Location: Kitchener/Waterloo area
Posted on: 07-02-10 21:07:14
All audience are invited to share their valued opinions on my question please:
Granted that property prices are presently quite low in the buyer's market of Pakistan (specifically Lahore), so what is the best strategy after selling a house in Lahore at a price of CAD $130K:
Option 1: Buy land (plot) in a developing housing scheme in the same city, because if the house is sold at low price due to buyer's market then land prices are also low. Thus neutralizing the effect of buyer's market.
Option 2: Bring money to Canada for investing in real estate to purchase a rental property.
Option 3: Bring money to Canada for investing in RRSP or paying down mortgage on my present home.
Please let me know which is the best option, and is their any other good option which is being missed by me? Thanks in anticipation of your views.
Quote:I do not know anything about the property market there so can't comment on this one.
Originally posted by GoToAIMS
Option 1: Buy land (plot) in a developing housing scheme in the same city, because if the house is sold at low price due to buyer's market then land prices are also low. Thus neutralizing the effect of buyer's market.
However, you have to account for paying capital gains tax in Canada on the $130K that you will make by selling the property.
What's your ACB on that property and what's your MTR for capital gains?
Factor all of that in.
In general, all else being equal, a manoevre like this should leave you with only the property appreciation profit (net of taxes) and no other tangible benefit.
Do you have anyone there to manage the land/property?
Who is going to maintain it and protect it from land grabbers?
What would you have to pay such a property manager?
There are many factors to consider.
Quote:Yes, you can do that.
Option 2: Bring money to Canada for investing in real estate to purchase a rental property.
Do you have specific properties in mind and have you assessed its returns and costs.
Refer the following on how to evaluate a RE investment:
http://members.shaw.ca/retailinvestor/realestate.html
Quote:Do you have that much room in your RRSP?
Option 3: Bring money to Canada for investing in RRSP or paying down mortgage on my present home.
If so, that is probably the best option from the simplicity perspective and immediate return perspective (tax deduction).
Paying down your mortgage is also a very good option from simplicity and return perspective.
Between the RRSP and mortgage, you have to evaluate your chances based on - your MTR on income, expected RoR on RRSP investment, your mortgage interest rate, etc.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
It also depends on future currency values of both PNR and CAD.
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A Proud Indian Canadian
Location: Kitchener/Waterloo area
Posted on: 09-02-10 14:52:39
I really appreciate very valued responses on my query, and am really thankful for this kind gesture.
Quote: However, you have to account for paying capital gains tax in Canada on the $130K that you will make by selling the property.
What's your ACB on that property and what's your MTR for capital gains?
Ans: I paid about $50K to get this house allotted by govt on my retirement. So I dont think it is simple capital gain or ACB case, because it was given to me as a retirement benfit so I believe that I dont need to pay any capital gain tax. Am I wrong? Secondly, I dont know what is MTR for capital gains? Can you please advise?
Quote: Do you have anyone there to manage the land/property? Who is going to maintain it and protect it from land grabbers? What would you have to pay such a property manager?
Ans: Nobody, because it will be simply a plot in residential colony being maintained by Defence Housing Authority. I have never heard of land grabbing in that society, but no body knows the future. For general upkeep, however, I will need to pay approx 0.25% of the purchase price per year.
Quote: Between the RRSP and mortgage, you have to evaluate your chances based on - your MTR on income, expected RoR on RRSP investment, your mortgage interest rate, etc.
Ans: Wow... that seems to be tough calculation. Can you please point me to some source please?
Quote: It also depends on future currency values of both PNR and CAD.
Ans: Very correct. So please advise that what can be the best hedging policy or plan to do this. I believe that PNR generally declines about 10% per year but am unable to predict anything.
Thanks again for your valued inputs, and any more response will be highly appreciated.
Quote:I don't believe there is any tax treaty between Pakistan and Canada, like there is between the USA and Canada, therefore, your capital gains will be taxable.
Originally posted by GoToAIMS
Ans: I paid about $50K to get this house allotted by govt on my retirement. So I dont think it is simple capital gain or ACB case, because it was given to me as a retirement benfit so I believe that I dont need to pay any capital gain tax. Am I wrong?
But check with a tax accountant to be sure since these things can be complex.
Quote:Marginal Tax Rate for Capital Gains.
Secondly, I dont know what is MTR for capital gains? Can you please advise?
Refer:
http://www.taxtips.ca/taxrates/on.htm
Quote:You can make it simple as well as complicated, depending on how accurate you wanna get.
Quote: Between the RRSP and mortgage, you have to evaluate your chances based on - your MTR on income, expected RoR on RRSP investment, your mortgage interest rate, etc.
Ans: Wow... that seems to be tough calculation. Can you please point me to some source please?
For the sake of simplicity, use three factors only - your estimated MTR upon RRSP drawdown (when you will have to pay taxes on the RRSP earnings), RoR on RRSP and your mortgage interest rate.
Say, RoR = 8%
Present Value = PV
MTR = 31%
Mortgage rate = 5%
Years in RRSP (YRS.) = 30
AMT = $100,000
Now, estimate value of your investment (AMT + tax refund) after compounding for YRS @ RoR.
Then reduce above total by MTR %.
Finally, calculate PV of that amount.
Similarly, use a mortgage calculator to estimate how much interest you will save by applying the same AMT towards your mortgage.
Then compare the two values.
I would swag a guess that you'll probably be better off applying it towards your mortgage if RoR is 8% and Mortgage is 5% but if those values are dramatically different then the result could be different.
Quote:Since you are unable to predict anything, there's no point in trying to hedge.
Ans: Very correct. So please advise that what can be the best hedging policy or plan to do this. I believe that PNR generally declines about 10% per year but am unable to predict anything.
Hedging comes with a cost as well.
If you still wanna hedge, you can create a simple hedge by taking out a loan in PKR.
The liability (loan) will cancel out the asset (property) giving you an easy hedge.
Any currency movements will impact both sides of your balance sheet equally.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
BTW, you said you are retired.
If so, how can you contribute to RRSP?
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Location: Kitchener/Waterloo area
Posted on: 09-02-10 16:40:59
Thanks Patrickm,
Extremely useful input from you.
I got early retirement from Pakistan Military, and then migrated to Canada. However, otherwise I am in mid 40s, so have another 20 years to retire as per Canadian rules
