# My Property - What would you do and why?



## Toddbrown (Mar 28, 2019)

Regarding my property. Looking for opinions, advice, insight, etc.

Ill give you guys the long story with as much juicy details as possible. I consider myself a newbie at real estate so im exploring my options here.

When I was 28 I bought my first (and still only) piece of real estate, this is in BC Canada.

I bought a commercial-zoned mixed use property with a total of 5 units. 3 of the units are commercial and 2 are residential, total useable square footage is about 6,000 sq ft. The location is pretty much the most prime location possible in my city, heart of the downtown core. 

I formed a holdings corporation to buy it so its held by my hold co.

I bought the building for $439,000 with a 25% down payment and took a 25 year amortization.

I then did about $100,000 worth of renovations over 5 years to one of the commercial units (unoccupied at the time and in dire need of reno) and the two residential units. I've owned the property for about 6 years now. Almost all my renovation expenses got written as CCA expenditures, which from what I understand get deducted from capital gains taxable portion after sale of the property in the future.

As of right now, the rentals and approximate expenses are as follows;

RENTS:
Unit A (commercial) = $1,000/month
Unit B (commercial) = $1,400/month
Unit C (commercial) = $1,250/month
Apartment D (residential) = $1,575/month
Apartment E (residential) = $1,000/month

NOTE: All my rents are a bit below market value. I could probably get more money for each unit in my building than I am, but i've got good tenants who are hassle free and theres something to be said for that.

EXPENSES:
Mortgage = $1,800/month
Building Insurance = $4,000/year
Property tax = $7,500/year (approximate)
Water/Sewer = $750/year (approximate)
Electricity = $1,200/year (approximate)

I was told for cap rate valuation you determine cap rate (I crudely came up with 15% cap rate but omitted some expenses I maybe should not have) and divide the ROI by it which gave me a value of around $465k. Since I paid $439k and added $100k in renovations im a bit disheartened to learn my property has very little appreciation in the 6 years i've owned it. My numbers are likely inaccurate but approximate.

This saddened me because my parents bought just 3 years ago half of a duplex for less money (same city) than my entire building, and identical duplexes in their neighborhood are now (just 3 years later) selling for nearly twice the price my parents paid which means like a 1,200 square foot half of a duplex is now selling for more than my entire 6,000 square foot building (if using cap rate valuation to determine my buildings potential value). Just ONE apartment in my building has equivalent square footage and more bedrooms than my parents duplex. I know commercial and residential are two different markets but I still cant really comprehend how there can be such a difference between the value per square foot. Have I done something wrong with my math?? Or is this the reality?


The other year I was talking casually with a guy and he asked me "have you ever considered stratifying the building and selling off the units?". At the time I had never considered that as an existing option, but lately I did some reading about it and that guy may be on to something.

The highest grossing apartment in my building is about 1,200 square feet, 3 bedrooms and 2 bathrooms, 9+ foot ceilings, its sparkling brand new as that was the last renovation we did its brand new everything appliances, cabinets, flooring, even the windows were all replaced. Looking at the real estate market in my city, a condominium of that size and bed/baths in a less ideal location with less ideal finishings is selling for average of around $350,000-$375,000 range.


MY QUESTIONS:
1) Do you factor in building insurance and property tax into "expenses" when determining cap rate?

2) Can anyone experienced with all this tell me what my cap rate is using my numbers provided?

3) Using cap rate valuation, what is my property worth and is this really an accurate indicator of what I could get for it if I sold now?

4) If you have a ton of CCA expenditures/write-offs built up, and you sell a property for the same price as you paid for it thereby being no capital gains tax, what happens with all those CCA expenditures/write-offs? Are they essentially "wasted" because theres no capital gains tax to write them off against after sale of the property?

5) Is stratifying the building and selling the individual units a far more profitable/sensible idea, and does anyone here have experience with doing that?

6) If I stratify the building, sell off all 5 units, what then happens with the land the building is on? Can I sell that also, as like a 6th item and if so does whoever buy that land also buy the "strata" of all the units meaning they become responsible for managing the strata?

7) If I stratify the building, can I use my CCA write offs against any of the capital gains tax I incur? Id assume so.

8) Any remote idea (just approximate obviously) of what it costs to stratify a 5 unit building? Lets assume to do so does not require any rennovations to facilitate the stratification, just the legal paperwork side of things. I know this is probably a hard question to answer.


