust agreement, no joint venture agreement sign. Typically it happens between spouses. And there’s also a trust relationship because your legal title ownership does not equal to what you report and how you file on your personal income tax return. And so therefore, there is a trust relationship and so you have to file. Now the common example is parents go on title to help their kids to qualify for financing if they were to buy a property for their own home.

Unknown Speaker 14:40
They don’t own any properties, usually investment property or to be on their own for their own home, like their own. Kids are buying their first home can qualify for financing. The parents go on title just to help the kids qualify for financing. It’s also very common. I know it’s common, but is there there doesn’t need to be a trust.

Unknown Speaker 15:00
agreement in place, there will not be a trust agreement. People just go on it because it’s family. There is no trust agreement sign, although the trust relationship exists, because yeah. Oh, I see. So doesn’t need this designation to be a trust agreement in place. The trust agreement is there, if you have a good contract necessarily, yeah. The trust agreement, just formalize it. But the trust relationship would still exist. Yeah, without an agreement. Now. So this applies to not just properties, we so far, we have only talked about properties investment. It also is also applicable to cash account investment account, there is an exception, if your cash account that you own interest for someone else is under $50,000, and the account balances in cash or in publicly traded stock, then you don’t have to file. But if it is over $50,000, or if the underlying investment is not cash or publicly traded stock, then you would still have the following obligations. So I could be owning a crypto account in trust for you.

Unknown Speaker 16:05
And my name is not that I do. But if I had had I own that crypto account,

Unknown Speaker 16:13
even if it’s, it’s it is under $50,000. And I only interest for you, then I have the following obligation. So the government wants a whole bunch of visibility into what we own. Yeah. So this is also universal between Canada and US. Us is also asking, IRS is also asking for the same information as well, at the same time that we’re doing it. Yes. So again, interesting.

Unknown Speaker 16:34
News doesn’t make it into my feed.

Unknown Speaker 16:38
And then, and then how much? And then how do people know generally, it’s generally the accountant. People’s accountants, generally are the ones who are triggering, let me triggering to let the client know that they need that they have to have a copy of a trust filing that’s required. Um,

Unknown Speaker 16:54
I think it is really difficult even for accountant to know all of the trust relationship around someone’s life, right? Like example is you go on title to help your your your kids qualify for your accountant, you won’t tell your accountant or you go on title to help your parents manage their affair, the property affair light, it has nothing to do with tax filing altogether. Yes, you mean anything to tell you? You’re exactly neither party would know, neither accountant nor claim. And that’s what they noted that need to disclose that. Yeah, exactly. to each other. Yeah. So then that those are the those are the I guess, it’s harder to know this. But a lot of the time we remind our clients, hey, if you have a trust agreement, if you your reporting entities is different from what’s being on your legal title, then there is a trust relationship, and you have to file and then how how, when should people expect to pay for these things? Is a per trust agreement? Per trust relationship? Yeah, so yeah, so obviously the payment is, well, there are ways to get around it. But typical each trust relationship, because if I own things in trust with my mom and trust for my mom, dad is one trust alone, right? If I owe anything, for example, the property that we share, you are on title, but you don’t own anything, at least in my mind. It does. You don’t, there is a property that you go on title because back then you are required to go on title by the bank. But I’ve always reported for more. Yes, I’ve always reported that as my income, because it was my pre marriage house that I had, right. So I always reported the income and expenses, there is no disposal, you’re not entitled to anything. And so that is also trust. So you own that property and trust for me. So that’s a different type of trust altogether. So I yeah, my name, my title. Sorry, my name is on my mom’s property. I’m the trustee for that particular property on this particular property that we own together, or I own 100 foot sign that you’re on title and trust. For me, that’s a separate trust. So there’s like two trust filing that we have to do on top of the family trust. Just so you know, there are three trust rock piling as a minimum, at the moment. May I reiterate, iterate to the listener or 17 listeners that the ultimate wealth hack is to marry your accountant. I actually think we should start a dating app for accountants.

Unknown Speaker 19:23
I don’t know what you’re talking about, I mean,

Unknown Speaker 19:28
what else is happening or for new accounting changes.

Unknown Speaker 19:32
So those are the biggest thing in the account rocking the accounting role. There is another a couple other smaller ones I should probably throw out there as well. Like, you know, it sounds like a lot of accounting firms are already tight for resources and capacity. Does anyone really want to do more of this? No. So in I was just having a conversation with a US accountant and the accountant from Boston. She’s telling me that the the accountant in the states they’re short bye

Unknown Speaker 20:00
$300,000 this year, next year, there will be more shortage, because fewer and fewer people are going into accounting, right? So as an accounting firm owner, we don’t want to do as much. Yeah, it’s just unfortunate that the government, essentially

Unknown Speaker 20:18
making up all these rules, new reporting requirements, or accounting requirements. So if anyone’s considering your career, good job security and great pay.

Unknown Speaker 20:31
And then so what? How does anyone know how much they should budget for trust reporting? Typically, trust reporting is that like anywhere, depending on the return the type of returns that you have the number of them anywhere from seven $800, all the way to 1000s of dollars, right? Yeah, depending on the type of trust that you’re talking about. So this is tough. This is especially tough in this market, when so many people are in cash flowing on their real estate agree. I was talking to a friend of ours. He’s a downtown real downtown for a realtor and he was telling me how

Unknown Speaker 21:07
he’s an engineer smartest crap

Unknown Speaker 21:10
it takes to buy a condo today, to make it at least break even on hard costs will be 50 to 55%. Cash, as in like there’s no interest on that cash. And that’s just covers mortgage taxes, insurance and condo fees, doesn’t include they can see islands bad debt, repairs and maintenance, property management. And poor property taxes was going up 10.6% or something like that in Toronto? That’s if the federal government kicks in, I don’t know how many millions of dollars if not, then it’s going up to like 16%. So it doesn’t cover that property tax increase. And now we’re now now we have all this extra reporting requirements and accounting costs to people do it yourself, or trust reporting? They can try?

Unknown Speaker 21:57
Oh, yeah, like people do their own personal tax return all the time. Right. So I did when I was a T four employee. And that was it. As soon as I had properties I’ve transitioned out of that.

Unknown Speaker 22:08
Some people can try or do you have YouTubes out there how to teach people how to do it themselves? No, they can open zip up to a massive amount of liability.

Unknown Speaker 22:19
Glad you realize that.

Unknown Speaker 22:22
It’s not the best idea. Maybe someone else can be up there is another business idea for somebody out there if they want to create YouTubes on how they can do that on trust reporting accounting.

Unknown Speaker 22:31
So what else is going on with with real estate investors from your perspective?

Unknown Speaker 22:36
Recently, there’s also this new latest update on the Airbnb.

