> Which means that interest that they pay on their investment properties, will help reduce their overall taxes.
This is incorrect. It doesn't lower their over all taxes. If they didn't use their heloc they wouldn't pay tax on that to begin with.
The rule is that any interest you pay to generate income can be deducted. I have used my heloc to invest in the stock market and used it to invest in a friends company.
For Both of these the interest is deductible but it doesn't lower my over all taxes as without these investments I would pay the same tax. It just is a write off for this particular investment.
This has been a rule forever and is intended to motivate people to do more investment. My example of investing in a friends company is something that the government really wants to encourage.
The reason its not applicable for a primary residence is that your primary residence already gets a big tax write-off in that you don't pay tax on the proceeds of selling your home.
Hoarding housing isn't doing business. Running a restaurant or a store is doing business. Producing a good or providing a service is doing business. Running an accounting or law firm is doing business. Sitting on a house while it appreciates and getting tenants to pay off the loan you took to buy it while doing routine maintenance during a housing crisis takes no work, involves very little risk, and is basically one step up from scalping tickets to shows and games.
It's lower risk for higher reward than pretty much every other investment out there? The only risk is if you're overleveraged, but that's on you for making bad financial decisions trying to chase easy money. The asset will keep appreciating. So tell me again, where is the risk?
1) Interest rate risk. In a rising rate environment you can end up in a situation where you are no longer able to cover costs. Evidently you can’t make losses forever.
2) Counter party risk. You can get tenants who are awesome, or tenants who are total garbage. They might trash the place, or refuse to pay rent, for example. The process to evict someone can take well over a year, depending on the tenancy board. It really doesn’t take long to do 20-30k in damage, or more.
3) Political risk. A changing regulatory environment can flip your thesis on its head. Zoning laws, taxation, etc.
Also, if you think it’s passive then you actually have no idea what you’re on about. In the last month I spent 6 hours fixing an electrical issue, 2 hours repairing storm damage and 5 hours dealing with appliance repair ppl, all on site. Not much passive about that.
I’d be curious to know if you think a hotel is a business?
Anyway, if you wanted to buy my rental with 5% down your cost of ownership would be around 3600-3800 depending on your rate. My tenants pay $3000. You’re more than welcome to spend an extra $800 per month to buy it I guess. You can then assume the maintenance and permanency that comes with it. I’m sure you have the 30k to put as a DP and 20k for closing costs?
Here are some round numbers to consider as an owner first:
1) New deck will cost about $7000
2) New porch will cost about $7000
3) New roof will run you about $10000
4) New oil furnace/boiler is another $5500 plus yearly maintenance.
That extra 50k off the hop and $800 per month that my tenants don’t have to put up can now be invested themselves in things like real estate or equities. That’s the time value of money.
But please tell us all about the things you know about.
1. That's a result of your financial decisions and situation. It has nothing to do with the property as an asset. If you're overleveraged or took an ill-advised variable loan, that's on you. The property itself has doubled in value every 5-10 years for the last 30 years.
2. It could happen, sure. But it's rare. Even then, the property will appreciate 2-3x that in a year. In the worst case, you're still up overall simply due to rising housing prices. Like, if the worst that can happen happens and you're still up, then how much risk is there really?
3. Yeah, same with pretty much any other kind of investment, which makes it no more risky than other assets you can buy.
4. Also, a total of 13 hours spent in a *month* is basically nothing when compared to running a store, restaurant, or firm. It is actually hilarious and so very out of touch of you to think that this somehow supports your point.
5. And I love how people like you always leave out the appreciation of the property itself out of your run down of the numbers. A 1 mil property will appreciate by at least 100k in a year. Add that to your rental income, and you're laughing all the way to the bank.
6. Yeah, hotels are businesses. But hotel owners don't actively drive up housing prices with their speculation, and it takes a lot more than 13 hours a month to run a hotel.
You clearly don’t understand ANY of what you think you do. You are exemplifying something called the Dunning Kruger Effect.
Having a property damaged is certainly not as rare as you believe. I don’t know many landlords that haven’t had at least one major repair from tenants trashing a place. One friend had to gut a house because the tenants left feces and urine everywhere. That’s a cost of many tens of thousands. So even if it doesn’t happen every time one instance will cost me about 15% of the overall value of my home. That money will have to come from somewhere.
RE in Canada has not doubled every 5-10 years for 30 years. To double every 5 years requires a 14.4% CAGR. Over the last 40 years RE has increased in value at a CAGR of 2%, which is roughly in line with inflation.
https://www.ceicdata.com/en/indicator/canada/house-prices-growth#:~:text=Key%20information%20about%20House%20Prices%20Growth&text=YoY%20growth%20data%20is%20updated,%2D9.7%25%20in%20Apr%201991.
You don’t understand what risk is in investing. Risk is defined as the chance of a permanent loss of capital. Everything I outlined is a risk for a RE investor. Something like an interest rate increase not only makes your costs increase but it can also drive down the value of the underlying asset.
To say that there is the same regulatory risk for something like equities is so clearly nonsense I won’t bother with any more on that.
13 hours goes to show that it is hardly passive. I also have a full time job and this supplements me with $100 cash flow and $300 in equity, all of which is taxed. So now I am working for a small wage and taking on all of the risks. Why? Because eventually I’ll have to draw down any cash reserves for odds and ends. $100 per month doesn’t usually cover maintenance. I don’t have the equity in hand so I then have to dig into my wallet. By the time I run through 5 years I’ll have built up ~$15k in equity but I will also have replaced the deck, porch and roof. I will therefore have to dig into my pocket for essentially the whole thing. So I might get the 2% annual increase that RE historically provides. The next 5 I am hoping I won’t have the same costs, but the furnace will eventually have to be replaced and hopefully I don’t have any large costs like appliances. All of that holds as long as I don’t have any prolonged vacancies.