PROS/CONS
Pro - Pays its own mortgage
Pro - Earns income ontop of that
Pro - The land it sits on is some of the primest land possible in the downtown core of my city
Pro - Tenants are more or less hassle free

Con - Doesn't seem to appreciate in value unlike residential real estate in my city (unless im doing my valuation totally wrong)
Con - May have wasted my money building up CCA write offs if the property sells only for marginally more than I paid for it when all is said and done
Con - Corporate income tax in BC for investment income (my rents) is nearly 50% - brutal!


WHAT WOULD YOU DO?
A) Continue to hold the property, let the equity build and the mortgage get paid off
B) Accelerate mortgage payments using the surplus income to speed up the process
C) Sell the entire building as is
D) Stratify the building and sell the individual units
E) Tap into the equity built up in the building, use that money to buy more real estate
F) Any combo of A-E
G) Ideas of your own and why?


MY CURRENT PLAN
As of this exact moment I plan to continue holding the building, paying off the mortgage at the rate the lender requests. During this time I will let a small "nest egg" of surplus income build up over the next 1-2 years to cover eventual repairs like re-doing the roof of the building. After theres a nest egg built up I would use monthly surplus income to accelerate mortgage payments, perhaps throwing an extra $1,000/month onto my mortgage payments to build the equity up faster. After that I don't know, I always saw myself holding the property forever and living off the surplus income once I pay off the mortgage, but the almost 50% income tax I have to pay the government on my rental income is really disappointing (I was unaware it would be so high when I formed the holding corporation, yes its my oversight mistake).


MY THINKING
If cap rate valuation is how I determine how much I can sell my commercially-zoned building for, it basically has zero appreciation and the money I spent on it both down payment and renovations could've bought me multiple residential properties and I could've held those (while renting them) for a fraction of the time i've held this building and doubled my investment by now already, based on the scenario I mentioned with regards to my parents half of a duplex they bought. Here I am thinking I snagged this incredibly good investment but now im not sure.

I also last year watched a TRIPLEX go up for sale in my city and sell for over $980,000 dollars. An ugly triplex in a somewhat "ghetto" part of the city. Im sure my buildings units are much better, its land is waaaay more prime, yet using cap rate valuation my buildings worth not even HALF of that triplex despite being newly updated, primer land, and way more square footage and units (plus its gross income is higher).

Am I just stupid and not doing the valuation properly, or is this really how it is because my buildings "commercial". If so... damn.


MY GOALS IN LIFE
At this point in life I live overseas, outside of Canada. Im tired of cold weather and my city back in Canada is a boring little place. I lived there long enough and lost all interest in living there anymore. I intend to buy property overseas and build a home. Thats a whole other can of worms and I don't really seek to discuss that in this thread at all. I'm just pointing out my long term goals incase that shapes anyones reply to this.


Rant complete. Any insight appreciated!!


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## AltaRed (Jun 8, 2009)

I have not read your post in detail, mostly because you need to do some work on cap rate for your building and using the right definition https://www.investopedia.com/terms/c/capitalizationrate.asp Am pretty sure you are not looking at this correctly.

and then see what cap rates are for your property and location. Since you have a multi-use building, it won't be as straightforward as looking at straight residential or straight commercial. Some information https://www.collierscanada.com/en-CA/Research/canada-cap-rate-report-q1-2019 and also https://www.cbre.ca/en/real-estate-services/business-lines/capital-markets You could also get a market assessment 'opinion' from a local commercial realtor.

I have no experience on stratifying a property but there would be some substantial legal work involved to create the right covenants and bylaws for strata title. The land would be defined as common to the 5 units and each unit would have to be assigned a percentage of the common area for title and operating expense assignments.


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## nobleea (Oct 11, 2013)

Residential pricing can see a lot more variation as it can be purchased with emotion. So finding overvaluations is not hard there.
Commercial is usually very black and white. There still might be some overvaluation, but in general there's lots of cool cucumbers on the buy side and not much emotion.


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## Just a Guy (Mar 27, 2012)

Cap rate is only one way of determining value of a property. If it makes you feel better I see properties selling with less than a 5% cap rate and people think that’s a “good deal” these days. Cap rate is rather silly in my opinion because the numbers can be easily manipulated and will be different for me than for you. 

With commercial real estate the real value can depend on a lot more things including the local economy. It’s not valued the same way as residential real estate. It usually doesn’t appreciate as much as residential. This is normal for commercial real estate. You make your money on cash flow from commercial real Estate.

You need to determine what kind of a real estate investor you are. It’s difficult to be one looking for cash flow, flipping properties, being a developer, doing condo conversions and going for capital gains all at the same time. Pick one, learn how to do it. Right now you’re shotgunning and getting disappointed even though you have solid cash flow. 

