Self-employed – To your advantage or not?

In my large network and circle of friends, I know people who are
salaried as well as some who are self-employed. There are positives
and negatives to both so I will discuss how each affects your family
life and also your ability to get financing.

Let's face it....finding a job in today's economy is extremely tough

and competitive. Many graduates are leaving university with great
grades and promise, only to be disappointed by little opportunity
and/or little pay. Should you be employed, there is a risk that you
get replaced by someone who will work for less, or worse, a computer
program.

In terms of financing though, banks prefer salaried people over
self-employed people. They see you as less likely to default on
your mortgage, since you receive a consistent pay cheque every two
weeks. In terms of family life, it gives you the peace of mind that
you can budget your expenses. On the other hand, it gives you little
flexibility when it comes to family time. You have your weekends free,
but if you want to take a Friday off because your son is sick, you
don't have that same flexibility.

As tough as it is to find a job in today's economy, starting your own
business isn't much easier. It usually takes a strong financial
investment to start up. If you go into a field like real estate, you
usually need money to survive at the beginning. It takes time to grow
your client base and, while you pound the pavement to get your
commissions, you need savings to be able to feed your family. Life can
be stressful on a family waiting months for a commission cheque, so
unless your partner is salaried and bringing in good money, it can be
tough.

On a positive note, you can deduct expenses like your gas,
phone, Internet etc., which in turn can lower your net income, thus
lowering the taxes you have to pay the government. These expenses must
be legitimate, but this is a huge advantage. Another advantage is that you
are paying yourself first. If you make a real estate commission in
January 2012, you only have to pay taxes to the government in mid-
2013. If you are salaried and you get a $3,000 paycheque, you will
have about 50% deducted from that paycheque at source right away. You
have to budget for income taxes, true, but think about the advantage of
holding on to your money for an extra year and a half. Unfortunately,
banks have tightened their rules for mortgage financing for
self-employed individuals. These applicants pay higher insurance
premiums for their mortgages and their self-declared income is highly
scrutinized. In most cases, you also have to be self-employed for two
years.

My specialty is mortgages for self-employed individuals, so if you
have any questions, please don't hesitate to contact me.

Multi-unit building purchase: Is it right for you?

Many real estate gurus in the last 10 years have talked about achieving financial freedom through the purchase of rental property. Although there is some truth to this depending on your investment/return, you have to be sure that owning rental property is right for you. It isn't as glamourous as people think and is often hard work. I will discuss a few benefits, but also a few downfalls, of being a landlord. It isn't just about collecting the rent cheques.

One of the strongest benefits is that you can buy a multi-unit property for as little as 10% down for triplexes and fourplexes and as little as 15% for sixplexes and up. This enables the property owner to keep most of the cash in their pocket, while the rental income covers the mortgage. This allows time for the property to appreciate in value as well....a side benefit.

Another reason to get into real estate is to use it a passive income stream. Is it  SO passive, though? Many people underestimate factors such as repairs/vacancy. If you don't have a contingency fund for emergency expenditures, you could be in trouble. You must be ready to spend hundreds of dollars should something break in one of your apartments. What if your tenant stiffs you for three months’ rent and leaves? Do you know your rights? Since Quebec law generally favours the tenant, it is important to choose your tenants carefully.

Another factor which works against you can be the insurance premium. Let's say you have a $500,000 mortgage while putting the minimum 15% down and want the highest amortization to get the payment as low as possible. The premium added onto a mortgage like this would be almost $25,000, making your mortgage $525,000. If you are planning on holding onto a property as part of a portfolio, the benefit will likely outweigh the downside. If you are planning on reselling your property quickly, that $25,000 will obviously impact you more. You must consider as well that there are usually file-opening fees with the lender and CMHC fees when buying these types of properties. The CMHC will also want to make sure that they calculate whether the property you are buying is a good investment. If not, they will not insure the loan, which will in turn force you into a conventional loan that carries with it higher interest rates.

Multi-unit purchases typically take longer, but if done with the proper real estate agent/mortgage professional, they can be very fruitful. It is essential, however, to be aware of what it takes to buy one, so you don't end up with nasty surprises down the road that discourage you from completing the purchase.

If you have any questions about multi-unit purchasing, I will be happy to assist; Please visit my website to see how I can help you: Mortgageratesmontreal.com