Unknown Speaker 22:42
The federal government has announced that you are not eligible to detail any expenses if you operate a short term rental in the area that do not allow short term rentals. So the most noticeable notable area would be Toronto and Vancouver right? So the BC or because they said it’s province wide for BC Yeah. So then you know that in those area if you own short term rental you’re not eligible officially to deduct any expenses Yep, this is gonna be tricky as heck because like for like Toronto for example, you’re still allowed to rent an Airbnb space in your home for a certain number of days a year so yeah, and but again every minister it’s an Ole Miss spelt Miss municipal level on who allows what what what they allow and to prove this to the government that your quality that your that your units, okay? Yeah.

Unknown Speaker 23:35
Wild, how do they know? How do they know? How do we know as accountant? We can only talk to you, Hey, are you operating Airbnb? If you’re operating Airbnb, are you operating in this area? All we can do is we file taxes based on whatever the clients told us on the way until CRA to come back to all the

Unknown Speaker 23:57
scary stuff. And then the bigger story well, part of the big story about Airbnb is like they’re like the I just saw the headline today that prices in certain cities in BC are collapsing. Like, for example, there’s a whole building that was intended that’s like 80%, Airbnb, because the condo building allows Airbnb. Now the province no longer allows. Yeah, so the buildings no longer allowed. Yeah. And so prices are just collapsing because you can’t cashflow those things on a regular rental. Yes. Yeah, that’s why Yeah, you know, we like to stay in Airbnbs. But I don’t think I could operate one. And I understand why people are doing it because that’s pretty much the only way to cash flow in a single family home in DC, Ontario.

Unknown Speaker 24:43
I feel sorry for these folks was not just the only way to cash flow it’s it’s also the reason coupled with the reason of how difficult it is to collect rent when you cannot when you have bad tenants, right? So that also does

Unknown Speaker 25:00
some help, right? We’ve covered that extensively on the show.

Unknown Speaker 25:06

Unknown Speaker 25:08
It’s sad because, again, like I said, it’s really tough out there. And then one of the reasons why we never did Airbnb,

Unknown Speaker 25:15
like, we didn’t have a great experience with our own Airbnb, we weren’t able to make money with it. Again, it’s more like the boat, there’s more of the location. That was wrong.

Unknown Speaker 25:24
Being in the suburbs of Hamilton, the lesson was, and also because we have friends that are successful doing so you need to be near, you need to be much better walkable areas, because it works for we have friends, but it works for.

Unknown Speaker 25:38
But for all the folks who are like, just like, they have no plan B plan C, because we have Plan B, I can sell it. I’m in a hot area. And that’s why we sold it sold quite quickly.

Unknown Speaker 25:50
But yeah, for plan B, plan C, long term rental wasn’t wasn’t an option for us, because wouldn’t be able to walk cash flow.

Unknown Speaker 25:57

Unknown Speaker 25:58
there’s not really many options for cash flow in for

Unknown Speaker 26:03
in risk management, Ontario and BC,

Unknown Speaker 26:07
which is why

Unknown Speaker 26:09
we’re selling what we’re selling two of our properties right now we have another link going live today. I don’t know if you know that? No.

Unknown Speaker 26:17
Yes, we divide and conquer.

Unknown Speaker 26:20
So I’m sure if people want they’re interested, how do we make this make this working relationship work?

Unknown Speaker 26:26
I’m not really sure if people are interested. But Sure. Well, you know, when I was asked to speak at a crua, Canadian real estate Women’s Association, that’s all they asked for

Unknown Speaker 26:40
is how do we make this relationship work?

Unknown Speaker 26:43
How do we make this work?

Unknown Speaker 26:47
All relationships, about compromise your heart just need to be big enough to forgive each other

Unknown Speaker 26:56
mistakes or things that you don’t like? There’s that and also we had common interests like you were already looking to become a real estate investor yourself before we even met.

Unknown Speaker 27:06
palpably. I don’t think I was I was able to become a real estate investor because I was tied down to the biggest mortgage of my life at the time, which is the townhouse Toronto townhomes that I that I still own today. It was the biggest mortgage on single income. It was really expensive. I just don’t have any cash left. I live paycheck by paycheck. So remember, when you are you’re telling me how you’d use when you were bored at work in serve? realtor.com.ca? Yes. And you were looking at local properties. Yes. But you would the quick math was easy. You can make these things work. Yes, I was trying to find a property in you topical,

Unknown Speaker 27:46
actually in Mimico area if for those of you who know the topical hot area. So I was trying to find a property that I can buy, buy, like from South using the proceeds. If I were to buy anything, I would have to sell my townhouse and buy a property that’s decent enough that I can rent out the basement. So that was what I was looking for at the time. So then I don’t need to live in a three bedroom plus one den, executive townhouse that has three bathrooms, because at the end of the day, I could only use one toilet at a time. So you only have one answer. Yes, exactly.

Unknown Speaker 28:24
So, so that was what I was looking for. I’m like something that’s somewhat decent, and I can rent out the basement so that helps me with supplementing my income.

Unknown Speaker 28:34
And you’re not alone. I guess again, my Toronto realtor friends are telling me that duplexes are on fire in downtown Toronto. We’re recording this Valentine’s Day, obviously. So it’s February 14. And again, it’s downtown Ontario, downtown Toronto, it’s on fire for the same reasons that you that you just shared. People are looking for mortgage help. Yep. From their basement for for one of the units in their property. Yep. So the the hopefully comes out to our comes up to Hamilton soon enough in our market recovers. But do you remember the first property we bought together? Yes. But what about it?

Unknown Speaker 29:11
What about it?

Unknown Speaker 29:13
Didn’t where is it? Oh, okay. So it’s in St. Catharines is six six bedrooms, student rental. It wasn’t a single family home at the time. So we converted it into a six bedroom essentially upstairs and downstairs type of arrangements six bedroom for

Unknown Speaker 29:30
kids for university students to rent. Yeah, Brock University students do remember even seeing it. Do remember the process? I remember I remember quite well. Yeah, so I was still working for Loblaw at the time, so I didn’t have the time to all the luxury to drive out to St. Catharines to look at properties. So the way it worked was that I refinance my Toronto townhouse. And I have like maybe 40 $50,000 line of credit available. So I

Unknown Speaker 30:00
decided to then start after refi yet 40 50,000 available line of credit, or maybe $60,000? I don’t remember all secured by your house. Yep. And so you said that it would be interested like it would be nice these investing in St. Catharines student rental would allow us to cash flow and said okay, so I could refinance the property and then see what’s available. And

Unknown Speaker 30:26
you went out to see the property. And that’s how we bought our first house together. Yeah, I just happen to be driving around the area. So again, I remember it well, because that was there.

Unknown Speaker 30:35
I was driving around. I saw the For Sale By Owner sign and a knock on the door. Yep. Can I share what you paid for it? Sure. Paid 235 for 1000 square foot bungalow. In a in what my what my good friend told me was an A plus location.

Unknown Speaker 30:53
And that’s the property we have we’re currently selling right now and again, having additional sale on hopefully firms. By Friday. Yep. And it’s gone up significantly. So I want to say, I’m glad that we did have a diverse portfolio because we have duplexes and we have student rentals. single family home, and also office. Yeah. Diversify.