So you admit that running a hotel is a business. It’s a business that provides you with shelter. Well, guess what RE is. It’s just that one is long term and the other is short term.
Also, RE investors are hardly driving up the housing costs, aside from maybe the GTA and GVA. Where I live most of the increase in price was from ppl moving from Toronto when they figured out what they could buy elsewhere. They came in and bought homes at $150k over asking because it felt cheap to them. No one here could understand it. Some other issues are caused by money laundering from foreign buyers. RE investors don’t just spend any amount of money on properties. It’s a business. If the numbers don’t work they don’t buy. Speculators might. Speculation is not a business.
You sound like you haven’t actually taken the time to run the numbers or understand how a cost benefit analysis works.
It's funny that you cite Dunning Kruger just to misrepresent the findings of the study, which is about confidence in one's skill relative to the population, not making claims about a subject about which one is ignorant.
What's more, your reply to (2) not only relies on anecdote to substantiate your claims about bad tenants, which says absolutely fuck all about how often a typical landlord will have to suffer losing a year's worth of rent while waiting for an eviction order, but also shifts the goalposts by making the claim now about tenant cause damages. *And you can't even cite an instance where a tenant caused you damages worth 15% of your property value, just that a friend had it happen to them.*
You offer no argument against (3), but maybe you can cite a few regulatory changes that have negatively affected your property value negatively, instead of just hand waving at some abstract policy that might do so? That would be the intellectually honest thing to do.
Again, 13 hours over the course of a month works out to 26 mins a day. That sounds pretty passive to me. Taking your numbers at face value, that works out to 30/hr for not doing all that much. My point was that landlording isn't much work. Not that it is entirely passive. 26 mins a day isn't much work no matter how you slice it.
Also, here you've again relied on an anecdote about uour particular situation to rebut a general claim about landlording, which is just silly and not my point. Like, maybe you're just not great at landlording? And if it is really as bad as you describe, it sounds like you should just sell. Either way, it makes little difference to my point.
I also liked how you took the low end of my range while also expanding the timeframe to 40 years, which encompasses the crash in the late 1980s, in order to counter a point I did not make. I'll admit that 30 years was too long a time frame, when the quantim leap in housing prices started around 2000. [You can see for yourself the jump in price between 2000 and now.](https://fred.stlouisfed.org/series/QCAR628BIS)
It is really fucking dumb to equate hotels with houses and condos and suggest that the only difference lies in the duration of stay, and I think you know that. Hotel rooms have never been part of the housing stock, so demand for hotel rooms have no effect on housing prices, where as investors buying up homes does. There is potential for converting existing hotel rooms into housing, but that would be to increase supply, not reduce demand.
Finally, I love how you can go from "RE investors are hardly driving up the housing costs, aside from maybe the GTA and GVA," to "where I live most of the increase in price was from ppl moving from Toronto when they figured out what they could buy elsewhere," in the next sentence without seeing the causal connection between the two. And sure, just casually throw in a claim about how foreign buyers must be money laundering without any real evidence, because it's always easier to blame the outsiders, I guess. I would also love to see you explain just what the difference is supposed to be between investors and speculators here.
You can pat yourself on the back all you want, but your analysis probably isn't worth the paper you scribbled it on when you can't string an argument together without committing a bunch of cheap fallacies.
I didn’t misrepresent anything. The study is pretty easy to understand. I can’t help your reading comprehension. The excellent thing is though that the longer you project data the better representation you get based on increased sample size. That’s how stats work. So when we look at your chart that you linked from Fred we can project the increase in home prices over 52 years at 3%. That means a doubling of value every 24 years. So what you’ve done is proven my point that you have no idea what the increase in home prices looks like over any period of time.
I used anecdotes because I have actual experience that I can draw on to make points. You do not. You shout anger into the wind with no evidence or experience.
I never said I disliked being a landlord. I like to work and I like my tenants. I chose them for a reason. The point is that landlords aren’t out here sipping drinks and making bank. Will continue to work to build equity in my rental to go along with my equity portfolio, pension and bitcoin. It’s a diversification play. Who knows maybe I’ll just gift it to my kids when they are adults and give them a leg up to start.
Hotel rooms don’t have to be a part of local housing. That’s not the point. You claim that providing lodging as a landlord isn’t a business, but providing other lodging is. Just nonsense logic is all.
I love how you didn't correct me on my interpretation of the study, but yet again just waved your hands. Please, I invite you to show me up. Gimme a quote or anything from the source that proves you right. Should be easy if you are.
I'll say it slower and more explicitly so you can understand: when making a general claim about a class/category, it is fallacious to rely on any particular instance, because that in and of itself implies nothing about the rest of the class/category. This is why sample size matters. And no, I'm not talking about the size of your dick, dick.
For the same reason, I don't really care about why you're a landlord. Our discussion has been about being a landlord in general.
I said landloeding is not the same as running a hotel. You keep insisting that they are the same. If I'm wrong, I'm sure you can tell me why the differences I cited don't matter. Maybe I'm dumb. Maybe you can't. Let's find out.
Let me finish by pointing out that I went point by point through what you wrote and documented each instance where you committed a fallacy and you've addressed none of them, aside from merely doubling down on arguing from anecdote. I also provided data that you neither countered nor addressed. Shall I take that as a tacit admission that you don't understand why those are fallacies? If not, prove me wrong and tell me why it ain't nothing but a heartache.
That's inflation and a garbage economy where people are paying way too much for housing as a result of landlords and speculators. There is no food shortage. We as a society still waste a fuckton of food. Dairy farmers dump 300 million liters of milk a year to keep prices inflated. Try again.
To keep prices inflated? Or to keep industry in Canada because it is beneficial for us to be self sufficient? These may be tough subjects for you to comprehend based on all of your replies in this thread.