I’ve seen plenty of condo conversions in my day, most of them failed miserably and people lost their shirts. No, you can’t sell the property separately unless you establish something like a 99 year lease on the units. No one should ever buy a house where the landowner could tear down the building right from under you. The land is part of the common area. If you don’t know what you’re doing, converting the property to a condo can turn into a nightmare.


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## Toddbrown (Mar 28, 2019)

Just a Guy said:


> You make your money on cash flow from commercial real Estate.


Unless you also bought using a mortgage, in which case your banking cash flow plus building equity right? If im paying lets say $10,000/year towards principle and making $10,000/year in cash flow as well, then, assuming theres no depreciation of the asset im really making $20,000/year.



Just a Guy said:


> Right now you’re shotgunning and getting disappointed even though you have solid cash flow.


My disappointment is over doing the renovations and not seeing there being a return on that investment. It hasn't changed the cash flow much, I was hoping where it would pay off is appreciation of the property value but if cap rate valuation is what I would use for resale value then I don't see any real return on that renovation investment except to say it extended the economic shelf-life of the property.




Just a Guy said:


> I’ve seen plenty of condo conversions in my day, most of them failed miserably and people lost their shirts.


Why? What is the real threat in doing that? Are you implying they failed because the cost of doing the conversion was not worth the final profits after selling the units? Or is there other factors your alluding to? Curious to learn more about this. Not saying i'd do it, but im open to learning, preferably from the mistakes of others.


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## Longtimeago (Aug 8, 2018)

The first two questions that come to my mind after reading all this are what city is the building in and what country do you plan to live in if you have chosen one already. To me, those will impact any advice on what to do with the building you own.

The next question that comes to my mind is how are you determining what is a 'prime location'? In many small 'cities', downtown cores are dying and all the business is being done on the outskirts where the big box stores are located. Thus the question of what city are you talking about. What was the 'main street' in the past is no longer a prime location at all in many places. This question may also be relevant in terms of what to expect in the future since you are talking about how it will fit your longer term plan.

This question of 'prime location' also seems even more relevant to me when you say your parent's duplex is appreciating far more than your building and it makes no sense when you say, "_I also last year watched a TRIPLEX go up for sale in my city and sell for over $980,000 dollars. An ugly triplex in a somewhat "ghetto" part of the city. Im sure my buildings units are much better, its land is waaaay more prime,_" Real estate values are all about location which means the triplex location is obviously more 'prime' than your location by definition. OR your valuation is way off base. Have you asked a realtor to give you a valuation of the property or are you relying on your own valuation alone?

Finally, if your longer term plan is to live outside of Canada permanently, that will impact the tax implications of owning property in Canada and perhaps even being subject to double taxation depending on which country you choose to live in. That one consideration alone could be all it takes to say, 'sell the property' and start investing in the country you intend to live in.


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## gardner (Feb 13, 2014)

It looks like it nets just under 40K per year. Is there a problem with that? Do you NEED to extract capital from it for some reason?
Worrying about its capital value is pointless unless there is some reason it affects you -- if you need to re-mortgage it or sell or something.

If you need a valuation, I would go to an accredited appraiser.


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## Beaver101 (Nov 14, 2011)

Sounds like he's worried that his property hasn't appreciated fast enough in the 6 years he has owned it, as compared to others. But then he can claim a capital loss at the end given all that CCAs used already.


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## AltaRed (Jun 8, 2009)

gardner said:


> It looks like it nets just under 40K per year. Is there a problem with that? Do you NEED to extract capital from it for some reason?
> Worrying about its capital value is pointless unless there is some reason it affects you -- if you need to re-mortgage it or sell or something.
> 
> If you need a valuation, I would go to an accredited appraiser.


^+1 Get a freaking appraisal if one needs to know market value.


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## Mukhang pera (Feb 26, 2016)

Toddbrown said:


> 6) If I stratify the building, sell off all 5 units, what then happens with the land the building is on? Can I sell that also, as like a 6th item and if so does whoever buy that land also buy the "strata" of all the units meaning they become responsible for managing the strata?


First of all, I am not sure why so much concern over cap rate. As JAG suggests, it's a rather elastic and meaningless concept.

