Vancouver Real Estate Blog

Before investing in real estate in Vancouver, the foreign investor should keep four considerations in mind: financial, property, management and real estate agent considerations.

Financial considerations in foreign investing
The financial consideration includes the down payment, income, and tax implications.  It is recommended that any investor should consult an accountant to review their specific tax implications, and be pre-approved by a lending institution to see exactly how much money they qualify for and what the monthly payments would be.

The basic financial implications are summed up as follows:
The foreign investor will have to put a minimum of 35% down on the purchase of a property.  The exception would be a down payment of a pre-sale, in which case the developer sets the initial deposit which usually ranges anywhere from 10% - 25%.  However, at completion of the project when the mortgage is put in place, the same rule would apply and the investor would have to top off the deposit to the 35% mark as outlined by the lending institution.

If the property is used as a revenue property, the foreign investor is subject to a 25% withholding tax on the passive income earned on rental income.  This amount can be reduced to a lower amount under the provisions of a bilateral tax treaty between Canada and the country of residence of the foreign investor.  Final adjustments and claims can be made when the annual tax return is submitted, and the investor has a chance to reduce the taxable amount and possibly receive a refund.

Lastly, at the time of sale, the property would also be subject to capital gains tax, that is, 50% of the increase would be added to the income and taxed accordingly. The tax rate is determined by tax bracket that the investor is in.  A good guideline for any of these tax implications can be provided by an accountant.

Property considerations in foreign investing
There are two main property considerations that are interconnected. First, the type and location, and second the use of the property.  If you plan to invest in a sheer investment property and plan to let it out unfurnished, you have a wider area of selection to choose from.  If the property is to be used as a furnished rental, with possibility for personal use throughout the year, the selection is slimmer.  At first glance this may not make sense, however, when looking at the overall picture, it should be kept in mind, while in a perfect rental market every suite is equally desirable, in a soft market, the location and type of suite very much comes into play.  This is especially true in furnished rentals, where the majority of the clientele prefer to stay close to the urban centre and work.

It is also important to research the type of suite that is most desirable in the rental market.  This may also vary between the furnished and unfurnished rental markets, as there may be a larger demand for studio and one bedroom suites in the furnished market, and two bedroom suites in the unfurnished market.  It should, however, also be kept in mind that the demand for specific types of suites is subject to change, and only serves as a guideline since the future demand may not be easy to predict.

Management considerations in foreign investing
The property consideration ties into the management consideration.  While it may seem to be simple to manage a residence from out of town, it does get very complicated if a problem arises in the building, or with the tenant.  In furnished rentals, this is amplified by the simple fact that there is greater turnover in tenants, and the suite has to be cleaned and maintained for the next tenant.

A local management company will provide all the necessary services for the property, plus additional services that may not immediately come to mind.  First, the management company will screen clients, take care of the day to day operation, respond to emergency calls, collect and submit the withholding tax to the government, actively deal with the building strata managers and keep the owner up to date on important changes in rules, changes to the building, and even be in a position to vote at council meetings on behalf of the owner.

In furnished rentals, the management company will also be responsible for the ongoing marketing of the suite, and even be able to ‘book’ the suite for the personal use of the owner.  It is easy to see that the right management company can be worth its weight in gold for the investor.

Real estate agent considerations in foreign investing
Lastly, the agent consideration is perhaps the most important one right from the onset of the search.  While there is no one way to choose an agent, they should be knowledgeable in all aspects of investment properties and pull the above three considerations together for the investor.

A good place to start would be www.realtylink.org where the user can find a realtor by using area/specialty search function.  Failing that, the buyer could check out listings on www.mls.ca and just contact a realtor that has a listing that they are interested in.
Another approach to choosing a real estate agent could be to use a search engine and find a real estate brokerage that handles both sales and property management. Lastly, the buyer could enquire if a relative or acquaintance has used a specific realtor before, and has a good recommendation.

Once in contact with an agent, the investor should have a few questions ready, such as those that relate to the type of experience the realtor may have in investment properties, or which area they specialize in.  It should not be a requirement for them to work for a company that handles property management; however, they should be able to point the investor in the right direction of a licensed management company that will take over once the purchase has been completed.

Serving the foreign investor is not an easy task for the unseasoned agent, as selecting the wrong building may decrease the ‘rentability’ of the suite. The purchase price is also not to be overlooked.  Along with mortgage payments, there are property taxes and strata maintenance fees.  The agent should be able to give realistic estimates on the costs, minus the potential income, to see how the cash flow might be affected.  This then leads into the exact use of the property for the investor, and how the revenue could be maximized.  The agent should not only be able to give realistic estimates on rental income, but also be able to suggest the best locations for maximum return on investment (ROI), analyze the specific needs for the investor and be the guide to a sound investment choice that will suit the client.

The investor should be looking for a good ‘fit’, that is, someone that they connect with on a personal level that they can trust, and who understands their needs. Ideally the investor should walk away from the experience knowing that a good team is in place to take care of the property and the client.