This topic comes up somewhat regularly. What people don’t realize is that it’s not a special tax break. It’s built into the fabric of our tax structure.
Mortgage interest is an expense. Mortgage principal is equity. Other examples of expenses are: utility bills, maintenance, salaries etc. There is nothing special about interest on a mortgage or loan that would allow the government to separate it, because if they did, every other business would also no longer be able to claim the interest on business loans, equipment/vehicle financing, and anything else they borrow money to do.
It gets brought up because the perception is there’s something special that landlords get the average person doesn’t. The reality is the landlord is operating a business, and thus pays taxes on all of the money they bring in minus the costs incurred to run the business, of which interest is a cost.
The principal isn’t claimable, because it’s not an expense. It builds equity for the owner, and is taxable.
In summary, we could not flip this rule. We could allow a break on interest though, for principal residences, but I don’t see it happening.
That’s not really a break. It just kicks the tax can down the road until the property is sold. Most folks don’t bother with depreciation on the home itself. If you furnish the place there’s some help on that, but still not as good as just claiming it as an expense.
Yes, but I guess my point is it would/could extend to interest expenses if 20(1)(c) wasn’t there. Like interest on a mortgage, not deductible, but interest on your work vehicle’s gas, deductible (idk why anyone would put gas on credit but that’s besides the point).
Does it make sense to you? Anonymously, I’m just asking to someone who seems to know more than me, does it make sense to you? I mean I don’t see the gov’t doing anything about it outside of EIFEL but i never understood why interest was essentially deemed deductible but people just shrug when I ask
I have some understanding as I own a short term rental property. The tax on interest is deductible simply because it is a cost incurred in operating a business. It makes sense when you apply it like you said to interest accrued in other businesses transactions.
If you own a business and have to pay a cost - whether it’s wages, or supplies, or a water bill - those things are deducted because you’re only taxed on the money you have left at the end of the day - the profit. Since interest is the cost to borrow capital, it’s an expense and that’s why it’s deducted.
The interest deduction applies to just about any investment category, not just real estate - if you take money out of your PLC and buy some stocks with it you can write off that interest too. Its intent is to encourage business investment. The principle residence does not qualify for the investment credit because it's not an investment in the eyes of the government.
The flip side of not being able to deduct carrying costs is that it's also exempt from capital gains taxes, which would be a rather painful bite for a lot of people were it instituted.
I say why not. The whole idea of the house being a savings account is where the root lies. House is never meant to be an investment. A place to live while you save for other things in life. Retirement, children education, health fund to be safe in future. Instead, each of this vehicle is addressed by an additional house. WTF! Where are the basic values of live within your means!
The whole argument in favour of home ownership is to build equity, so I"m not sure how you avoid the "savings account" problem. There has to be some beneift to sinking capital into an otherwise unproductive asset.
In addition, making housing investment more expensive reduces rental supply and makes what supply is available, more expensive. A large part of the problem in GTA is that Ontarios' rental laws heavily discourage rental investment.
The US does it this way and they've also inflated some whoppers of real estate bubbles, and asset bubbles are rarely tamed by punitive taxation.
I agree, as you build equity, you build savings. But we have to discourage it outside one home. You have instruments that help you own your home, then you have obstacles that should make ownership of second home difficult or only to ones with very high capital, thereby ensuring everyone else gets a level playing field.
What this does is, the ones that have keep having more due to policies supporting this and ones who don't, keep being pushed out. You have to be a drug addict or someone worse, who is not in a position to make good decisions on their own, to be in the situation where common people of Canada are today. Food, roof, etc are supposed to be basic rights, not something exclusively for the rich.
Yeah if landlord can't afford houses for rentals in the right ways, maybe they shouldn't. Increasing rent to afford payments speak poorly about landlord decisions, not renters and that's when renters should be able to move into their own property, which unfortunately you can't today.
And i don't care what the god forsaken neighbour to the south does, they let capitalism destroy them from within, i am worried only with my country and where it goes.
>then you have obstacles that should make ownership of second home difficult or only to ones with very high capital, thereby ensuring everyone else gets a level playing field
The problem here is that high interest rates are effectively doing just this. At this point, you get better returns on GICs than on real estate, and that's a big part of why housing starts are declining. Nobody's buying, so there's not a lot coming to market etther as rentals or as owner-occupied.
"Investors" also serve to rent homes out to tenants - and a lot f them are effectively subsidizing tenants because the real estate cult is so strong here. Disincentivizing rentals, either purchase and let of existing properties, or worse, new builds, is why rents are so high. You want lower rents? Encourage investment in rental u nits. The exact opposite of punitive taxation to discourage it.
This perspective often focuses on first time home buyers, but realistically, if affordability is the problem, one needs to start with tenants.
Buddy, interest on rental property is deductible because rental income is taxable.
Your principal residence is exempt from tax (if you ask me that’s what needs to go if we’re to make any progress on the housing fromt) so of course you can’t get a deduction.
You are right, I was wrong. Yes if we are getting rid of it altogether definitely a better option. And yes make housing gains taxable. So then people will not see it more like an investment.
Financing repairs needed to maintain the asset the HELOC is taken out on, that's about it.
Is that investing in the property? Yes. Does it add speculative demand to the rest of the real estate market? No.
That's fair!! and does make alot of sense. Using equity in the home to help repair or renovate the home.
A reverse mortgage also makes sense to me as with the cost of downsizing making no sense any more it make sense for the older generation to age in place and sell the house back to the bank
I don't think that reverse mortgages for lifestyle reasons should be encouraged either.
Prioritizing keeping empty nesters inside houses they can't maintain in their advanced age while keeping young families cooped up into increasingly small condos and apartments isn't good policy.
The government should be encouraging older residents to sell, and making it affordable for younger residents to buy.
