If you are a foreign investor interested in buying property abroad, investment property in Canada may offer certain value that cannot be matched by the opportunities available in your home market. There are several advantages of buying investment property in Canada that any person investing in property abroad should consider when making decisions about location of his or her real estate investment.

With property prices currently declining, albeit at a modest pace, real estate market conditions in Canada do not provide opportunities for short selling and making quick profit on short sales. Therefore, Canada’s real estate market, which, according to some reports, has seen prices fall up to 8 per cent in annual terms, may represent a good opportunity for foreign real estate investors interested in buying rental property abroad. This investment strategy would secure income flows that justify buying rental investment property in Canada at time when prices of residential properties are falling and rents are increasing. Once the prices start to pick up, which may be as soon as next year, gains on rental investment property in Canada in the form of capital appreciation will start to accumulate. However, expectations of capital gains on investment property in Canada should be realistic, taking into perspective expectations of returns on comparable property abroad. Based on the available historical data, capital returns from investment property in Canada have averaged 7.1 per cent in compounded annual rates. This average rate of return is much higher than that realized by investment property abroad. Investment property in Canada offers a major potential to those property investors, especially international property investors, who want to buy rental investment property and realize both income and capital gains from their investment.

Another benefit to foreign investors buying investment property in Canada is the favorable tax treatment of income from Canadian rental investment property and realized capital gains. Only half of the total realized capital gain from disposition of investment property in Canada is taxed as income. Capital gains are computed by deducting the costs incurred in selling and purchasing the property, capital expenditures, and such costs as additions and improvements to the property. This may be a more favorable tax treatment than that applied on properties abroad.

On the other hand, foreign investors as non-residents earning rental income from investment property in Canada are generally subject to a 25 per cent tax on gross income. If they chose to file an individual taxpayer return under section 216, their income may be taxed at the standard federal income tax rate. These rates range between 15 per cent and 29 per cent, depending on income. An additional 48 per cent surcharge on the final tax liability is applicable. Various deductible expenses and depreciation allowances may substantially lower the total tax liability. At same time, foreign investors holding investment property in Canada are exempted from paying provincial taxes. Once all these tax elements are factored into the total return on property investment, owning investment property in Canada may prove more favorable than investments in comparable property abroad, including those in the investors’ home markets.

Overall, investors from overseas who consider buying investment property in Canada could take advantage of the weaker pricing of residential properties to lock in investment properties that have a substantial potential for return on capital. This return could be higher than that offered on similar investments in property abroad. Investors could lease their investment property and earn rental income that may be taxed at rates that are more favorable than those in the foreign investors’ home markets. Once the real estate market in Canada returns to strong growth and prices recover, investment properties’ value will appreciate, yielding additional returns on investment. All this could provide a total return on investment property in Canada that is comparably much higher than the return on investment on properties abroad.

Financing investment property is about obtaining a property for short and long term investment. Investors would either acquire a property to have it leased to generate revenue or have it renovated and sell it in a higher price. First is to use your own funds assuming that you have enough money to buy a property without any assistant from outside finance. This gives you an option of not having to go through a lot of paperwork and adhere to financing companies’ strict rules or having to discuss your every move to your partner in making decisions. You can do things freely but will be risky if you’re not being careful and will lead you to bankruptcy.

This second approach is the most common method in financing investment property wherein the investor should secure a line of credit from a local bank. This is for buying a property or payment for renovations. If you need a produce a regular income, you will be able to repay from the line of credit from the money that comes in every month. When you resell after making improvements and credit will be paid off at the time of the sale, they call it “flipping”. After it has been sold, you will find that you will have enough to do another flipping property venture.

Third strategy in financing investment property is to find one or more investors to help you with the finance. At least you will have someone to share all the expenses without having to release all your own resources. The taxes payment for renovations will be distributed at the same time you and your partner own the property. This is likely the most conventional way when having a commercial investment but this can also work with owning a residential property. If both partners have a positive working relationship, this is the easiest way in making money out of financing investment property. All you need to have when deciding the best approach is the line of credit you have and the property you want to obtain. It is wise to understand the advantages and disadvantages when choosing from the three strategies in financing investment property, then use the one that would work best for your interest.