Vancouver Real Estate Blog

Six benefits to investing in real estate

Over the past three years, the Government of Canada has had to cut $5.2 billion dollars in spending and eliminate 19,200 jobs in the federal public service. If your position had the title ‘scientist’ and you worked in ‘research,’ you were at greater risk of being put on the chopping block.

My husband was a prime candidate for cutbacks, but he was saved from these rounds of layoffs. As an ex-federal government employee myself (I decided to leave on my own terms rather than waiting for the golden handshake), it has re-emphasized for me how important it is to not have all your eggs in one basket (i.e., your corporate job).

The time and effort it takes to build up a real estate portfolio can test your will, but when you stick with it, the benefits are worthwhile.

Here is my list of the six benefits of investing in real estate:

1. The courage to walk away

The headaches of the corporate world: endless meetings, business travel, red tape, bureaucracy at its fullest, reorganization, hiring freezes, more cutbacks, the impact on your health.

Putting up with this for years and years isn’t always worth the upside and perks a job might offer.  Even if you don’t like your job, having real estate investments to fall back on can give you the courage to walk away from it all, like I did.

I decided to walk away from that job and from higher-level positions that would have sucked up more of my time so that I could balance what’s important in my life. I think Frank (played by John Goodman) in The Gambler said it best (although with a few more curse words):

“… You get a house with a 25-year roof… you put the rest into the system at 3-5% to pay your taxes and that’s your base, get me? That’s your fortress of [f—king] solitude. That puts you, for the rest of your life, at a level of f— you. Somebody wants you to do something, f— you.  Boss pisses you off, f— you!”

2. The time to get healthy

You know that getting in shape and eating healthy is very important, but you constantly have other commitments in life that take up all your free time. You know that’s bad for your health in the long term. Even if your life isn’t stressful, you probably could benefit from more free time.

As you develop an income from real estate, it becomes easier to balance everything in life because it’s possible to be less reliant on a salary, and to be able to afford more time off. Examples include stepping back from your day job, building healthy habits, and placing health as a top priority. I decided to do all that, by taking extended time off to repair my 18-year-old shoulder injury and committing more time to dance and sports, rather than work.

3. The opportunity to take a sabbatical

Imagine a big dream vacation, one that takes you away for several months. It’s difficult, isn’t it, because you don’t have limited vacation time or the funds to pay for it? Having a real estate portfolio that pays you might be the push you need to take a break from work and go on a sabbatical. You might want to travel for an extended period of time, experience other cultures, and naturally wake up without an alarm clock, an agenda or a plan.

After enjoying a sabbatical where I was able to recharge, travel and spend more time with family, I decided to permanently leave my engineering career with the government.

4. Time to pursue interest-based work

Maybe you’ve wondered what it would be like to do something different, like going back to school, trying a new career or starting up your own business. It’s very liberating to know that you have options and you can choose work that balances with your values/beliefs, such as family and personal goals, rather than work that is driven by money.

I left engineering for good more than a year ago and decided to pursue interest-based work.  My motto is to work as long as it is fun, rather than work because of the security, benefits or pension.

5. Early retirement

Dedicating time to building a nice nest egg in real estate can afford you extra time later in life.  The best thing about early retirement is having more time to do what you want to do. You can afford a less structured life, such as waking up without an alarm clock and penciling in more fun activities, like volunteering or staying at home with the kids.

I haven’t gotten to this point (yet) but I’m actively working towards it. Life is too short to spend 40 years at your peak working so that you can ‘retire’ for the last 30 years.

6. The ability to pay for your kids’ education

If you are one of those people who hates volatility (as experienced in the stock markets) and likes steady returns and lower levels of risk, then investing a bit of capital to buy a property might be the easiest and most stable solution. It is almost impossible to get significant returns without taking a significant risk in paper assets. However, buying property works best when you have time to wait while a tenant pays down a mortgage.

I bought a few properties before my kids were born and now I’m patiently sitting back so that 20 years later, when there are no more mortgages, the rental income can go towards their education.

I’m happy to say that I’ve personally experienced the first four benefits of owning real estate and am on my way to experiencing the rest. I know that real estate is not for everyone and building a portfolio can be a difficult journey, but I’ve been able to survive the ups and downs, and I can safely say that real estate is my favourite way to create financial security for myself and my family.

Tracy Ma is a mother of twins and a real estate investor in Ottawa, Ontario. Connect with her at Financial Nirvana Mama where she shares free tools, videos and articles on managing your real estate portfolio. Her mission is to empower women about investing and help them to reach their financial nirvana.

 

 

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Renting a Spare Room

When renting a spare room = trouble

Websites such as Airbnb and Vacation Rentals By Owner (VRBO) help property owners “share” their extra space by renting homes, apartments, and spare rooms.

Known as part of the “sharing economy,” property owners and tenants, called “hosts,” give strangers keys, front door codes, and gate openers. This can bring parking problems, noise, and crime into previously quiet residential communities.

If neighbours complain or police are called, strata councils and municipalities can take action.