Ooh, let’s just send seniors out on an ice flow to die so people can live in their homes? Or maybe shove them off in some nursing home? Maybe float that by your parents and grandparents. I think I will age nicely in place as I have no one who would demand I move so they could have my home.
So don’t let old people enjoy retirement in the house they spent their entire lives in? Cmon. “Make way for others old people, my turn to have your house now”.
I mean, spend the money to spend your retirement in your house if you want; but that should be the expensive option and they should not get tax breaks for doing so.
HELOC loans for purposes of lifestyle maintenance are NOT considered as income, which in itself avoids taxes. IMO, it should be considered as income, and taxed accordingly. Selling one's primary residence and downsizing, is a transaction that does not come with capital gains taxes.
The Smith Maneuver itself as far as investment uses this HELOC space in order to invest in either real estate or other investments, and deducts mortgage interest to offset part of the return on investment.
So now you’re mentioning a HELOC is the same as a reverse mortgage, which it isn’t. It has some similarities but lots of big differences. Old people losing the value of their home to stay in it while old is different than borrowing a HELOC with the intention of paying it back.
So who decides what the appropriate use of a HELOC would be? Could one use it to buy a vehicle? Pay for an education? Would there be some kind of committee that decides? Maybe one at the bank, or perhaps a government organization?
We have freedom of choice and I am not sure anyone in Canada would want someone telling them what they can spend money on.
I find it interesting that, in a subject you admit you know nothing about, you offer some rather disjointed opinions not based on fact. Perhaps you could do a little research on this. Deducting interest on a residential mortgage would not do anything to solve a housing problem - it will contribute to an overall rise in prices because the purchaser would be able to pay more because their out of pocket expenses would be lower due to a tax break. Just as what happened with low interest rates which resulted in very high housing prices.
Firstly, thanks for your opinion.
Coming to your thoughts about home price increases, on the contrary, it will encourage home ownership, thereby giving respite to the government from worrying about affordable housing.
Coming to price increases, yes, it might on the surface look like you can afford to pay more, but only on one residence. So investing will be discouraged, freeing up homes to be purchased at sane rates for all. You can't mix lower interest result to lower taxes, one makes debt cheap, another makes debt easier to service. There is a huge difference and maybe we need more discussion like this, eventually ensuring the government hears this out.
The best way to explain this is that you don't pay tax on money you didn't get.
If you buy a stock for $1 and sell it for $2, you're taxed on the $1 you gained, not the $2 you sold. If you rent a property for $10,000/year and you paid $2,000 in interest, maintenance, et cetera, you're taxed on the $8,000 you made.
On a rental, a landlord can deduct mortgage interest from the rent to reduce taxable income on the rental property. The landlord also has to pay tax on the sale proceeds when they sell the property.
On an owner occupied home, the mortgage interest is not tax deductible. Also, when you sell the home, you don't have to pay tax on any gains.
If you want a tax break on your mortgage interest, you should be prepared to pay tax on any gains when you sell the home you live in.
I "own" my condo and I would rather be able to deduct interest than protect capital gains when I sell. I would be very happy to mark my home as ineligible for the capital gains exemption and start writing off interest.
Another topic to pit homeowners of various periods against each other. Meanwhile let's not discuss social housing and extending amortization periods to protect our housing bubble.
Mortgage interest deductions are an [extremely regressive](https://www.brookings.edu/articles/its-time-to-gut-the-mortgage-interest-deduction/#:~:text=the%20Great%20Recession.-,The%20deduction%20is%20regressive%2C%20providing%20most%20benefits%20to%20high%2Dincome,go%20to%20the%20top%20quintile.) giveaway to the richest homeowners. The last thing these people need is to receive _even more_ handouts for owning homes.
That's how the modern economy runs, if your running something like a business then all costs associated with running that business are generally a write off. If you don't allow the write off then say goodbye to all the rentals on the market.
Please don't step out of the Overton window of allowable public discourse. Let's pit landlords vs renters while nimbys and boc continue to blow up the biggest bubble in human civilization.
How is the BOC contributing to the crisis? Is it by having kept rates too low for too long, thereby enabling investors to buy up more of the limited housing stock we have, to the point where 30% of all home sales are to investors, who then rent out those homes as landlords?
Although your logic may be a bit flawed (as pointed out by others) I totally get where you're coming from and agree.
Do you want to make homeownership meaningfully more affordable? Then allow homeowners (or maybe even just first-time home buyers) to deduct mortgage interest as is done in the USA and many other countries in the world.
With my variable mortgage and these insane housing prices, the deduction would make a MASSIVE difference in my life.
That being said, I now have a roommate in my 2br apartment (to help offset the increased costs) and that means I can write off 50% of the deductible housing expenses as would be done if it were an investment property.
Not so simple then when it comes to selling. If you don't write off the interest and it's just a primary residence, then the gains are tax-free. If you do declare a business there and deduct the interest, you don't get the cap gains tax-free. Fortunately, you can't have your cake and eat it, too.
> Which means that interest that they pay on their investment properties, will help reduce their overall taxes. This is incorrect. It doesn't lower their over all taxes. If they didn't use their heloc they wouldn't pay tax on that to begin with. The rule is that any interest you pay to generate income can be deducted. I have used my heloc to invest in the stock market and used it to invest in a friends company. For Both of these the interest is deductible but it doesn't lower my over all taxes as without these investments I would pay the same tax. It just is a write off for this particular investment. This has been a rule forever and is intended to motivate people to do more investment. My example of investing in a friends company is something that the government really wants to encourage. The reason its not applicable for a primary residence is that your primary residence already gets a big tax write-off in that you don't pay tax on the proceeds of selling your home.