Also, as he suggests, no, you cannot stratify the building and retain the land. The land will become part of the "common property" subject to (in BC) Form 1 unit entitlement. It sounds like you do not have much experience/knowledge of various forms of landholding in BC, and seeking to significantly change the nature of your present holding without really knowing what you are getting into is not a great idea. A visit to your city planning department will tell you if conversion to a mixed-use strata corporation under the Strata Property Act is even possible under current zoning. And, for a newbie, I would not suggest a rezoning application. And I would consider even less something like 99-year leases.



Toddbrown said:


> WHAT WOULD YOU DO?
> A) Continue to hold the property, let the equity build and the mortgage get paid off
> B) Accelerate mortgage payments using the surplus income to speed up the process
> C) Sell the entire building as is
> ...


All of these depend on your own view of things. It sounds like you are somewhat dissatisfied with your investment, mainly because you look around and see others' investments that appear to have fared better in terms of capital appreciation in recent years. I suppose the real question is, leaving aside such artificial constructs such as cap rate, how content are you overall with what you have and is there some other investment with which you think you can do conspicuously better if you go to the trouble and expense of selling the current asset and moving your money elsewhere. If you bought your property as a long-term proposition to generate rental income, then the value of the underlying asset at any point is of little importance. Who cares if it's worth $100,000 or $1 million as long as it shows a satisfactory cash flow?

I might consider your options A and E, more than the others. But that's based on very little knowledge. I don't know what city we are talking about and whether it might be seen, in general, with significant upside potential and long-term ability to attract quality tenants and rent levels that will at least keep place with inflation. You say the city is a "boring little place". That does not sound like a hot prospect for long-term attractiveness as a rental or from a capital gains perspective.



Toddbrown said:


> MY GOALS IN LIFE
> At this point in life I live overseas, outside of Canada. Im tired of cold weather and my city back in Canada is a boring little place. I lived there long enough and lost all interest in living there anymore. I intend to buy property overseas and build a home. Thats a whole other can of worms and I don't really seek to discuss that in this thread at all. I'm just pointing out my long term goals incase that shapes anyones reply to this.


Your statement of life goals also leads one to ask about other assets/income sources. Your identified location of Phils and BC suggests you are living in the RP and intend to remain here (I am in Iloilo at this writing, but I will be in Cebu later today - we are 16 hours ahead of most of BC). So, will your BC real estate be the main source of what you will live on in the PI? Are you earning income otherwise, have you or will you have pensions, etc? All of that will have a bearing on how to deal with what you have in BC.

Also, how is the BC property being managed? Are you doing it from abroad? Do you have a manager? Are you content with whatever arrangement you have.

And, while you have not invited discussion on the topic, let me say that any plan to buy land and build in this country can indeed be a can of worms. I am sure you know already that you cannot own the land directly. You may own a condo or building on land. You will hear talk of how to circumvent the rules, but it mostly comes back to the answer to this simple question: How you you make a small fortune in the Philippines?....Start with a big one!

Mabuhay pare. Ingat ka palagi.


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## Longtimeago (Aug 8, 2018)

Ah, I missed that he shows himself as resident in BC & Philippines. That then puts my 'retiring overseas advisor' hat on and the Philippines is NOT on my list of suggested countries to do so for various reasons. I realize it is a popular country for retirees on a meager budget but cost of living does not equate to quality of life. There are better countries to try living in if you can afford them. I always suggest retiring in a country with the highest quality of life that you can afford, not the lowest cost of living.

Here is a list of how Expats rate quality of life in various countries. https://www.internations.org/expat-...ious factors from six,scale from one to seven.
Bear in mind that this ranking is purely dependent on how many expats responded to the survey(with a sample of 75 or more) and their subjective ratings. But nevertheless, it still provides at least a decent set of rankings even if someone might argue one country should be a bit higher or lower in the rankings. At 56th, no bias is going to get the Philipinnes up to anywhere near a decent level. Canada by the way is ranked at 11 in this survey which might surprise some people. Just remember, it is on quality of life, not cost of living and it is ranked by Expats.

I agree with Mukhang pera who suggests that the way to make a small fortune is to start with a large one, that is in fact true of a lot of countries where people try retiring, not just the Philipinnes. After 7 years of living in Greece for example, of the literally hundreds of people I saw come to live on their 'island paradise' from other countries, I never saw ONE leave with more money than they arrived with. As an observation (no empirical data), for every 10 I saw arrive, 5 were gone within 2 years and only an average of 2 out of 10 were still there beyond 5 years. 

The primary reason for such a low number staying longer seems to me to simply be the difficulty people find in adapting to 'different'. Unfortunately, there is no way to know if you will 'stick' or not unless you try it. So I never say someone should not try. But I do say, do not make any major commitments such as buying or building a house until you have been in the country at least 1 and preferably 2 or more years. I never saw anyone leaving, sell a house for as much as they paid.