Unknown Speaker 31:18
Because of our just like I mentioned how Toronto was on fire. Yep. My friends are are telling me it’s it was December was the busiest I’ve ever had. Even over Christmas, it was just there just insanely busy for anything that was on land.

Unknown Speaker 31:32
So I’m glad we have student rentals, because those are how those have demand. Unlike our duplexes with long term tenants. So and there’s demand for rentals, there’s no demand for purchase, I guess. Yes.

Unknown Speaker 31:46
The student rentals have demand for both rental and purchase versus our duplex tons of demand for rental, almost no demand for from from investors, at least in Hamilton and beyond where our properties are located.

Unknown Speaker 31:59
So I’m glad that we have some rentals because we can we’re plexes are plans to exit them. And we’re planning on moving to moving our capital to the states. Yep. So I keep getting questions around because for example, I shared your your store on Instagram story about how to exit Canada from a tax perspective. Tax implication on leaving Canada. Yeah, permanently. Yeah. We’ve probably touched on that a little bit.

Unknown Speaker 32:25
I think you can question people. Are you leaving Canada? Are you moving to Texas? So no, we’re not leaving?

Unknown Speaker 32:30
No, we’re not. Yeah. Okay. So yeah, so to serve and just work there. It’s only our capital that’s leaving, because we want to go rest. That’s where it’s less risk. And for improved cash flow, and there’s no rent control? Yep. Great. So can you share? Because I think listeners understand how I appreciate that. I generally don’t have to worry about the tax and accounting sides. I know you got that covered. So what what can you what, what’s your accounting perspective on all this? Um, so I guess the plan for us specifically is to exit at least a portion of our portfolio, and then buy a couple of properties in the states to begin with. And we’ll see how it goes. But that’s always in my head. I don’t know, everyone’s plan, because everyone seemed to have big blinds all the time. And, at least in my head, we’re about exiting a few properties and see where it takes us and then see how the US portfolio will take us. And from exiting Canadian properties perspective, you do have to realize your any capital gains that you have. Yeah, there’s no avoiding paying tax is no avoiding paying tax. And I always pretty sure there’s a common question you get, yes, I made all this money, how do I avoid paying taxes

Unknown Speaker 33:46
so that there is no avoiding paying tax. And you have to make sure that I was just having this conversation with you earlier, we have to make sure that, hey, we actually set aside enough money from the proceeds to pay to cover all of our own tax liability before we move all the capital that you get from the lawyer to go into the states. Now with respect to buying properties in the States.

Unknown Speaker 34:10
My understanding is that you have to be really careful from a Canadian tax perspective,

Unknown Speaker 34:17
buying properties in in Canada versus buying properties in US or in anywhere else in the world. The best case scenario is that the Canadian government would treat the purchase or the profit from from the rental operation out of country the same way as if you are investing locally. That’s the best case scenario. Now, what’s the worst case scenario you pay double taxation, that’s the worst case scenario. Yeah. Someone screwed up though. Yeah, to happen. Exactly. So and that’s that’s incredibly rare. Like someone has been negligent for that to happen. Am I right? No. So it is actually way more common than you think it would be because a lot of investors out there are going to

Unknown Speaker 35:00
local people, for example, in the US, they will go to a local lawyer, a local lawyer, a local accountant, who do not know anything about cross border tax would immediately go for do LLC because there is no double taxation, there’s blah, blah, blah. So they have their own setup. Yeah, they think they think as they treat it as if you are a local US citizen or local us green card holder. So it’s a very different ballgame when it comes down to foreign investment. So you have to talk to people who are aware of the tax implication, and said, You aren’t set you up on the right track. So many people that I know that set up LLC for their own investment, LLC is called limited liability company, I think, but there’s a flow through entity for the US side, but it is recognized as a corporation in Canadian side. So there is that mismatch. And therefore you will pay double taxation, if you own properties are something called LLC. So folks need to have the right accountant on the side of the border and non bad side.

Unknown Speaker 36:01
So yeah, it’s in no different than everything that we do when we’re investing in Canada, you still need the right team, you still don’t need the lawyer, the mortgage person in the in your accountant all need to speak the same language. Absolutely. Because whatever is best for each of those worlds may not be the best, like the best corporate setup may not be the best for getting financing, you may not be the best for tax tax. Absolutely, yeah. And also, the thing is, it’s also important to understand that now you have if once we are venturing outside of Canada, you are operating a multinational business, believe it or not. So multinational business means that you have increased your the complexity of filing at least double right, because now you have to file US tax. And then in Canada, we also need to report it. So now you’re increasing the compilation costs. Now I’m saying that because a lot of people would come to think when they come down to investing in the US, I think, really straightforward. But there is that complexity, the compliance complexity as well, which just want people to be aware of it, we’re still going ahead with it, because there’s cash flow to cover the expenses. But I also want to mention it. So then people don’t need to actually get a realistic picture of the costs associated.

Unknown Speaker 37:22
From so you’ve looked at a lot of real estate. You’re like the most popular real estate accountant in Canada. I, you know, people tell me all the time, I don’t know about that. But sure, that’s what they told me when they run into me in public and asked me where you are.

Unknown Speaker 37:34
Follow your YouTube, I volunteer at too high.

Unknown Speaker 37:39
from an accounting perspective, from your from, from your professionals perspective, do you see any downsides for Canadian to be investing in the states other than double taxation, which we mentioned, but it’s avoidable if you do currently?

Unknown Speaker 37:54
I think yesterday, I just had a conversation with Carmen, who’s the CFO of this company that she co found called share. And they specialize in helping people to purchase properties in the States, particularly Canada’s or they all purchase single family home in the States. And from what I can see,

Unknown Speaker 38:17
it really goes back to the person’s preference. But for me, it works because there’s cash flow. And we’re conservative people. So we like cash flow. Yes. So yesterday, the conversation with Carmen was that, hey, she bought a bunch of properties because she exited a business and had the resources to buy a bunch of properties. And, and they she’s buying properties at class C properties to generate a cash. I don’t know about cod, but generating enough cash flow. Now she’s venturing outside of that. To clarify, because she when she was buying those condos in Florida there, they probably weren’t that bad. I was thinking about more her upstate New York, yeah, like 50 grand properties. Sorry, I can’t go ahead. So the the example that I was given was that she was buying these classy properties and they were able she was able to refinance them, and then diversify and buy Class B or class a property using the refinance proceeds for it. So essentially, she was so buy properties that are

Unknown Speaker 39:18
that are properties that would have more upside in terms of appreciation, but she used the money she has the cash flow that she has from these classy properties to purchase those up, I guess, better quality properties. And but that concept is essentially treating your real estate investment portfolio like a real business. A lot of people in Ontario, especially Canada, because they don’t have a choice. They’re buying properties here negative cash flow, how much negative cash flow can you sustain on a monthly basis? Like just look at a few $100 It adds up with him a few $100 1000s of dollars in

Unknown Speaker 40:00
But it adds up. Do you have that deep pocket to pay for that? 1000s of dollars of negative cash flow on a regular basis? We have one in our office who’s negative cashflow. 6000 a month? On their portfolio? Yeah, exactly.

