1st house on mortgage and buying second house again on mortgage

[Pda]

Hi all, I have a house on mortgage. If I get funds in future should I use that fund to pay off my mortgage or use it to buy another house on mortgage and pay that amount as down payment.

I just want to understand the pros and cons and risk factor.
Having 2 mortgage is a big risk or having 2 houses is a better asset.

Anyone with his own experience can share true comparison.

 

[BonManush]

You will only be approved for a second mortgage if your financial situation makes you eligible for it. If they assess that you won't be able to meet the monthly payments for two mortgages then you won't be put in that risk situation to begin with.

Note that for a second property a higher than normal down payment is required.

*** DISCLAIMER: I do not take responsibility for my following comment ***

If you are anywhere in GTA area, having two houses make sense as they are booming (provided that you are able to afford 2 separate mortgages to begin with). Of course, you are putting yourself at a huge risk if there is any chances of you ever not being able to make payments. Chances are if you ever find your self in a situtation like that you can just sell back one or two of the properties and possibly even take profits from them.

 

[Pda]

Can house tax be part of mortgage installment and financed from bank.

 

[BonManush]

I don't think so. Not traditionally. There are all kinds of institutions and finance products out there though.

 

[ALRIVAS]

HI Pda to purchase a second house you need 20% down minimum as is the law.
If you stay in the house you live now the new one becomes an investment so all the money you use to carry that property is a right off from your capital gain.
The second becomes an income and as I said the money you use to maintain it goes against your income to make it easy on you you will need to hire a chartered accountant.
For more info contact me al@alrivas.com or 416-887-9656.

 

[Pda]

HI Pda to purchase a second house you need 20% down minimum as is the law.
If you stay in the house you live now the new one becomes an investment so all the money you use to carry that property is a right off from your capital gain.
The second becomes an income and as I said the money you use to maintain it goes against your income to make it easy on you you will need to hire a chartered accountant.
For more info contact me al@alrivas.com or 416-887-9656.

Thanks for this info. I want to ask another scenario. I have seen many people having 2 investment properties. is there something special in taxes when one holds 2 investment property. I heard you can write off you car gas bills and also heard both property mortgage interest also can be write off in tax returns. is anything more you can suggest one can benefit.

 

[ALRIVAS]

As I said everything that is involved in the process of maintaining those properties is a right off as long as you hire a chartered accountant to guide you.
For a tax question you need to ask a chartered accountant they are many details that must be addressed in person.
To make it easy if you have 2 properties one is your principal and the other is an investment so the investment will be a capital gain and that is the softest way of taxation in Canada your principal home is tax freeeeeee enjoy it.

 

[Pda]

As I said everything that is involved in the process of maintaining those properties is a right off as long as you hire a chartered accountant to guide you.
For a tax question you need to ask a chartered accountant they are many details that must be addressed in person.
To make it easy if you have 2 properties one is your principal and the other is an investment so the investment will be a capital gain and that is the softest way of taxation in Canada your principal home is tax freeeeeee enjoy it.

Nice information. I did not get the last para. can you explain in lay terms. lets say a person has 3 house - 1st is principle house where he lives and is mortgage free, 2nd is investment property which he pays mortgage and house tax but also same time gets rental income and same for 3rd house as 2nd. so in this scenario is it hurting back with 2 mortgages and now more tax to be paid since 2nd and 3rd house is investment property. anytime in future he sells that investment he has to give heavy tax on it and long run no benefit...

so to summarize can we technically say never buy 2 investment property on mortgage as there is no gain on property increase as all will go back to government as tax. only buy investment property in cash so no headache of mortgage liability and get little gain on property value increase. otherwise you are always in debt and hassle to maintain 2 property.

 

[ALRIVAS]

pleas call me 416-887-9656.
Thanks.

 

[steaky]

If you stay in the house you live now the new one becomes an investment so all the money you use to carry that property is a right off from your capital gain.

Couldn't the second one becomes a personal-use property such as a cottage?

 

[Tri-Cities]

...if you rent out your first old home you can buy a second home move into it, you won't need a higher down payment. Important: The rent should cover the first mortgage, it counts as income!

There are some good information on the internet and there are some good realtors out there.

 

[BonManush]

Nice information. I did not get the last para. can you explain in lay terms. lets say a person has 3 house - 1st is principle house where he lives and is mortgage free, 2nd is investment property which he pays mortgage and house tax but also same time gets rental income and same for 3rd house as 2nd. so in this scenario is it hurting back with 2 mortgages and now more tax to be paid since 2nd and 3rd house is investment property. anytime in future he sells that investment he has to give heavy tax on it and long run no benefit...

so to summarize can we technically say never buy 2 investment property on mortgage as there is no gain on property increase as all will go back to government as tax. only buy investment property in cash so no headache of mortgage liability and get little gain on property value increase. otherwise you are always in debt and hassle to maintain 2 property.

Capital gain is taxed at 15% of the half of total gain. So, if your property value goes up by $100,000 (ignoring other costs associated at sales time) you pay 15% tax on $50,000=$7,500.

You could WRITE OFF some of your personal expenses like car, phone, restaurant visits and other stuff too since you are basically working as a property manager. Those expense have to somehow be related towards your "managing" job.

You do not need a chartered accountant for this. You do need a professional experienced accountant though. Specifically, Chartered Accountant designation will no more be given. From now on, it's CPA and CGA.

 

[torontosm]

Capital gain is taxed at 15% of the half of total gain. So, if your property value goes up by $100,000 (ignoring other costs associated at sales time) you pay 15% tax on $50,000=$7,500.

You could WRITE OFF some of your personal expenses like car, phone, restaurant visits and other stuff too since you are basically working as a property manager. Those expense have to somehow be related towards your "managing" job.

Just to clarify, capital gains are not taxed at 15%. Rather, 50% of the capital gains amount is taxed at your personal tax rate. So, if you earn $180,000 p.a., 50% of your capital gains will be taxed at around 48%. Also, you have to factor in the tax on your rent. If you invest through a company that doesn't have any operating business activities, then you will pay 50% tax on rental income (from which you can claim a deduction when distributing dividends).

If you are investing in properties on an individual basis, you will have a very difficult time convincing the CRA that things like "restaurant visits" and 100% of your your car and phone expenses are tax deductible.