In terms of the best countries for quality of life without reference to expats and with a bit more objective methodology, this well regarded list may surprise some as it shows Canada as the number 1 country to live in. https://www.https://www.internation.../news/best-countries/quality-of-life-rankings

I find it interesting that the OP says he is tired of his small town and gives that as a reason to move countries. Canada does have other towns. For rankings on cities, the Mercer Report is well regarded. https://www.mercer.com/newsroom/2019-quality-of-living-survey.html In their rankings you will find Vancouver ranked as the 3rd (tied)best city in the world for quality of life and first in N. America. The best the Philipinnes gets is 137 for Manila.

The Economist's rankings show little difference. https://www.economist.com/graphic-detail/2019/09/04/vienna-remains-the-worlds-most-liveable-city

If planning to retire overseas, again, my advice is retire to the best quality of life you can afford.


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## Mukhang pera (Feb 26, 2016)

LTA's comments generally agreed with.

The Phils is one of those countries one sees written about in such terms as "Live like a king in the Phils on $1,000 a month." Well sure, but then one can live almost anywhere on $1,000 a month if that's all one has. But, as LTA suggests, coming to this country on a meager budget means one will have to live pretty close to the ground. One must "go native" so to speak.

LTA's advice about an exit strategy is also sound. It's unwise to move to a place like this, not knowing how it will work out, unless one can reverse the process and have lost nothing. Some come to places like this and get marooned. They can hardly afford to stay and can afford less to return whence they came and pick up where they left off. The numbers here I would say are close to LTA's. Probably about half eventually go home and a few more would, if they could. Too, I have never seen an expat clear out and leave with as much money as they had on arrival. And as for "putting up a business", one should do that only with money one is prepared to lose. Do not expect success. I find it odd that expats who worked in such things as union jobs their whole lives, who never ran a business at home, come to a place like this and think they can outdo the locals and become successful entrepreneurs. 

When I lived here for a few years (which ended almost 20 years ago), I lived with my SO in a suburb of Manila. We both had significant incomes by Phils standards. We lived in a big house in a gated community, with live-in staff - maids, gardener, driver. We went through at least $10,000 a month. It was comfortable. Not living like royalty, but living well. I see moving back full-time as unlikely. But visits here are great. A nice break when weather is less favourable than Canada. Also, I speak Tagalog (or Filipino), which I find a blessing. I don't care to spend much time where I don't understand what is being said around me and I where cannot communicate with the locals in their own language. There's a thread on this board right now getting a lot of mention of the virtues of Mexico. I have tramped around Mexico a fair bit, but never seemed to pick up much Spanish, so I really do not enjoy being there much. I still feel like a tourist and someone who does not belong. I am guessing that those cmf folks who spend months every year in Mexico have mastered Spanish. I am not so sold on Mexico that I am motivated to try.

Anyway, getting back to the OP's query, apart from not knowing where is his boring little town, there's much we don't know that would be relevant. Some of it to which I alluded already, such as where does the real estate holding in question fit in his overall resources and planning. He might have $10 million in other assets and various other sources of income, in which case how he deals with this particular asset is of little moment. On the other hand, if it is, or will be, his main asset base and source of income, then yes, it needs to be carefully considered.


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## Longtimeago (Aug 8, 2018)

I would venture the opinion that most do NOT learn the language of the country they move to Mukhang pera, that has been my experience. Those who 'snowbird' in Puerta Vallarta etc. for the winter even less so than those who move full time to another country. 

In many places where expats retire to, the majority of them tend to mix primarily with other expats and do little to integrate. A prime example would be Brits in Spain. There are places there where Brits outnumber the locals and no attempt to learn Spanish is made by 95%+ I would say. The same exist in places like Panama, Costa Rica, Mexico, etc. where they live in purpose built expat communities.

I didn't mention starting a business but do agree 100% that almost all fail. One of the things that amazes me, is how many people seem to leave their common sense behind when it comes to putting money into a business or house. People who here in Canada would not dream of buying a house without having a house inspection done or making sure they had a lawyer do a title search, go ahead and buy a house only to discover their mistake one day when someone knocks on the door and says, 'hey, this is my family's house, I own 1/4 of it, my cousin had no legal right to sell it to you.' This exact scenario has played out countless times in Spain and Greece for example that I know of first hand. In some Central American countries, an expat leaves for a few weeks to visit family and friends in their home country and return to find someone squatting in their house. Perfectly legal to squat in an 'abandoned' house in those countries and very difficult then to get them legally moved out. 