Unknown Speaker 40:13
folio? Yeah. It’s not necessarily but what business would accept that? So $6,000 is equivalent to $72,000 annually. And that’s after that’s before tax dollar, but still $72,000 Is someone else’s job. Job. Opportunity. Yeah, exactly. Do you have that deep pocket to sustain that type of loss? Is it a really sustainable business model? Really, if you’re, you’re counting on appreciation alone, and sucking up all the negative cash flow monthly cash flow, your appreciation is not really the amount of appreciation that you’re seeing, you need to take that and minus all the cash flow that you’ve put into the property as well. People often neglect those when they talk about real estate appreciation and investment, right? from a tax perspective, are you allowed to or are you allowed to keep use those losses like for for as long as you have the income property, income property, the negative income property, or use those negative up those losses for against to count against your income. Generally speaking, if you’re trying your best to invest, and you’re trying your best to generate income,

Unknown Speaker 41:22
you’re not leaving, leaving the house vacant, there is activities going on, then, generally speaking, you will be eligible to deduct the expenses. Because generally condo investors like they have no hope in hell from the beginning of cash flowing.

Unknown Speaker 41:36
And so that’s still a lot to be deductible. That’s interesting.

Unknown Speaker 41:41
That’s surprising to

Unknown Speaker 41:45
you, which is why I don’t understand why. So I actually think that, like what we’re doing with shares is going to disrupt the entire market. Because the properties that we’re looking at the properties we’re gonna be buying ourselves, were the forecasted appreciation, I guess a forecast, you don’t know what we’re buying in the top, we’re buying the suburbs of the top towns in the USA. So even though we’re like we’re using 5% appreciation, which is reasonable, in my opinion, they’ve been around for a long time.

Unknown Speaker 42:13
So why would I accept negative cash flow?

Unknown Speaker 42:16
There’s also historically in Toronto, there’s also 5% 10%. Appreciation? Yeah. So there’s that appreciation, that’s why they are accepting negative cash flow in exchange what with that appreciation?

Unknown Speaker 42:29
Jeff doesn’t sound like good investments.

Unknown Speaker 42:33
What else about us investing Are you interested in?

Unknown Speaker 42:38
Well, right now I’m waiting to to host this webinar co host this webinar with share,

Unknown Speaker 42:46
whereby share is going to share their essential process of how they will be able to help investors, because I think one of the biggest obstacle that we see on the street in terms of buying US property is how do you start? Where do you start, you just engage in with a realtor? How do I know that that realtor is right or wrong? And how do i Which town should i because there are so big contracts? Exactly? Where do I start? So I wanted to host this webinar. One is to share with the world what share is doing to is to help me understand the entire purchasing process as well, because we are about to embark on this journey or source ourselves. So this is a learning experience also for us in general. Also, I want to be able to help others. And so we are hosting this to share the information. And I’m presenting as well, you’re presenting because you’ve been to Texas, and Atlanta to do your research. So I wanted to know, essentially, I treat it as Hey, are wondering now once you embark on this journey, and this is kind of like a presentation a pitch presentation to convince me that I need to have this buy in to invest in the US. And that’s what I’m trying to do. And the webinar is happening February 29. And the registration link is on my website and my website is real estate tax tips.ca. Well, the link in the show notes as well.

Unknown Speaker 44:16
Yeah, so I was in Atlanta in November and I was in Texas I was in specifically in San Antonio and Austin in in January. And I wish you were there because

Unknown Speaker 44:29
Texas was

Unknown Speaker 44:31
the whole southern hospitality thing. I had no idea how about it went all the way to Texas as well. Because like I’ve been to Florida we’ve been to Florida together. And that’s what we southern as well. Like it’s fine. Like no one’s really rude to us I’d say but like like in Texas, people are just over the top hospitable. Right is like the best service at all for everyone I’ve ever seen from the Costco cashier to the McDonald’s cashier to the whole

Unknown Speaker 45:00
Tell staff to everyone I just the surface was outstanding. I felt so comfortable. I wish you were there to see it. Okay, we got a lot of chance, especially if we were to buy a property over there. Yeah, cuz I don’t know where why first we’re playing by either Austin or San Antonio area or Orlando first. And then until we make our own visit to Tennessee,

Unknown Speaker 45:25
you want to go? Maybe may, in May, month of May that may.

Unknown Speaker 45:33
I don’t know, for my comfort level, I like the fact I’d like to go do site visits, get a feel of get a feel for things.

Unknown Speaker 45:39
So he’s going to share all your research right?

Unknown Speaker 45:43
In 20 minutes, I can’t share all my research. Well, the reality is the two hours that I get in hours, I get her one that talks about this, like bits and pieces all throughout the week or the month, and I can’t comprehend the whole thing. So that’s why he’s given 20 minutes condense his own research into 20 minutes Siteman in my webinar, so you got 20 minutes to present your research.

Unknown Speaker 46:10
All I know is you need to look at all these economic factor population growth, and then historic rate and major industry. All these things, I’ll let you do your thing.

Unknown Speaker 46:24
Do you have any concerns with us investing?

Unknown Speaker 46:27
As far?

Unknown Speaker 46:32
Yes, it is far, which is why my apartment requirement was that we would only work, we will only do this if we would have the best of the best property management that was available. And we’re going to get it for cheap too.

Unknown Speaker 46:44
Because we’re going through an asset manager, right? Because with Ontario, I tell my clients all the time, your greatest risk of Ontario was your tenant, if they don’t pay you, you are in so much trouble. They refuse to pay you and refuse to pay you for months, you’re in so much trouble. Right? Versus in the States, you don’t have that 3060 days of tenants going? Yeah, it’s a it’s a very different scenario out there. It is really hard in the marketplace.

Unknown Speaker 47:11
We have actually my uncle just recently told me he had a friend

Unknown Speaker 47:16
who’s on the property and Barry, and rented out to a couple who’s like a couple in their 20s. And sadly, I decided not to pay you. And if you want me out, pay me $17,000. And I’ll be out this pick that number of the year. So yeah, yeah, I don’t know, 17 or 20, or whatever. But that number is out of thin air. Because they know that they’re going to be they know that they will either get it from you. Or you will have to pay that $17,000 over a number of months, because they’re not paying you rent. And then at the time, by the time you get the ruling in favor of you, then you would be able to kick them out. Maybe a year later, it’ll cost them around 17,000. Yeah, exactly. That’s why they are counting on that. And that’s why they get the $17,000 That’s so nice to meet you in the middle. It’s gonna cost you 912 months of rent of not giving rent or just pay me 17,000. I could have asked for more. Yeah, that’s what I said.

Unknown Speaker 48:16
And that’s the sad thing is that more and more It’s this is coming up in the news. Oh, more and more. And people are DMing me about this as well. And a friend telling me that his friend has a realtor living in this condo and refusing to pay rent or was in $23,000. Jesus. Yeah. And so the tenant is a realtor. So they fully know the rules.