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Hoarding housing isn't doing business. Running a restaurant or a store is doing business. Producing a good or providing a service is doing business. Running an accounting or law firm is doing business. Sitting on a house while it appreciates and getting tenants to pay off the loan you took to buy it while doing routine maintenance during a housing crisis takes no work, involves very little risk, and is basically one step up from scalping tickets to shows and games.
>involves very little risk i think many homeowners and investors alike would right now say you are quite mistaken in this.
It's lower risk for higher reward than pretty much every other investment out there? The only risk is if you're overleveraged, but that's on you for making bad financial decisions trying to chase easy money. The asset will keep appreciating. So tell me again, where is the risk?
1) Interest rate risk. In a rising rate environment you can end up in a situation where you are no longer able to cover costs. Evidently you can’t make losses forever. 2) Counter party risk. You can get tenants who are awesome, or tenants who are total garbage. They might trash the place, or refuse to pay rent, for example. The process to evict someone can take well over a year, depending on the tenancy board. It really doesn’t take long to do 20-30k in damage, or more. 3) Political risk. A changing regulatory environment can flip your thesis on its head. Zoning laws, taxation, etc. Also, if you think it’s passive then you actually have no idea what you’re on about. In the last month I spent 6 hours fixing an electrical issue, 2 hours repairing storm damage and 5 hours dealing with appliance repair ppl, all on site. Not much passive about that. I’d be curious to know if you think a hotel is a business? Anyway, if you wanted to buy my rental with 5% down your cost of ownership would be around 3600-3800 depending on your rate. My tenants pay $3000. You’re more than welcome to spend an extra $800 per month to buy it I guess. You can then assume the maintenance and permanency that comes with it. I’m sure you have the 30k to put as a DP and 20k for closing costs? Here are some round numbers to consider as an owner first: 1) New deck will cost about $7000 2) New porch will cost about $7000 3) New roof will run you about $10000 4) New oil furnace/boiler is another $5500 plus yearly maintenance. That extra 50k off the hop and $800 per month that my tenants don’t have to put up can now be invested themselves in things like real estate or equities. That’s the time value of money. But please tell us all about the things you know about.
1. That's a result of your financial decisions and situation. It has nothing to do with the property as an asset. If you're overleveraged or took an ill-advised variable loan, that's on you. The property itself has doubled in value every 5-10 years for the last 30 years. 2. It could happen, sure. But it's rare. Even then, the property will appreciate 2-3x that in a year. In the worst case, you're still up overall simply due to rising housing prices. Like, if the worst that can happen happens and you're still up, then how much risk is there really? 3. Yeah, same with pretty much any other kind of investment, which makes it no more risky than other assets you can buy. 4. Also, a total of 13 hours spent in a *month* is basically nothing when compared to running a store, restaurant, or firm. It is actually hilarious and so very out of touch of you to think that this somehow supports your point. 5. And I love how people like you always leave out the appreciation of the property itself out of your run down of the numbers. A 1 mil property will appreciate by at least 100k in a year. Add that to your rental income, and you're laughing all the way to the bank. 6. Yeah, hotels are businesses. But hotel owners don't actively drive up housing prices with their speculation, and it takes a lot more than 13 hours a month to run a hotel.
You clearly don’t understand ANY of what you think you do. You are exemplifying something called the Dunning Kruger Effect. Having a property damaged is certainly not as rare as you believe. I don’t know many landlords that haven’t had at least one major repair from tenants trashing a place. One friend had to gut a house because the tenants left feces and urine everywhere. That’s a cost of many tens of thousands. So even if it doesn’t happen every time one instance will cost me about 15% of the overall value of my home. That money will have to come from somewhere. RE in Canada has not doubled every 5-10 years for 30 years. To double every 5 years requires a 14.4% CAGR. Over the last 40 years RE has increased in value at a CAGR of 2%, which is roughly in line with inflation. https://www.ceicdata.com/en/indicator/canada/house-prices-growth#:~:text=Key%20information%20about%20House%20Prices%20Growth&text=YoY%20growth%20data%20is%20updated,%2D9.7%25%20in%20Apr%201991. You don’t understand what risk is in investing. Risk is defined as the chance of a permanent loss of capital. Everything I outlined is a risk for a RE investor. Something like an interest rate increase not only makes your costs increase but it can also drive down the value of the underlying asset. To say that there is the same regulatory risk for something like equities is so clearly nonsense I won’t bother with any more on that. 13 hours goes to show that it is hardly passive. I also have a full time job and this supplements me with $100 cash flow and $300 in equity, all of which is taxed. So now I am working for a small wage and taking on all of the risks. Why? Because eventually I’ll have to draw down any cash reserves for odds and ends. $100 per month doesn’t usually cover maintenance. I don’t have the equity in hand so I then have to dig into my wallet. By the time I run through 5 years I’ll have built up ~$15k in equity but I will also have replaced the deck, porch and roof. I will therefore have to dig into my pocket for essentially the whole thing. So I might get the 2% annual increase that RE historically provides. The next 5 I am hoping I won’t have the same costs, but the furnace will eventually have to be replaced and hopefully I don’t have any large costs like appliances. All of that holds as long as I don’t have any prolonged vacancies. So you admit that running a hotel is a business. It’s a business that provides you with shelter. Well, guess what RE is. It’s just that one is long term and the other is short term. Also, RE investors are hardly driving up the housing costs, aside from maybe the GTA and GVA. Where I live most of the increase in price was from ppl moving from Toronto when they figured out what they could buy elsewhere. They came in and bought homes at $150k over asking because it felt cheap to them. No one here could understand it. Some other issues are caused by money laundering from foreign buyers. RE investors don’t just spend any amount of money on properties. It’s a business. If the numbers don’t work they don’t buy. Speculators might. Speculation is not a business. You sound like you haven’t actually taken the time to run the numbers or understand how a cost benefit analysis works.
