Owning property is a dream of many investors. Allow us to share excerpts from an article written by chartered Fabio Campanella from the Toronto Star, April 18, 2011:
Five Tips for smart real-estate investing:
1. Project and manage your cash flows. Profits and positive cash flows do not always go hand in hand; it is possible to have a profitable real estate investment that runs negative cash flows from time to time. It is important to understand how your real estate investments will generate and deplete cash flows over the course of time. Any experienced investor will tell you there can be long periods of positive cash flows followed by surprising but infrequent negative drains on your cash flows caused by repairs and maintenance, taxation of the sale of your property or periods when rent is not collected.
Using a simple financial technique called "budgeting and cash flow projection" can help you understand when cash flows should be positive and how much should be put away to cover times when cash flows can be negative.
An added benefit of budgeting and cash flow projection is that it gives you a means to compare actual results to the results you expected; in finance, this is called variance analysis. Comparing actual results to budgeted results can help pinpoint areas that require improvement or abnormalities in profitability that should be investigated.
2. Keep an emergency reserve. For clients with real estate investments, we advise to have reserves to cover at minimum one month of expenditures for each property.
3. Keep adequate records. Document tax-deductible expenses. As far as the Canada Revenue Agency (CRA) is concerned, "if it isn't documented, it didn't happen". If you do not have appropriate evidence of a transaction that you deducted against your real estate income it simply won't qualify as an expense.
4. File taxes properly and hire the services of a professional as they will be able to give proper advice.
5. Understand how your investments will affect your estate. Consult a professional for proper estate planning.