Unknown Speaker 48:35
That’s what you think

Unknown Speaker 48:38
they fully know the rules because they’re not paying. Yeah.

Unknown Speaker 48:42

Unknown Speaker 48:45
So you fully support my decision to move our capital to the states. I’ve only slowly I think I am right now in support of exiting a portion of our portfolio in Canada. Now, whether we’re going to the States or not, we have to wait till February 9 29th, who watched that video to watch our webinar all together? And then we’ll see how it goes. Yeah.

Unknown Speaker 49:09
Because I don’t think we we don’t want this one sell everything this year. First of all, the market has recovered. I think we can sell some of our properties back at peak prices, if we wait till probably the end of next year. So I think I wouldn’t call it selling our whole portfolio. That’s not really our intention. My intention anyway. Maybe in your head, you are thinking that’s the case. But I don’t think that is really my intention. I think it’s about risk diversification, right? Like, if we are always in this rent controlled environment. What if one person is not paying us and what’s going to happen? What if two people stop paying us and asking for $17,000? Do we have $17,000 or $34,000 in the bank account to to

Unknown Speaker 49:54
kick them out? I don’t know. It is a crazy, crazy time in Canada I have to say

Unknown Speaker 50:00
Yeah, it’s totally sad. That’s probably why I want the market to be hot as well, so that folks can just move in and whatever. But at least thankfully, we have a good relationship with our tenants we’ve been

Unknown Speaker 50:11
pretty sure almost all of our tenants will say, like, one of the best landlords I’ve ever had. So hopefully, karma. Yeah, hopefully. Yeah, hopefully. But also, I see that the only path to cashflow $100,000 A year is through us income properties. Because we don’t have that with our portfolio. And I don’t see how we’re gonna get there, especially with rent control, holding down our rents. Absolutely. Top just top of mind, I think we have more, we have at least three properties that are under rented by over $1,000 a month. Yeah, right, that’s $3,000 a month right there. That’s 36,000 a year, we should have more in our pockets. So absolutely. So I want to sell all those to

Unknown Speaker 50:51
what you like in this market is too early to say it is too early. But my forecast is we should be back to peak by end of 2025 or 20, sometime in 2026. So it makes sense to slowly sell maximize our profits. And then and also and then by exiting will minimize our grief.

Unknown Speaker 51:11
We’ll see where we’re putting out capital.

Unknown Speaker 51:17
And the other investments, you’re finding your clients, so that weren’t working? Like you have clients and everything. We have clients doing developments, you have clients doing short term rentals, you have clients doing private lending?

Unknown Speaker 51:27
What’s working?

Unknown Speaker 51:32
We’ll see a lot of what’s working to be honest, we see a lot of what’s working when they exit the property. We don’t see a lot of cash flow, right? Or you wouldn’t know to the exit. Yes, exactly. We don’t see.

Unknown Speaker 51:46
We see a lot of losses recently, in the last couple of years. We see losses from private lending losses, we see a lot of private lending losses that are not even eligible for tax deduction because they invest in RRSP or TFSA, or no, so then you don’t get anything, you lost the money. That’s it. We see people who lose money on flipping their properties, they are inexperienced flipper, and they lost money. They got caught in this market lost money. And these are the same people that people are lending to. I don’t know why they are in the experience. Other ones

Unknown Speaker 52:21
are borrowing money in their own experience. And then we have we see people

Unknown Speaker 52:29
generally speaking, I still see some people investing in private lending, but not as much as before.

Unknown Speaker 52:36
Everyone is negotiating the fees and thinking that wanting to find ways to cut their expenses as well. Those are the market conditions right now. It’s not that easy. And simple, right? Because I already know enough people, there’s plenty people who love their product managers go because they can afford them. Yeah, yeah, absolutely. Which is all the more reason to cashflow on these income properties. Yeah, absolutely. People.

Unknown Speaker 53:03
People think that cash flow is under like, I think cash flow is totally underrated by majority of the real estate investors there.

Unknown Speaker 53:12
I’ll throw that out there that people believe love and marketing that’s in front of them. I literally had an investor who’s negative like 1500 a month on three different condos. And he told me like, because he bought based on a performance provided by whoever was selling the pre construction condo. And he only focused on ROI. He didn’t look at what the cash flow was. Yeah. Which is we like for my team, we always start with the cash flow. Yep. Here’s what we think the character here’s our cash flow calculator will give you all the inputs, what’s the cash flow going to be? Are you okay with that, versus an ROI number based on an appreciation rate in those last few years that didn’t work out. I think that’s very common when you sell a condo preconstruction condo in I Waterloo area. I think, because people are selling those student rental, and they want guarantee how guarantee price guaranteed rent. We’ve seen some of these pro forma as well. Yeah, we were we were advising clients to against that.

Unknown Speaker 54:15
For anyone who doesn’t believe me to go go drive around Waterloo, and you’ll see how many buildings they built. All at the same time. I wanted to take a memory lane a trip down the memory lane. So I knew Waterloo

Unknown Speaker 54:29
instead of struggling with Columbus, Ohio to get placed in this

Unknown Speaker 54:35
what are the what are the tax taxation stuff that should people take? Pay attention to like record keeping? I was just talking to just talking to our admin assistant. Apparently I’m missing some receipts. Yes. So there is a lot more that we need to do in terms of record keeping. People are not aware and it is hard to educate people.

Unknown Speaker 54:57
What I found I can start with the most

Unknown Speaker 55:00
troublesome clients,

Unknown Speaker 55:02
our most troublesome clients are always the one that are growing really fast and doesn’t have an integrator or doesn’t have someone like a strong administrative assistant, and doesn’t believe in having one at all, thinking that they can do it all by themselves. Those are the people who I wouldn’t say fail the fastest. But you can see that when they come to us, they have nothing prepared. They said that they have something but everything is messy, it’s not possible to lend you money based on the size of books that we prepare, we try as best as we can to make it meaningful and as representative as possible. But there’s garbage in, then there’s only garbage out there. So these people need to refi Yeah, as an example, short notice, only short notice. So they come to us things that have done have not done messy, and then they want things down yesterday, which is not possible, those are the biggest risk in terms of record keeping, because they don’t have any support for any of the stuff that they do. And

Unknown Speaker 56:10
it goes back to, hey, when you have a big plan, it’s really important, I don’t know about the coaching courses out there, because I’ve never taken one, it’s really important to have someone who are detail oriented, and super organized to help you out. Because if you don’t have that person, chances are you’re going to mess up. And now going back to record keeping is part of that person’s responsibility to do strong record keeping. If you don’t have that person, you’re a small,

Unknown Speaker 56:41
you’re a small investor, you’re comfortable with it, it’s all fine. All you need to do is pretty much get some brown envelope, stuff all your receipts in it, and make sure you just keep all your receipts that are that can be proven to be deductible into that envelope. And at the end of the year, look at all of them and then categorize that. Not all you need to do is as simple as that. If you don’t want to use

Unknown Speaker 57:08
a physical folder, all you need to do is take pictures and send it to an email address that’s dedicated or save it in a particular folder that’s dedicated for that particular property or business.