Who has authority over short-term rentals?

Strata corporations and the local municipality both have authority.

  1. Under the Strata Property Act, Part 8 – Rentals, a strata corporation has the power to establish and enforce rental bylaws, which may include forbidding rentals or limiting the number of rentals. This is because property owners don’t want to share their pool, exercise equipment, gardens, and visitor parking with short-term renters.
  2. Municipalities. In BC, short-term rentals are under municipal jurisdiction. Rental periods of less than 30 consecutive days are typically considered tourist accommodation.

Depending on the municipality, short-term rentals may be:

  • allowed under a specific bylaw (for example, Whistler through its Zoning and Parking Bylaw;
  • allowed under a residential zoning bylaw, for example, Vancouver if the property owner is on site and runs a legal bed and breakfast (B&B);
  • not allowed; or
  • not dealt with.

Property owners must comply with bylaws

If a municipality permits short-term rentals, property owners have to comply with local zoning and business licensing requirements, strata bylaws, and insurance requirements.

Property owners must understand:

  • the tax implications set out by Canada Revenue Agency and the BC government;
  • the financial risks and liability involved in renting a home or room(s); and
  • the insurance coverage required.

Insurance issues

If property owners are renting their apartment, a room, or their entire home, they must notify their insurance company.

“The key is disclosure,” says Trudy Lancelyn, Deputy Executive Director of the Insurance Brokers Association of BC. “Talk with your insurance broker because short-term rentals may affect coverage.”

Renting is a material change of use and home owners will typically be required to:

  • change their insurance to rented dwelling coverage;
  • remove all valuables, breakables, and jewellery; and
  • pay a surcharge of as much as 25 per cent on the premium.

A policy may include a “mysterious disappearance restriction.” This covers any items that go missing, and typically requires that there are signs of forced entry.

Airbnb in Metro Vancouver – just how big is it?

As of June 1, 2015, there were 4,268 Airbnb listings, an increase of 19 per cent from 3,888 listings on January 1, 2015.

More than three-quarters (77 per cent) of these listings were in the City of Vancouver.

How many Airbnb listings were in Vancouver?

  • Downtown had 648 listings (19 per cent of the Vancouver total).
  • The West End had 474 listings (14 per cent of total).
  • Kitsilano had 380 listings (11 per cent of total).
  • Mount Pleasant had 317 (9 per cent of total).
  • Grandview-Woodland had 218 (6 per cent of total).

What types of units were listed?

In Metro Vancouver

  • 66 per cent of all listings were for “entire homes/apts” (this includes condos).
  • 32 per cent were for private rooms.
  • 2 per cent were for shared rooms.

In Vancouver

  • 71 per cent of all Vancouver Airbnb listings were for “entire homes/apts” (this includes condos).
  • 27 per cent were for private rooms.
  • 2 per cent were for shared rooms.

Source: Karen Sawatzky, Airbnb listings in Vancouver: How many? What type? Where? University of British Columbia, Urban Studies master’s thesis research, 2015.

Penalties

A strata council can fine the strata owner as long as the maximum amount of the fine ($500) is set out in the strata’s bylaws.

The municipality may also issue fines or prosecute for municipal bylaw violations.

Legislation and regulations affecting short-term rentals

Property owners renting short-term must also comply with the following:

  • Goods and Services Tax (GST). If rental income exceeds $30,000 per year, the GST must be paid. Contact: 1.800.959.5525. To register for the GST, complete form RC1, Request for a Business Number or phone 1.800.959.5525.
  • Health Act and Regulation. Maintains public health by preventing/removing health hazards. The Swimming Pool, Spray Pool and Wading Pool Regulations govern construction and maintenance of swimming pools, including permits and operation.
  • Hotel Keepers Act and Hotel Guest Registration Act. Oversees short-term rentals to overnight guests, including Airbnbs, B&Bs, boarding houses, homes, privately owned vacation homes, motels, hotels, and resorts of four or more units.
  • Income Tax Act. Applies to property owners receiving rental income from the rental of a property. If owners provide services, such as cleaning and meals, they may be considered to be carrying on a business and different rules apply. Non-residents earning rental income from property in Canada must pay a 25 per cent withholding tax.
  • Provincial Sales Tax Act. If a property owner sells goods at a B&B, such as toiletries or souvenirs, they must register and collect PST. Here is more information.
  • Provincial Sales Tax Act – Accommodation. Sections 122-125 of the Act regulate the charging of PST on short-term/overnight accommodation including Airbnbs, B&Bs, boarding houses, cabins, hotels, and motels of 4+ units. This function used to be included in the Hotel Room Tax Act, which has been repealed. Information on the collection of the accommodation PST and the municipal and regional district tax (MRDT) is found in this recently updated government bulletin.
  • Residential Tenancy Act. Covers rentals of 28+ days. Landlords cannot evict tenants to rent suites on a short-term basis. Tenants cannot rent suites without the landlord’s permission.
  • Strata Property Act. Covers strata property in BC, including bylaws and rules, and rentals.

Source: REBGV