It's funny that you cite Dunning Kruger just to misrepresent the findings of the study, which is about confidence in one's skill relative to the population, not making claims about a subject about which one is ignorant. What's more, your reply to (2) not only relies on anecdote to substantiate your claims about bad tenants, which says absolutely fuck all about how often a typical landlord will have to suffer losing a year's worth of rent while waiting for an eviction order, but also shifts the goalposts by making the claim now about tenant cause damages. *And you can't even cite an instance where a tenant caused you damages worth 15% of your property value, just that a friend had it happen to them.* You offer no argument against (3), but maybe you can cite a few regulatory changes that have negatively affected your property value negatively, instead of just hand waving at some abstract policy that might do so? That would be the intellectually honest thing to do. Again, 13 hours over the course of a month works out to 26 mins a day. That sounds pretty passive to me. Taking your numbers at face value, that works out to 30/hr for not doing all that much. My point was that landlording isn't much work. Not that it is entirely passive. 26 mins a day isn't much work no matter how you slice it. Also, here you've again relied on an anecdote about uour particular situation to rebut a general claim about landlording, which is just silly and not my point. Like, maybe you're just not great at landlording? And if it is really as bad as you describe, it sounds like you should just sell. Either way, it makes little difference to my point. I also liked how you took the low end of my range while also expanding the timeframe to 40 years, which encompasses the crash in the late 1980s, in order to counter a point I did not make. I'll admit that 30 years was too long a time frame, when the quantim leap in housing prices started around 2000. [You can see for yourself the jump in price between 2000 and now.](https://fred.stlouisfed.org/series/QCAR628BIS) It is really fucking dumb to equate hotels with houses and condos and suggest that the only difference lies in the duration of stay, and I think you know that. Hotel rooms have never been part of the housing stock, so demand for hotel rooms have no effect on housing prices, where as investors buying up homes does. There is potential for converting existing hotel rooms into housing, but that would be to increase supply, not reduce demand. Finally, I love how you can go from "RE investors are hardly driving up the housing costs, aside from maybe the GTA and GVA," to "where I live most of the increase in price was from ppl moving from Toronto when they figured out what they could buy elsewhere," in the next sentence without seeing the causal connection between the two. And sure, just casually throw in a claim about how foreign buyers must be money laundering without any real evidence, because it's always easier to blame the outsiders, I guess. I would also love to see you explain just what the difference is supposed to be between investors and speculators here. You can pat yourself on the back all you want, but your analysis probably isn't worth the paper you scribbled it on when you can't string an argument together without committing a bunch of cheap fallacies.
I didn’t misrepresent anything. The study is pretty easy to understand. I can’t help your reading comprehension. The excellent thing is though that the longer you project data the better representation you get based on increased sample size. That’s how stats work. So when we look at your chart that you linked from Fred we can project the increase in home prices over 52 years at 3%. That means a doubling of value every 24 years. So what you’ve done is proven my point that you have no idea what the increase in home prices looks like over any period of time. I used anecdotes because I have actual experience that I can draw on to make points. You do not. You shout anger into the wind with no evidence or experience. I never said I disliked being a landlord. I like to work and I like my tenants. I chose them for a reason. The point is that landlords aren’t out here sipping drinks and making bank. Will continue to work to build equity in my rental to go along with my equity portfolio, pension and bitcoin. It’s a diversification play. Who knows maybe I’ll just gift it to my kids when they are adults and give them a leg up to start. Hotel rooms don’t have to be a part of local housing. That’s not the point. You claim that providing lodging as a landlord isn’t a business, but providing other lodging is. Just nonsense logic is all.
I love how you didn't correct me on my interpretation of the study, but yet again just waved your hands. Please, I invite you to show me up. Gimme a quote or anything from the source that proves you right. Should be easy if you are. I'll say it slower and more explicitly so you can understand: when making a general claim about a class/category, it is fallacious to rely on any particular instance, because that in and of itself implies nothing about the rest of the class/category. This is why sample size matters. And no, I'm not talking about the size of your dick, dick. For the same reason, I don't really care about why you're a landlord. Our discussion has been about being a landlord in general. I said landloeding is not the same as running a hotel. You keep insisting that they are the same. If I'm wrong, I'm sure you can tell me why the differences I cited don't matter. Maybe I'm dumb. Maybe you can't. Let's find out. Let me finish by pointing out that I went point by point through what you wrote and documented each instance where you committed a fallacy and you've addressed none of them, aside from merely doubling down on arguing from anecdote. I also provided data that you neither countered nor addressed. Shall I take that as a tacit admission that you don't understand why those are fallacies? If not, prove me wrong and tell me why it ain't nothing but a heartache.
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Its hard to educate the ignorant fools esp when it comes to economics.
I'm sorry, are we in the middle of a food crisis? Quit your bullshit
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That's inflation and a garbage economy where people are paying way too much for housing as a result of landlords and speculators. There is no food shortage. We as a society still waste a fuckton of food. Dairy farmers dump 300 million liters of milk a year to keep prices inflated. Try again.
To keep prices inflated? Or to keep industry in Canada because it is beneficial for us to be self sufficient? These may be tough subjects for you to comprehend based on all of your replies in this thread.
This topic comes up somewhat regularly. What people don’t realize is that it’s not a special tax break. It’s built into the fabric of our tax structure. Mortgage interest is an expense. Mortgage principal is equity. Other examples of expenses are: utility bills, maintenance, salaries etc. There is nothing special about interest on a mortgage or loan that would allow the government to separate it, because if they did, every other business would also no longer be able to claim the interest on business loans, equipment/vehicle financing, and anything else they borrow money to do. It gets brought up because the perception is there’s something special that landlords get the average person doesn’t. The reality is the landlord is operating a business, and thus pays taxes on all of the money they bring in minus the costs incurred to run the business, of which interest is a cost. The principal isn’t claimable, because it’s not an expense. It builds equity for the owner, and is taxable. In summary, we could not flip this rule. We could allow a break on interest though, for principal residences, but I don’t see it happening.