Unknown Speaker 57:19
It sounds simple, but it’s really hard for some people. Is there an app for this, you can use an app. QuickBooks Online has a function to allow you to take pictures directly. You and I use something called hub dock, I have a different set of reasons why we’re using hub dock instead of QuickBooks Online. There is also text out there that would allow you to do that text with which was formerly known as Receipt Bank is called de XT. txt.

Unknown Speaker 57:53
And then what is the process like See, see their books or see the record keeping is good? What does the accountant have to provide, so that the investor can go get their mortgage, typically, if you own properties in your personal name, so they would ask for your personal tax return

Unknown Speaker 58:09
and schedule of statement of rental income and expenses. And then they would ask for a couple of years of your tax returns. Now if you own properties in a corporation, then it gets a little bit more complicated. They want to see the financial statements of your corporation, they also want to see

Unknown Speaker 58:29
essentially, the proof of property tax insurance bill rental for all properties. That’s how within the same corporation, and plus they also want to see your personal tax return. Right. And sometimes they may want your personal tax return. Like as soon as as soon as it’s available. Sometimes they don’t. Yes, so depending on the lender and the timing as well. Right. I’m gonna guess most investors who are like really rushed they usually look more complicated in the requirements we hire from the from the lender.

Unknown Speaker 59:02
And so if they think investor, do you understand like, if you’re, if you’re stressed, like almost so many people’s strategies to refinance, like, done quickly,

Unknown Speaker 59:12
in a timely manner, whatever it is, renovated, rented out, right, and then refinance it. Yep. So for this to go smoothly, their books have to be in order. Oh, yeah. Majority of the people are only putting things in order at the time when they need to when they file the taxes.

Unknown Speaker 59:29
Which makes rushing. Yeah. So it can take a while then. Absolutely. And it’s not not their fault, necessarily. Just they’re just busy. Trying to do everything themselves. Yeah. And if there’s no cash flow to pay a bookkeeper or an assistant or whatever.

Unknown Speaker 59:48
So this is probably an unexpected delay in getting people’s financing as well. Oh, yeah, I don’t see. Yeah, absolutely.

Unknown Speaker 59:56
And you’re probably not making any fair and friends with your accountant if you’re putting garbage in.

Unknown Speaker 1:00:00

Unknown Speaker 1:00:01

Unknown Speaker 1:00:04
what else should people investors know about?

Unknown Speaker 1:00:07
Record keeping is one of them understanding keeping up with the latest rule is, second one, people don’t like to be told that they need to do all these filings. We try our best to tell our clients as much as possible. Sometimes we even go as far as taxing them, just to tell them that, hey, you may have this filing obligation, make sure that you, you watch out for these.

Unknown Speaker 1:00:30
I think people don’t pay enough attention to what

Unknown Speaker 1:00:34
the two notes altogether.

Unknown Speaker 1:00:38
Can we talk more about private lending? Do folks dig into it at all in terms of like, what what the common errors are?

Unknown Speaker 1:00:47
private lending? Yeah. You mentioned like That’s seems to be a painful area for people losing? Yeah, so a group of our clients have invested in different type of private lending situation, and God

Unknown Speaker 1:01:01
essentially didn’t recover their initial investment. So when you do private lending is in a few different forms. The first one could be in something called a second mortgage or first mortgage. You’re the first one when security Yeah, first mortgage means that you have first security first, right? If the that the borrower doesn’t pay you, then you can go back and liquidate that property, you’re the first to get paid, you have the first government

Unknown Speaker 1:01:28
after the lawyers and realtors get their first cut first, then you’re the first one that get paid. Now,

Unknown Speaker 1:01:37
then a second mortgage, second mortgage, generally as high risk your rent ranked second, meaning that you rank after someone else who’s the first lender who has the first right to the proceed if something goes wrong, and you are in a higher position, because now you are exposed to higher risk. And so usually the interest on the second mortgage is higher. But you’re still register on title hopefully, because sometimes they don’t, right, get registered on title for whatever reason, administrative error or whatever, then register. Now. Now, if you’re registered on second, you still have a change was withdrawn that point a little bit. You get paid a rate. But if you’re not secured on title, you’re actually taking more risk. Yeah, absolutely. You’re not getting a return appropriate to your risk. Yep. Sometimes it just doesn’t happen. Now, Lord, and then afterwards. Typically, there’s like, obviously, third, four or five position, right. And contractor liens we’re seeing now too, we’re seeing this property taxes on being on pay utilities yet, but we’re talking about a third four or five as in like being a lender, you’re talking from a different perspective. Now I know, but they can be behind someone else. Yeah. So once that’s being

Unknown Speaker 1:02:53
done, as you know, if you’re a third lender, your risk is higher than the second. Now, let’s say, actually, in the last few years is really popular to land based on something called promissory note. So promissory note is essentially IOU. You come up to me and say, I want $100,000 Because I’m trying to renovate this property, but it’s not registered against the property. So you don’t know how much is being registered already against that particular property. So you still lend me the 100,000, or I still lend you the $100,000. It’s not secure against anything. If that person goes bankrupt, the whole promissory note is gone. Even if they give a personal guarantee they go bankrupt. Yeah, dun, dun, it is what it is, right? So those, what a lot of our investors are losing money, the type of instruments that they’re investing in. Because at the end of the day, if you’re secure against the property, you have a chance to recover. But if you own promissory note, they have to sell those properties paid first and second, before it gets to the promissory note. Repayment, right. Do you know if any of these people are actually taking over the property? Or there’s writing off these losses? Well, depending on who and what the position is, right, we have our best friend actually was in second position. I publicly talked about her situation before. And she went ahead to pay off the first loan, and then take over the property and purchase the property off and pay the legal fees for the power sale process having started which were which is over $10,000 Yes, she has to pay out of pocket and additional $10,000 to close the property, passive cash flow. And then and then she ended up making money on the sale because that happened a few years ago. So the market has gone up. She’s owned it for a year or two. And then she ended up making probably 100,000 or $80,000, or something from the property. But she said that she’s never going to go into this private lending ever again. Because she told me that story. I was never interested in private lending. Yeah, good.

Unknown Speaker 1:05:00
again, everyone, pretty much everyone goes into it. Wanting a passive investment. Yep. And then, and then if it doesn’t work out, it’s bad. Right? That she had to pay that she has to pay that first mortgage. Yep. So what’s supposed to be it was supposed to be a positive cash flow play is now as you’re paying someone else’s mortgage now. Yes. So imagine if there was no tenant. I believe it was the owner that lived there. There was no there was no rent. So there was rental income after she bought the property, but there was no rental income.

Unknown Speaker 1:05:30
So she had to bleed for a while. Yep. So for those people who are into promissory note, this option is generally like there’s no point you go through this whole process, right? You’re not secure against the property. So you’re not essentially getting anything out of it. You’re really just helping to buy that property and pay off your first debtor, first mortgagee and also the second one, you’re not even the third red rank the third. So there is no motivation for people who are investing in Yeah. So there is no reason for you to do that. Other than hold onto the property and hoping one day, then in that case, you can hold on to any property hoping one day you’re going to recover the loss that you incurred, right, there’s plenty of history of what promissory note has been wiped out. I’m shocked that people still do it.

