The appeal of buy-and-hold over flipping
Making money in real estate is tough, and a lot of people don't have the skills — or the stomach — for flipping houses. An alternative to that inherently risky game is to buy a property for the long haul and rent it out. Income properties are becoming more common in Alberta, and there are a few good reasons why.
Low rates mean your tenant pays down your mortgage
Interest rates are at historic lows (as of 2020), and the central bank doesn't seem eager to raise them. That makes it easier to finance a rental and lets you offset a big chunk of your housing costs with the rent you collect.
You still need to account for utilities, insurance, maintenance, and property taxes. But by renting out your place, you're effectively having someone else pay down your mortgage for you.
Build equity now, redevelop later
Holding an income property long-term means you'll chip away at your mortgage balance while your property might also appreciate in value. That sets you up for future redevelopment — adding a suite, splitting the lot, or renovating — funded mostly by the income or equity the property has generated.
Tax rules you need to understand
Your local tax rules matter before you start renting. You'll want to understand property taxes, income taxes, and capital gains taxation, plus which expenses you can deduct from rental income.
In many cases you can write off mortgage interest, utilities, property taxes, property management fees, and other costs. Some investors choose to incorporate so they're taxed at the corporate rate while paying themselves dividends. Each situation is different, but incorporating can cut your tax bill significantly compared to personal income rates.
Municipalities will sometimes help you build
Higher density is a priority for a lot of local governments, and grant programs are becoming a popular way to encourage homeowners and investors to add suites. These grants won't cover the full cost of construction, but some municipalities in Alberta offer incentives of up to 25% of your building expense.
A suite adds equity the day you finish it
Adding a rental unit — or multiple units — will usually add substantial equity to your property. That means you're generating monthly income and you've got extra equity if you decide to sell in the short term.
Your rental doesn't need to be magazine-perfect. Sweat equity is great, but keep your costs reasonable and your finish quality in line with the local market. Expect some wear over the life of your investment.
Long-term returns beat most other investments
The biggest benefit of holding a long-term rental is the return you'll see over your time horizon. Your property produces income every month, hopefully appreciates, and all of that can happen while you're paying down housing debt. For those reasons, the returns from buying or developing an income property have the potential to far outperform most other investments of a similar size.
What you can do next
If you're thinking about buying a rental or adding a suite, the first step is understanding what you can afford and what financing options work for your situation. A mortgage refinance or a HELOC (home equity line of credit) can help fund construction or a down payment on a second property. Reach out to [sayhello@hellomortgage.ca](mailto:sayhello@hellomortgage.ca) to talk through your numbers — we work with clients across Alberta, from Edmonton and Sherwood Park to Calgary, Red Deer, Lethbridge, and beyond.