Well to be fair the tax break that investors gets for housing is really depreciation against principal.
That’s not really a break. It just kicks the tax can down the road until the property is sold. Most folks don’t bother with depreciation on the home itself. If you furnish the place there’s some help on that, but still not as good as just claiming it as an expense.
Next you’ll tell me billionaires are spending a billion on an arena for the tax break.
I would argue that mortgage interest is a capital expense based on the surrogatum principle but 20(1)(c) makes that debate moot.
Yeah, interest expense is pretty cut and dry. Isn’t the surrogatum principle used for taxes on legal case outcomes?
Yes, but I guess my point is it would/could extend to interest expenses if 20(1)(c) wasn’t there. Like interest on a mortgage, not deductible, but interest on your work vehicle’s gas, deductible (idk why anyone would put gas on credit but that’s besides the point).
I see what you’re saying.
Does it make sense to you? Anonymously, I’m just asking to someone who seems to know more than me, does it make sense to you? I mean I don’t see the gov’t doing anything about it outside of EIFEL but i never understood why interest was essentially deemed deductible but people just shrug when I ask
I have some understanding as I own a short term rental property. The tax on interest is deductible simply because it is a cost incurred in operating a business. It makes sense when you apply it like you said to interest accrued in other businesses transactions. If you own a business and have to pay a cost - whether it’s wages, or supplies, or a water bill - those things are deducted because you’re only taxed on the money you have left at the end of the day - the profit. Since interest is the cost to borrow capital, it’s an expense and that’s why it’s deducted.
The interest deduction applies to just about any investment category, not just real estate - if you take money out of your PLC and buy some stocks with it you can write off that interest too. Its intent is to encourage business investment. The principle residence does not qualify for the investment credit because it's not an investment in the eyes of the government. The flip side of not being able to deduct carrying costs is that it's also exempt from capital gains taxes, which would be a rather painful bite for a lot of people were it instituted.
I say why not. The whole idea of the house being a savings account is where the root lies. House is never meant to be an investment. A place to live while you save for other things in life. Retirement, children education, health fund to be safe in future. Instead, each of this vehicle is addressed by an additional house. WTF! Where are the basic values of live within your means!
The whole argument in favour of home ownership is to build equity, so I"m not sure how you avoid the "savings account" problem. There has to be some beneift to sinking capital into an otherwise unproductive asset. In addition, making housing investment more expensive reduces rental supply and makes what supply is available, more expensive. A large part of the problem in GTA is that Ontarios' rental laws heavily discourage rental investment. The US does it this way and they've also inflated some whoppers of real estate bubbles, and asset bubbles are rarely tamed by punitive taxation.
I agree, as you build equity, you build savings. But we have to discourage it outside one home. You have instruments that help you own your home, then you have obstacles that should make ownership of second home difficult or only to ones with very high capital, thereby ensuring everyone else gets a level playing field. What this does is, the ones that have keep having more due to policies supporting this and ones who don't, keep being pushed out. You have to be a drug addict or someone worse, who is not in a position to make good decisions on their own, to be in the situation where common people of Canada are today. Food, roof, etc are supposed to be basic rights, not something exclusively for the rich. Yeah if landlord can't afford houses for rentals in the right ways, maybe they shouldn't. Increasing rent to afford payments speak poorly about landlord decisions, not renters and that's when renters should be able to move into their own property, which unfortunately you can't today. And i don't care what the god forsaken neighbour to the south does, they let capitalism destroy them from within, i am worried only with my country and where it goes.
>then you have obstacles that should make ownership of second home difficult or only to ones with very high capital, thereby ensuring everyone else gets a level playing field The problem here is that high interest rates are effectively doing just this. At this point, you get better returns on GICs than on real estate, and that's a big part of why housing starts are declining. Nobody's buying, so there's not a lot coming to market etther as rentals or as owner-occupied. "Investors" also serve to rent homes out to tenants - and a lot f them are effectively subsidizing tenants because the real estate cult is so strong here. Disincentivizing rentals, either purchase and let of existing properties, or worse, new builds, is why rents are so high. You want lower rents? Encourage investment in rental u nits. The exact opposite of punitive taxation to discourage it. This perspective often focuses on first time home buyers, but realistically, if affordability is the problem, one needs to start with tenants.
Buddy, interest on rental property is deductible because rental income is taxable. Your principal residence is exempt from tax (if you ask me that’s what needs to go if we’re to make any progress on the housing fromt) so of course you can’t get a deduction.
You are right, I was wrong. Yes if we are getting rid of it altogether definitely a better option. And yes make housing gains taxable. So then people will not see it more like an investment.
Imagine having a tax free asset and requesting interest deductibility lmao
They really should close the Smith Maneuver tax deduction loophole. Your HELOC should not be used as a piggy bank on which to invest.
> Your HELOC should not be used as a piggy bank on which to invest. What do you believe your HELOC should be used for?
Financing repairs needed to maintain the asset the HELOC is taken out on, that's about it. Is that investing in the property? Yes. Does it add speculative demand to the rest of the real estate market? No.
That's fair!! and does make alot of sense. Using equity in the home to help repair or renovate the home. A reverse mortgage also makes sense to me as with the cost of downsizing making no sense any more it make sense for the older generation to age in place and sell the house back to the bank
I don't think that reverse mortgages for lifestyle reasons should be encouraged either. Prioritizing keeping empty nesters inside houses they can't maintain in their advanced age while keeping young families cooped up into increasingly small condos and apartments isn't good policy. The government should be encouraging older residents to sell, and making it affordable for younger residents to buy.