Unknown Speaker 1:06:19
special situation, I think it’s great. And like 15%, interest rate 16% interest rate.

Unknown Speaker 1:06:26
I think these some of these in the most recent story was 17. As well as reading the news, is there a line item on your tax return for greed right off,

Unknown Speaker 1:06:36
I can declare these losses due to greed. So if these losses are incurred in TFSA, and RRSP, like I said before, they’re not written off, right. But if these loans are registered in your own personal name, or in the corporation that you own, then you can report generally speaking, you can record it as capital loss. So it’s not immediately offsetting against all your income. It’s only when you ish, when you report capital gain, you will be able to offset some of these losses. Only these capital gains, yes, can be can be written off against

Unknown Speaker 1:07:10
other corporate income. No just kept looking down. Generally speaking, like there’s an exception. The exception is if you operate a mortgage business altogether, but how do you prove that your mode of operating and really mortgage business, if the very highly specialized majority of us do not qualify? Let’s just put it that way, making this sound even worse, because like, interest income is taxed at the highest rate?

Unknown Speaker 1:07:39
Yes. And then my losses are deductions are at a really low rate, I can’t deduct as much

Unknown Speaker 1:07:46
or none of his TFSA or RSP.

Unknown Speaker 1:07:49
Yeah, in again, if I make the income in an RSP, and TFSA, I’m paying Max tax. This just sounds even worse. People generally do not consult with us, either, because we’re Calvin, we’re like, at the back end. We’re only looking backward after they made a decision at the end of the year. Oh, yeah. By the way, I have this interest income. That’s how we find out. No one talks to me either. Yeah. Is this an investment? Oh, my God, never touch that.

Unknown Speaker 1:08:17
That’s how,

Unknown Speaker 1:08:19
unfortunately, all of its bad. I think some of it can work. But I think there’s I think there’s a rare cases, there’s a very, very, very specific niche case where the promissory note works.

Unknown Speaker 1:08:31
Any other advice for real estate professionals, realtors, anyone, builders, contractors.

Unknown Speaker 1:08:38
I mean, there are rules that are that just came out

Unknown Speaker 1:08:43
September 14 2023 for HST, if you a lot of people don’t seem to realize that if you build a purpose built rental, when you complete the purpose Bill rental, you’re required to pay HST on fair market value of the property to get the government. You buy a piece of land you build that you paid the cost of to build, you paid HST to the builder. Now, at the time when it’s ready for occupancy, you now have to do something called self assessment and pay 13% on the fair market value of the rental to CLA because as if you were to buy it from someone else brand new.

Unknown Speaker 1:09:24
Now you can pay that 13%. Where’s this money coming from? From your own pocket? You have to pay it I understand when developers because developers is collected from this the buyer Yeah, exactly. There is no there is no transaction here. So in the excise mission, yeah. In the eyes of CRA essentially you are the builder. So you have to charge HST to someone, but you’re also the buyer because you’re the landlord, so not so then you have to pay that delta to CLA. Now majority of us don’t aren’t developer

Unknown Speaker 1:10:00
aren’t building purpose built, but this rule has been around for a long time. So you have to do self assessment.

Unknown Speaker 1:10:07
Now, CRA came out and said, Well, we recognize that is added cost to the to purpose built rental. So we decided to essentially wave down and we receive, we will also refund any HST that you pay prior to it provided that the construction of this purpose Bill rental is four units and above or have 10 bedrooms and above. Now conversion from residential property doesn’t count. And the construction has to start after September 14. And

Unknown Speaker 1:10:44
after Sorry, what do you mean by conversion of residential property? Like you can’t like take a five unit into a 10? Unit? Yeah, that doesn’t count this just yet. You have to pay HST and don’t even sell it. Yes.

Unknown Speaker 1:10:56
It’s just treated as if you sold it to yourself. Yes, exactly. But if you convert Commercial to Residential, then that count. I mean, the legislation is still up in the air a little bit. So we’re still waiting for the final legislation. All these finer detail has to be ironed out. But it matters. I hope so to encourage people to go, you know, build from one unit to 10 unit, whatever. Yeah, absolutely. But I was thinking about the common example where like people ourselves and people in our community that do basement apartment, or garden suite, two, those have HST implications, depending on whether it’s considered substantial renovation or not. So substantial renovation meaning 90% or and a bulk of your property’s renovated the walls and your floor space is is replaced. So a lot of them do not qualify. Now garden suite, you do have the filing, because it’s a new structure a brand new on its own. Typically you do the filing, you pay and after getting back the residential tenant, sorry, the HST rebate, you’re eligible to claim a rebate back, but usually it’s like $24,000. And so after that net net, you’re you could be ahead by a couple of $1,000. Or you could be behind, generally, you’re behind. Like there’s filing costs everywhere. Okay, let’s use a typical garden suite example. I see ranges from like, we had a client do one for 300,000. I see people who do fancier ones for like 450 800. Let’s just stick with this. The basic investor example would be 300,000. What’s my HST implication, you take 300 multiplied by the 13%, which is 39,000. And then you take 39,000 Minus the HST that you already pay to the builder,

Unknown Speaker 1:12:43
or what they paid through interest 1000 For the

Unknown Speaker 1:12:47
valuation. Yeah, depending on what your valuation is the initial 300 It depends on what the valuation is, the fair market value of the garden suite

Unknown Speaker 1:12:59
of the uplift of the property or just the garden suite alone, the garden suite alone,

Unknown Speaker 1:13:04
we can get into finer detail. But that’s beyond the conversation. Don’t imagine just the book value be sufficient. This is why paid for like this is fair, we can calculate HST on this, right. So people say I paid 300,000 Plus HST, then then you get $39,000. You don’t need to pay tax to CLA because 39 minus 39 is zero. And then on top of that, you will be eligible to claim HST rebate so in that case, you may be able to get like a, whatever, HST so that’s what’s. So I think it’s fair that most people can just argue book value I paid this for this is what it’s worth.

Unknown Speaker 1:13:45

Unknown Speaker 1:13:47
Like, I don’t know how to value gallon sweet. There’s not a lot of there’s not much out there because it’s exactly so I can’t tell you if it is reasonable. You arguing based on I don’t want to be put in the corner to say that nobody knows. Fantastic. So the HSC payable is based on the fair market value of your property. So I don’t have the fair market value in for the purpose of our discussion. We’re just assuming that it’s 300,000 and you pay $300,000 for it. I’m still

Unknown Speaker 1:14:16
doing it. If I had 3000 all cash, I’m not buying houses. I’m not doing a garden suite. I buy one or two, probably at least two houses in the States with that same amount of money.

Unknown Speaker 1:14:26
Which is still again, this is a friend situation. Not many people just have 300 grand sitting around. Yeah, absolutely. Which is sad, because I don’t see how we fix this housing situation Ontario. Anyways, anything else we should cover? What is your future outlook for real estate? You’re still an investor.

