buying a condo for investment in Abbotsford or

My_question_is: Canadian-specific
Subject:        buying a condo for investment
Expert:         taxman at
Date:           Saturday October 15, 2005
Time:           11:51 PM -0700
Good evening Dave.  I want my 23 yr. old son to invest in a condo. He lives
at home with us in Abbotsford. He doesn't have enough money for a down
payment.  He has a SUV paid off.  Would you recommend or agree for him to
get a credit line for the down payment and get a mortgage for the rest?  As
far as that goes, is buying a 2 bedroom condo for $100,000 a good investment
in the first place in Abbotsford or Chilliwack?  Any advise would be
appreciated.  You've bought and sold many condos so you should have some
good insight.  JXXXX
david ingram replies:
The answer is yes.
I can only refer you to Abbotsford realtor Ross McDonald's comments to me
earlier today.  Ross and I participated in the assembly, purchase and sale
of some 2000 condos since 1976.  You should be happy dealing with him. And
he can provide professional management and damage and rental pools for you
at the same time.
-----Original Message-----
From: Ross McDonald [mailto:rossmcd at]
Sent: Saturday, October 15, 2005 8:26 AM
To: taxman at; centapede at
Subject: RE:  What about the cash flow and tax deductibility if
I buy a downtown condo and lose $600 a month? FREE mortgage interest as a
deduction seminar every Thursday Evening - see below - David Ingram and Fred
Hi David,
Further to the question about rental losses on the $300,000 condo in
Vancouver perhaps he should take a look at Abbotsford.
Right now there are a few 2 Bedroom units in 20 year old buildings that
allow rentals ( a huge problem in BC because so many buildings do not allow
rentals at all) that will break even on a cash flow basis.  Over time they
have a very real expectation of providing rental profit and in 25 years the
tenant will have paid off the mortgage and the property will now provide a
nice bit of additional income in those retirement years.
Eg.  Full Price $84,900 with 25% down Rent is $600 per month.  1st Mtge @5%
is $357, condo Fees $140, Mgmt $50, Repair allowance $50 Cash flow = 0
Ross McDonald
-----Original Message-----
From: at
[ at] On Behalf Of
centapede at
Sent: Friday, October 14, 2005 11:32 PM
To: CENTAPEDE; Webmaster at Jurock. Com
Subject:  What about the cash flow and tax deductibility if I
buy a downtown condo and lose $600 a month? FREE mortgage interest as a
deduction seminar every Thursday Evening - see below - David Ingram and Fred
My question is: Canadian-specific
QUESTION: I am considering purchasing an investment (rental) property in the
downtown Vancouver.
This would most likely be one bedroom + den apartment in the concrete
high-rise building. Current asking prices seem to be in $300,000 range.
I am offered quite reasonable variable rate mortgage and are trying to
decide if there is any way to make a profit at the end of the 3-year
mortgage term.
- 10% down-payment
- 4% average mortgage rate
- $1,100 rental monthly income
- $200 monthly maintenance fee
I would still be in red $600/month.
At the end of 3-year period property value would have to increase 9%/year in
order to just cover: all initial costs (down-payment, property transfer tax,
closing costs), on-going costs (maintenance fee, property tax payments, and
mortgage payments) as well as realtor's fee (6% of property value).
What are the tax considerations in all of this?
I constantly hear terms like capital gain, rental loss etc., but don't know
how would they apply to my case.
Can you give me some general pointers that would allow me to fully
understand all cost involved?
Thank you very much!
david ingram replies;
The major problem is that if your intent is to rent at a loss for three
years and then sell it for a capital gain, the rental losses in the meantime
are NOT a tax deduction.  Rental losses while you hold a property for resale
are not deductible.  To be deductible against other income, rental losses
must have been incurred for the purposes of making an eventual rental income
and I guarantee that you will not make a rental profit in three years.
