Investment in Land
An investing in land is a safe investment. As more and more people
from Montreal are looking to get houses in the country. New developments
are mushrooming to meet this demand. Much land is still available
in the Laurentians, even a variety of lakefront properties, but
prices are rising and all of the best spots are quickly being bought
up. Given past trends, it seems inevitable that land prices will
continue to increase. Real estate values have risen by 40%-45% in
the Laurentians in the last ten years.
Here is an example of a property investment at Domaine Le Sanctuaire
des Lacs. In this example, the buyer does not build on the land
for the time being, and could resell the property in five years
for a theoretical profit reaching new heights. Especially given the speculation and growth associated with the new economic conditions (CITW)
Sample Five-Year Investment Profit Statement
COST OF SALES |
|
Land (125,000 + GST +
QST) |
$ 143,718 |
|
|
OTHER EXPENSES |
|
Interest for 5 years @ present
3.5% (Note 2) |
$ 8637 |
Municipal and School taxes (680+200 per year) |
$ 5,000 |
Estimated Association Fees (1850/year average)(Note 2) |
$ 8,250 |
|
|
TOTAL EXPENSES |
$ 182,132 |
|
|
Sale of Land in 5 Years (Note 3) |
$ 240,824 |
Net Profit after 5 years (approximate
return per year)(Note 4) |
$ 58,692 |
Note 1: Interest is on mortgage
loan, based on a $75,000 loan ($71,737
down payment) see
chart for other interest rates.
Note 2: Association fees are tax
deductible on personal return. Fees are
based on a projected annual average. This
estimate is based on the actual budget
of approximately $90,000 divided amongst
the 60 owners in 2019. As long
as land is being sold we estimate that
in 5 years there should be between 70
to 75 owners.
Note 3: 10% Appreciation (although
present rate of appraisal is 15-20% see
chart of appreciation rates.
Note 4: 48,779/109,806
Note 5: Only half of the profit
will be taxed as it is considered a capital
gain.
CASHFLOW NEEDED: |
Yr 1 |
Yr 2 |
Yr 3 |
Yr 4 |
Yr 5 |
Total |
|
|
|
|
|
|
|
Land Purchase |
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Loan payments (principal and interest) |
4,032 |
4,032 |
4,032 |
4,032 |
4,032 |
20,159 |
|
|
|
|
|
|
|
Municipal and School taxes |
1000 |
1000 |
1000 |
1000 |
1000 |
5,000 |
|
|
|
|
|
|
|
Association fees |
1,650 |
1,650 |
1,650 |
1,650 |
1,650 |
8250 |
|
|
|
|
|
|
|
TOTAL |
81,682 |
6,682 |
6,682 |
6,682 |
6,682 |
108,410 |
Other considerations:
1) Only half of profit will be taxed as is considered a capital
gain.
2) Land in the meantime may be used for personal reasons (beach,
fishing, canoeing)
3) see association ruling.
Building
Building a house on your property has further advantages. For example,
the land mentioned above but with the addition of a house costing
$150.000 minimum to build has a potential higher immediate resale value.
Even though your total costs are $375,000, this property could sell
for up to $450.000 right away (depending on market conditions).
See more details on building a
home.
Interest rate |
2.5% |
3.5% |
4.5% |
5.5% |
Monthly payments |
$335.98 |
$374.46 |
$415.10 |
$457.79 |
Interest paid in 5 years |
$8,636.91 |
$12,177.11 |
$15.753.57 |
$19358.24 |
principal paid in 5 years |
$11,521.89 |
$10,290.49 |
$9152.71 |
$8109.37 |
Appreciation rates
Appreciation |
10% |
12.5% |
15% |
17.5% |
20% |
Purchase price |
$ 149,533 |
$149,533 |
$149,533 |
$149,533 |
$149,533 |
First year |
$ 164,486 |
$168,225 |
$171,963 |
$175,701 |
$179,440 |
Second |
$ 180,935 |
$189,253 |
$197,757 |
$206,449 |
$215,328 |
Third |
$ 199,028 |
$212,909 |
$227,421 |
$242,578 |
$258,393 |
Fourth |
$ 218,931 |
$239,523 |
$261,534 |
$285,029 |
$310,072 |
Fifth year |
$ 240,824 |
$269,463 |
$300,764 |
$334,909 |
$372,086 |
|