Unknown Speaker 1:14:42
So all good long term investing vehicle. I just prefer for my sanity, I like to invest in cash flowing properties, or at least properties that are that at least break even. So I don’t have to worry about it. I’m

Unknown Speaker 1:15:00
Be smart in the future, we aren’t as smart. I think we were smarter before. And then because we were doing the conference, we had to switch the mortgage, I think it’s important to diversify. We had fixed rate mortgage in the past, and we had to refinance the property to extract the equity, not less necessarily extracting anything, we were just trying to make room just in case we need the money for doing the conference. And through that process, we swapped from a fixed rate mortgage to variable, and therefore now we’re subject to this negative cash flow as a result, but we had this fantastic fixed rate mortgage that we had. I think diversity is another key lesson that I learned over the last couple of years. Yeah, diversity, geographically diversity in terms of your how you borrow money. Right now, we also have a commercial loan, the commercial loan, I decided to opt in for fixed rate mortgage for three, three years, because I don’t know how the world is going to be like, it will also take a while before the Fed or the bank Bank of Canada to lower their interest rate to June right now. Yeah, exactly here. So by that time, it’s a year in into my term, so diversification be

Unknown Speaker 1:16:20
be aggressive, but also defensive as well. Be defensively aggressive. Just buy properties at cash flow, do not buy properties that do not know sad, like, I don’t know how we breakeven on anything locally. Yeah, I think most people qualify me as someone who knows real estate Ontario, unless you like I said, unless you have 50 to 55% down in cash for a condo. That’s just hard costs. And we all know things. That doesn’t cover Yeah. All right. So yeah. So based on our based on the criteria you’ve given me, I don’t have a choice but to buy our next property in the States.

Unknown Speaker 1:16:56
Or we can buy a student rental. Someone was kind enough to email me when I challenged folks to find me something within the percent rent, gross rent yield. Someone emailed me, oh, we get, we get $1,000 a room in Kingston, Ontario for student rental. Yeah. But that’s hardly a scalable strategy, because we perfectly know well, how the financing works out for that. Yeah. So yeah, the student rental has their own challenge, but so as investment in the state, so as investment in Canada,

Unknown Speaker 1:17:25
it’s a business on its own. Absolutely. Any final words you want to share with her or listener?

Unknown Speaker 1:17:34
You can find me on real estate tax tips.ca. Or you can find me on YouTube, I have a YouTube channel that share all the insights that we have.

Unknown Speaker 1:17:45
It’s youtube.com/real estate tax tips, or you go on to YouTube and search to return there as well. And I’m hosting a webinar by the end of this month, February 29. Hopefully this will be released before then. And so everyone can register. Registration link is also on my website.

Unknown Speaker 1:18:05
And what is your own recognize you from your YouTube?

Unknown Speaker 1:18:10
We keep running into people who know you from your YouTube. The funniest is when we run to an accountant who knows you from your YouTube?

Unknown Speaker 1:18:17
Have we? I don’t think so we have. Okay, I remember all of our fan interactions, at least your interactions. There’s not that many of them, but they happen. There’s only 17 listeners just like you maybe

Unknown Speaker 1:18:32
your fan interactions, not mine. I only have 18 subscribers, just one more than yours.

Unknown Speaker 1:18:41
This must be the truth about real estate investing.

Unknown Speaker 1:18:44
Thanks so much for doing this. Thank you. Thank you for watching. If you want to learn how to invest in real estate from scratch, my team teaches beginners how to use the number one investment strategy that I personally use in a virtual free training class every month. Go to investor training.ca/youtube To register for our next class. Then links also in the description as well. I publish at least two to three videos a week here. So subscribe if you want to keep learning from seasoned investors, like myself and my guests. And if you’re just starting out, feel free to ask questions and comment below. And I do the best to answer each of those comments and questions myself. Again, if you’re ready to learn the nitty gritty about real estate investing from a professional investor register for our next virtual class. That’s at Investor training.ca/youtube. Thanks again for watching. See you in the next video.

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Before you go, if you’re interested in what kind of properties I am looking at in the landlord friendly states of the USA please go to www.iwin.sharesfr.com for what I consider the best investment for most Canadians, most of the time.

I’ve been investing in Ontario since 2005 and while it’s been a great, great run. I started out buying properties in the 100,000s and now it’s $800,000 to $1,000,000.  How much higher can it go? I don’t know

To me, the remaining potential for appreciation does not match the risk hence I’m advising my clients to look to where one can find rental properties that are affordable range of $150,000 to $350,000 US$, with rents that range from $1,400 to 2,600/month plus utilities.   As many Canadians recognize, these numbers will be positive cash flow and are night and day compared to anything locally. Plus the landlord has all of the rights, no rent control, and income is US dollars which are better than Canadian dollars.

If you don’t believe me, US dollars are better than Canadian dollars, go ask 100 non-Canadians which currency they prefer to be paid in.

So to regain control of your retirement planning.  Go to www.iwin.sharesfr.com and check out what great cash flow properties are available in the USA.  

The best part is, my US investments will be much more passive compared to by local investments as I’m hiring an asset manager called SHARE to hand hold me through the entire process.  As their client and shareholder, Share will source me quality income properties, help me with legal structure and taxes, they manage the property manager and insurance provider while passing down to me preferred rates so I save both time and money.  

Share will even tell me when to strategically refinance or sell.  SHARE can even support investors all over the country for proper diversification hence my plan is to own in Tennessee, Georgia, and Texas.  Share is like my joint venture partner but I only have to pay them fees while I keep 100% ownership and control.

If your goal in investing is to increase cash flow, I don’t know of a better strategy for most Canadians most of the time.  One last time that’s www.iwin.sharesfr.com to see what boring, cash flowing real estate investing can look like on your path towards financial peace.

This is how I’m going to make real estate investing great again for my family and hope you choose the same.  Till next time!

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This episode is brought to you by me! We don’t have sponsors for this show. I only share with you services owned by my wife Cherry and me.  Real estate investing is a staple in my life and allowed me to build wealth and, more importantly, achieve financial peace about the future, knowing our retirement is taken care of and my kids will be able to afford a home when they grow up.  If you, too, are interested in my systematic strategy to implement the #1 investment strategy, the same one pretty much all my guests are doing themselves, then go visit www.infinitywealth.ca/events and register for our next event.

Till next time, just do it because I believe in you.


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As a committed advocate for transparent and responsible real estate investment, I want to openly share my involvement with SHARE SFR (Single Family Rental) as an Advisor. I hold an equity position in this company and receive a referral commission for clients I introduce to their services. My endorsement of their business model – focusing on direct ownership of positive cash flow income properties – is consistent with my own personal investing since 2005, is based not only on a professional assessment but also on my personal experience and belief in their approach. Please note that while I stand behind my recommendations, it is crucial for each individual to conduct their own due diligence and consider their unique circumstances before making any investment decisions. As always, my priority is to provide you with honest, insightful, and practical real estate investment education.
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