The following cases are excerpts from my old Ultimate Tax Guide - you can
read the whole chapter at
In 1986, Ivan Glavanovic lost his claim for five years of rental losses. He
had built a house for sale in 1975 and was unable to sell it. He therefore
rented it out at a loss for six years. DNR turned down his losses for 1979
and 1980. Judge Tremblay of the Tax Court of Canada agreed with DNR. He
ruled that the rental was not to earn income but to hold on to the property.
The losses were therefore capital in nature and should be added to the
adjusted cost base of the house. It was also clear that there was no
reasonable expectation of profit from the rental.
Also in 1986, Kelvin Lee found the same thing. He had rented his house on an
option to purchase. Judge Couture of the Tax Court of Canada ruled that the
renting while holding had no expectation of profit and was not deductible.
in 1989, Virginia Maloney was turned down by Judge Mogan of the Tax Court of
Canada. She had rented her house to her mother. The rent charged was not
realistic with regard to the cost of and the maintenance to keep up the
property. Ms Maloney had charged her mother $100 rent in 1984 with $4,600 of
expenses and $1,800 rent in 1985 with $11,000 of expenses. See Special
Problems below.
and in 1990, Michel-Guy Huot was also turned down for a deduction when he
rented a house to his parents for less than market value. Judge Garon of the
Tax Court of Canada ruled that the taxpayer "Had failed to establish that
the rental expenses were incurred in order to earn income." Because of the
low rent and the uncertainty of their stay, there was no "expectation of
Bulletin IT-533 found at
is very clear on the subject of interest deductibility.  It shows that if
your investment is to make capital gains, the interest may be added to the
ACB of the property but not deducted against current income.  Admittedly,
the bulletin does NOT use rental properties as an example but the general
tone of the bulletin is quite clear.
You need to sit down with someone who understands the premise BEFORE you buy
an alligator consuming $600 per month of hard earned cash.
PS: Over the years I participated in the purchase and sale of over 3,500
rental condominium units.  At the moment, I do not see rental profits in the
purchase of downtown condos.  There may be, indeed WILL be a long term
capital gain and with 7% increase in rents, the rent received will double in
ten years but there is no guarantee.
For instance, a building on East Keith in North Vancouver has had rent rise
form $600 / month in 1987 to $950 a month today.
Another building at 145 East 4th in North Van had apartments sell to "green"
investors for $140,000 in 1981 and they are only in the $180,000 range
today, 24 years later.  And, they went from $140,000 DOWN to $38,000 in
1985.  I know because I bought 16 of them with two partners.
You have to be careful and make sure that you are not just buying on hype.
I am of the opinion that anyone without an apartment to live in should buy
now if they are renting.  The reason is that they are not buying for resale
and it does not matter if the property goes down in value 10 or even 30% IN
THE SHORT RUN because it WILL rise again and pass the present sale price
even if it is too high.
However, if you hold on, waiting to buy when it goes down and it doesn;t go
down but goes up another $30,000, you have to earn $60,000 and pay $30,000
of tax, CPP, EI and back and forth to work expenses to have $30,000 left
over to pay the difference.  Of course, you could finance the $30,000 at 4%
and then you would have to earn $100,000 more to make up the $30,000 plus
interest because THAT $30,000 IS the LAST $30,000 you pay off.
Hope this helps.  Remember, if you have money for a down payment on this
unit, you should pay that money down on your existing non-deductible
personal home mortgage and then borrow the money for the down payment. A
good advantage of having investment properties is that you can use the rent
to make your own residential mortgage deductible.  Goto and
read the Nov 2001 newsletter (In box at top left of home page) for more
information.  You can also come out to one of our Thursday seminars on the
Answers to this and other similar  questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a
permanent guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show
Those outside of the Lower Mainland will be able to listen on the internet
Call (604) 280-0600 to have your question answered.  BC listeners can also
call 1-866-778-0600.
Callers to the show and questioners on this board can also attend the
Thursday Night seminars on finance and making your Canadian Mortgage
Interest deductible.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
Home office at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
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Hope this helps.


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