Tax-free savings account

There are only three sure things in life. First, there is death. Second, there are taxes. Finally, there is the fact that Dolly Parton sleeps on her back. Even though taxes are a sure thing, you should be aware of any new measures the government introduces to help you save some money. Recently, the government has introduced a savings plan that will at least reduce some of your potential taxes. It's called a TFSA or tax free savings account.

How does it work?

Each year, you are given an allowance of $5,000 to contribute to a TFSA. This amount is cumulative on an annual basis, so if in one particular year you cannot contribute to the maximum, you can carryforward the balance on your account. TFSA can be self-directed or they can be managed by a financial institution. For most people, they would likely manage their TFSA's similarly to their RRSP's, so that would be by a financial institution. The benefit of a TFSA is that any money that you earn with this investment is not taxed. This can lead to substantial savings for the investor over time. This is an excellent way to save money.

Which is better? RRSP's or TFSA's?

Well, both programs are designed to save you money, so you should take into account which form of tax savings work best for you. Each person has different needs with respect to cash flow needs and financial goals. It is probably best if you talk to an accountant. Sadly, that is the best advice that I can give, but there are many considerations that need to be made as to whether you should throw excess cash towards an RRSP or a TFSA.

Deadlines! Deadlines! Deadlines!

Today is the last day to contribute to your RRSP for the 2008 tax year. RRSP contributions are a great way to save money because it reduces the amount of income that you have to pay tax on. You should review your notice of assessment from last year to see how much unused room you have left. You should be trying to use up this room for 2009.

April 30th is the last day on which any taxes owing are due to the government. This means that everyone needs to pay up. You may have a filing date of June 15th, if you are self-employed, but the taxes are still due April 30th. You should do your taxes ASAP in order to properly plan out any amounts owing to the government, plus you avoid any late fees.

Realtor.ca

It looks like there is a new website to check out properties. Formerly, mls.ca the site has now changed to realtor.ca. It appears as if they property search function has combined with google maps to provide precise details of property locations. I have mixed feelings about this. First, I probably just don't like adjusting to something that is new. That being said, I do like the feature where properties are imuputed on a map, so that detailed locations can be seen. This is an added feature for those people that may not be familiar with all of the streets in the area.

Now, I encourage you to keep an eye on properties in your area if you are interested in purchasing a house in the next couple of years. It's good to know the market a little bit, so that you know what you can expect to pay when it comes time. It gives you an idea of what it costs, and it also gives you an opportunity to plan your down payment a little bit better. You may consider investing in RRSP's, tax savings account (new in 2009), or other investment choices while trying to build up a down payment. It's important to plan because there are certain rules and regulations that you need to follow in order to be able to take advantage of tax savings.

I'll probably talk about tax implications a bit more in a future post, but I want people to check out realtor.ca today, so that they can plan on where they would like to live and begin the planning process as soon as they can.

F.A.Q.'s

I decided today would be a great opportunity for me to answer some of the more common questions that I receive about my recent ventures in real estate. It will give some background on my thoughts and goals in this whole process. Although some of the renovations will not occur until late summer, I want to be able to plan as much as possible to help reduce costly mistakes. I will be posting to the blog on a semi-regular basis as a result.

When are you moving in?

I am planning to move into the house in September 2008. Currently, the house is being rented by students. The students are under lease until the end of August. Their rent payment will be enough to cover my mortgage for the period that I do not live there. This will give me an opportunity to try to save up some money to help towards renovations.

How can you afford two houses?

I can't. I would never be able to pay the full cost of the two mortgages on my own. The key is to have income coming in. I have decided to rent out one property entirely, and the other property entirely until I want to take over. After I take over, I plan to rent out a room or two to help cover some of the expenses. Hopefully, by doing this, I will be able to get a little more money ahead to help with additional renovations.

When I bought the first house, I had used some of my personal savings for down payment. In addition, I had performed some legal maneuvering in order to obtain this home. I'm not going to get into many details, but tell you that I now own that house.

As for the second house, I purchased this home using money that I had saved up over the years using an RRSP. When I was 18, I put $3500 into an RRSP. Every subsequent month, I had put $50 per month into the RRSP. Honestly, if you have never done it, I would recommend making an RRSP contribution this year. There are tax benefits now and you will be saving for a home in the future. There are some serious benefits in doing this. The $50 a month is nothing. I do not even notice it coming out of my bank account each month, but it has paved the way for me to own a house.

In addtion to the RRSP advice, I want to give another little bit of wisdom. Although it seems like that it sounds very profitable and the opportunity to establish some equity sounds desirable, it is very important to consider many factors when purchasing a home. Most people will only ever buy a home once or twice in their lifetime. It is truly one of the most important decisions that you can make. Therefore, it is important to do your homework. There is not much point in paying a mortgage if you decide that you are not settled into a career or city. The transaction costs associated with homes is fairly significant and the concept of living in a home for one or two years is probably going to result in you losing thousands of dollars. You have to be sure you want the home.

Where did you find the second house?

I'm a bit of a real estate junkie. I frequently visit mls.ca to help keep an eye on the properties in the vicinity of the first home that I bought. I want to see if places are selling, what they are being listed at, and the details of those homes that are comparables to the home that I own.

Recently, I've been using mls.ca to look at homes in the area in which I wanted to live. I wanted to do some research on the area. I wanted to make sure that the place I bought wasn't going to cost me any more then it had to. I had stumbled a couple of properties in the past that I thought would be pretty good, so I had an old friend from high school send me some additional information. He's a real estate agent and he gives me some extra info on properties if I ask him. Unfortunately, the properties I thought might have some potential were listed on Bell Street. Bell Street is a dump and the houses were appropriately valued.

One day, I had came across another property. I asked my real estate agent for some additional information and he told me that it was on Arlington Street. Not knowing where it was at first, I google-mapped it and decided that this was a prime location. The price seemed right, so I made an appointment to go and see it. The rest is history and will explain it at another time...