Buying an investment property can be a very exciting adventure. It is your very own DIY home that you can design to give it your own stamp of creativity. Whether you’re planning on renting it, flipping it for a quick sale, or living in the home and will sell it in the future, it is important to follow the legal requirements and bylaws in your city or township. Believe it or not, knowing and investigating the rules and regulations before jumping in with both feet is an important step to remember when buying, renovating, and/or selling an investment property.
Know the legal requirements before you buy:
You need to follow basic housing protocols when buying an investment property. It is best to work with a real estate specialist to make sure you are doing everything correctly to save time and money. Also, consider how you are purchasing the property – as an individual, business, partnership, corporation, etc. Whichever one you choose, you must think about taxes, personal circumstances, insurance, loans, financing, mortgages, and so on.
Understand the property zoning around your investment
Make sure you confirm that the property is zoned for its intended use (commercial or residential). Look into the zoning requirements when planning your renovations as well. It may prevent you from building on the property or obtaining a business or a residential licence. It might also prevent you from dividing your property into multiple units beyond one or two. If you don’t comply with the zoning by-law or operate within your building permit, you may be subject to hefty fines.
Know your investment property taxes
When you buy a house, condo, or piece of land, you are subject to pay a land transfer tax to the province, which is due upon closing. In Ontario, there is both a Provincial Land Transfer Tax, and inside the City of Toronto, a second Municipal Land Transfer Tax.
Land transfer taxes are based on the amount of consideration paid for the property at the time of closing. In some instances Land Transfer Taxes can be deemed to be at the “fair market value of the land”, but generally speaking they are based on the sale price of the property.
If an agreement of purchase and sale is entered into after November 14, 2016, and registration or the disposition occurs on or after January 1, 2017, the tax rates on the value of the consideration are as follows:*
- amounts up to and including $55,000: 0.5%
- amounts exceeding $55,000, up to and including $250,000: 1.0%
- amounts exceeding $250,000, up to and including $400,000: 1.5%
- amounts exceeding $400,000: 2.0%
- amounts exceeding $2,000,000, where the land contains one or two single-family residences: 2.5%.
Use our handy calculator HERE to estimate how much you could pay in Land Transfer Tax for the property you want to purchase. It might also be beneficial to speak with a financial advisor or an experienced mortgage broker ahead of time to plan how you will financially cover these costs. Often your advisor, if experienced in investment properties, will have a couple of tips for you on where you can save costs.
Understanding legal requirements while you’re renovating
When renovating an investment property, the end goal is often to flip the home to make a profit, expand the dwelling into more units, or to make considerable upgrades to the unit that will increase the amount of rent you can charge. The more money you get, the better right? Well, not always. Make sure you follow code requirements when doing your renovations. Sometimes going the cheaper route with a less expensive contractor or cheaper supplies may cause more harm than good in the long run if you run into structural issues in the home. There might also be minimum requirements that your materials have to meet, as well as permit and/or inspection requirements that the City may require to ensure the property is safe and meets building code requirements.
Know that there are also legal requirements while renting
If you plan on renting out your home, you must keep in mind the legal requirements of being a landlord. It is your responsibility to provide home improvements and fix anything that breaks. Make sure you have working fire alarms, and CO2 plug-ins and that the property is overall safe to live in. You can hire a property manager if you don’t have the time and energy to become a landlord but still want to rent out your home. Just keep in mind that it’s an added cost. As the landlord, you’re still responsible for compliance with the Ontario Residential Tenancies Act. This means following these protocols:
- Providing the Ontario Standard Lease as the legal lease contract to the Tenant
- Following legal requirements related to rental increases and rental deposit rules
- Following proper procedures when evicting a tenant if needed
- Being a responsible Landlord and taking care of ongoing maintenance and repair items
- And following all of the other legal obligations and requirements that being a Landlord entails
Investigate Whether You Will Need a Residential Rental Licence
Depending on the city where your property is located and/or the type of premises that you own, you may need to apply for a rental licence. Double-check by-laws beforehand. To obtain a license you might need a Property Standards Inspection, a Fire Inspection, and possibly require inspections from an Electrical Safety Authority. For properties requiring a licence, typically will need to be renewed annually for a fee. Short-term rentals for operators such as Airbnb also require municipal licensing. If you require a licence and don’t get one you could be on the hook for a considerable fine.
Work with the top professionals to make the most out of your investment property.
There are many important considerations to think about when buying, renovating, renting, or selling an investment property. At Shirriff Wells Real Estate, we are the experts for you to lean on in the real estate industry and we will provide you with professional advice to help find your dream home or property; or sell your property quickly for top dollar. Let’s take this exciting journey of buying your next investment property together. Send us a message, or call us at 416-495-2746, and we’ll be happy to help you along the way!