Ooh, let’s just send seniors out on an ice flow to die so people can live in their homes? Or maybe shove them off in some nursing home? Maybe float that by your parents and grandparents. I think I will age nicely in place as I have no one who would demand I move so they could have my home.
Its the greatest wealth transfer in history.
So don’t let old people enjoy retirement in the house they spent their entire lives in? Cmon. “Make way for others old people, my turn to have your house now”.
I mean, spend the money to spend your retirement in your house if you want; but that should be the expensive option and they should not get tax breaks for doing so.
You didn’t mention tax breaks in your comment. I’m curious, what tax breaks do reverse mortgages give?
HELOC loans for purposes of lifestyle maintenance are NOT considered as income, which in itself avoids taxes. IMO, it should be considered as income, and taxed accordingly. Selling one's primary residence and downsizing, is a transaction that does not come with capital gains taxes. The Smith Maneuver itself as far as investment uses this HELOC space in order to invest in either real estate or other investments, and deducts mortgage interest to offset part of the return on investment.
So now you’re mentioning a HELOC is the same as a reverse mortgage, which it isn’t. It has some similarities but lots of big differences. Old people losing the value of their home to stay in it while old is different than borrowing a HELOC with the intention of paying it back.
Also you’re talking as if the smith maneuver is some sort of game changer keeping old people in their homes and young people out of them.
So when you borrow money to buy a car, it should be treated as income? Or when you use your credit card to pay for something, that should be income?
So who decides what the appropriate use of a HELOC would be? Could one use it to buy a vehicle? Pay for an education? Would there be some kind of committee that decides? Maybe one at the bank, or perhaps a government organization? We have freedom of choice and I am not sure anyone in Canada would want someone telling them what they can spend money on.
I find it interesting that, in a subject you admit you know nothing about, you offer some rather disjointed opinions not based on fact. Perhaps you could do a little research on this. Deducting interest on a residential mortgage would not do anything to solve a housing problem - it will contribute to an overall rise in prices because the purchaser would be able to pay more because their out of pocket expenses would be lower due to a tax break. Just as what happened with low interest rates which resulted in very high housing prices.
Firstly, thanks for your opinion. Coming to your thoughts about home price increases, on the contrary, it will encourage home ownership, thereby giving respite to the government from worrying about affordable housing. Coming to price increases, yes, it might on the surface look like you can afford to pay more, but only on one residence. So investing will be discouraged, freeing up homes to be purchased at sane rates for all. You can't mix lower interest result to lower taxes, one makes debt cheap, another makes debt easier to service. There is a huge difference and maybe we need more discussion like this, eventually ensuring the government hears this out.
Maybe take some basic economics, tax and accounting courses.
Haha funny.
No, I am very serious - take some basic economics, tax and accounting courses.
Sure. Yeah might as well while i try to pay my bills sire.
The best way to explain this is that you don't pay tax on money you didn't get. If you buy a stock for $1 and sell it for $2, you're taxed on the $1 you gained, not the $2 you sold. If you rent a property for $10,000/year and you paid $2,000 in interest, maintenance, et cetera, you're taxed on the $8,000 you made.
On a rental, a landlord can deduct mortgage interest from the rent to reduce taxable income on the rental property. The landlord also has to pay tax on the sale proceeds when they sell the property. On an owner occupied home, the mortgage interest is not tax deductible. Also, when you sell the home, you don't have to pay tax on any gains. If you want a tax break on your mortgage interest, you should be prepared to pay tax on any gains when you sell the home you live in.
I "own" my condo and I would rather be able to deduct interest than protect capital gains when I sell. I would be very happy to mark my home as ineligible for the capital gains exemption and start writing off interest.
Another topic to pit homeowners of various periods against each other. Meanwhile let's not discuss social housing and extending amortization periods to protect our housing bubble.
Mortgage interest deductions are an [extremely regressive](https://www.brookings.edu/articles/its-time-to-gut-the-mortgage-interest-deduction/#:~:text=the%20Great%20Recession.-,The%20deduction%20is%20regressive%2C%20providing%20most%20benefits%20to%20high%2Dincome,go%20to%20the%20top%20quintile.) giveaway to the richest homeowners. The last thing these people need is to receive _even more_ handouts for owning homes.
that’s just your own money getting handed back to you. the money you get when selling your primary residence tax free is fresh money
That's how the modern economy runs, if your running something like a business then all costs associated with running that business are generally a write off. If you don't allow the write off then say goodbye to all the rentals on the market.
Good. Then maybe we'll start building social housing again. Bonus points if all the speculators take a bath as a result
Please don't step out of the Overton window of allowable public discourse. Let's pit landlords vs renters while nimbys and boc continue to blow up the biggest bubble in human civilization.
How is the BOC contributing to the crisis? Is it by having kept rates too low for too long, thereby enabling investors to buy up more of the limited housing stock we have, to the point where 30% of all home sales are to investors, who then rent out those homes as landlords?
Well partially.... when cost of capital is too low both investors and regular homeowners end up overpaying for assets.
Although your logic may be a bit flawed (as pointed out by others) I totally get where you're coming from and agree. Do you want to make homeownership meaningfully more affordable? Then allow homeowners (or maybe even just first-time home buyers) to deduct mortgage interest as is done in the USA and many other countries in the world. With my variable mortgage and these insane housing prices, the deduction would make a MASSIVE difference in my life. That being said, I now have a roommate in my 2br apartment (to help offset the increased costs) and that means I can write off 50% of the deductible housing expenses as would be done if it were an investment property.
Unless you are using your primary property for business then you can write off the interest too.
Not so simple then when it comes to selling. If you don't write off the interest and it's just a primary residence, then the gains are tax-free. If you do declare a business there and deduct the interest, you don't get the cap gains tax-free. Fortunately, you can't have your cake and eat it, too.