As for starting a business with which someone has no previous experience, I have seen that countless times as well. A restaurant, a wind surfing business, a bar, a bicycle rental company, etc. etc. In popular tourist areas, some people seem to think that if they open any kind of business that caters to tourists, they can't fail. Then they discover how the locals will insure that they do fail.


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## Mukhang pera (Feb 26, 2016)

Longtimeago said:


> I would venture the opinion that most do NOT learn the language of the country they move to Mukhang pera, that has been my experience. Those who 'snowbird' in Puerta Vallarta etc. for the winter even less so than those who move full time to another country.
> 
> In many places where expats retire to, the majority of them tend to mix primarily with other expats and do little to integrate. A prime example would be Brits in Spain. There are places there where Brits outnumber the locals and no attempt to learn Spanish is made by 95%+ I would say. The same exist in places like Panama, Costa Rica, Mexico, etc. where they live in purpose built expat communities.


I think you are right, LTA. Thinking back, most of the snowbird types I have encountered in Mexico tend to stick with birds of a feather. I recall almost none being able to converse much in Spanish. Same in Belize where I used to go often. I have been in Costa Rica only once, for a short time, visiting a friend I used to dive with in Belize. He moved to Costa Rica and I know he did not speak Spanish and never spoke of trying to learn. 

Learning a foreign language is probably unimportant to one who spends a month or so in a foreign land each year, but if it turns into anything like half of each year, I cannot imagine not wanting to make a major effort to learn the language. Even if one does not become a fluent speaker, the ability to at least understand the gist of what is being said around one makes the experience more enjoyable (and even safer).

One thing one reads about where I am now, the Philippines, is that it's a good place for expats because the locals speak English. True, most can speak some, if pressed. Some speak quite well. But, even those Filipinos most fluent in English do not use it among themselves. You won't hear English on the street. If you move here, you will most certainly always be a foreigner if you do not learn the language used by the locals. But, as you have said LTA, now that I think about it, I have met very few expats here who can say more than a few words in the national language or in any local dialect. They seem distinctly unmotivated. In fact, one Brit I had as a neighbour when I lived for awhile in Tuguegarao, was positively hostile to the notion that he should learn. Me, before coming here for the first time long ago, I took Tagalog at night school in Vancouver, I bought books, CDs, etc. I applied myself to the task and it was so worth it. 

I was motivated to learn the language of this country, knowing I would be living here for awhile and visiting often, because of my experience growing up in Toronto. In days of yore, Toronto was said to have more Italians living there than in Florence, Italy. I had a summer job working in a family member's business. Most of the labourers employed by the business were Italian, some Portuguese. Many had lived in Canada for years. Only a few of them spoke even a smattering of English. As a kid, I thought that was disgraceful. It struck me as wrong to adopt a new country and not do all one could to assimilate. I understand assimilation to be a bad word today. But that was then my view. I have carried that memory with me and, on moving to the Phils, I was determined not to be like one of those Toronto Italians of whom I disapproved, for their intransigence about learning English.

This is all something of a diversion from the OP's post, but I think the OP has left the building. He has received a number of on-point responses he has not deigned to acknowledge. But that judgment might be harsh. He could be in one of those many parts of the country with no internet. Or he is battling malaria, dengue fever, a cobra attack, or has been kidnapped by the Abu Sayyaf.


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## Longtimeago (Aug 8, 2018)

There are a couple of other points I think should be taken into consideration.

First, there is a difference between a retiree who moves full time or snowbirds and an immigrant who moves 'for a better life for the family'. Most retirees or snowbirds do NOT see themselves as immigrants in that other country. A Brit in Spain remains a Brit even if they have lived there permanently for 20 years. Few would ever say, 'I'm Spanish'. Your Brit neighbour in Tuguegarao was probably in that group. It is a psychological difference from an immigrant who comes to Canada to make a new life and becomes 'Canadian'. My wife lived all her life in Scotland until we moved to Canada and has now been in Canada for 13 years. She refers to herself as Canadian, to Canada as her home and the most telling way of knowing this is when she listens to something on the news and then comments about what 'we' (Canadians) should do. She 'includes' herself without even thinking about it. 

Most immigrants do make the effort to integrate and become 'Canadian'. But I do know what you mean about Toronto Italians or Greeks or whatever. My best friend in public school was born in Greece as I was born in Scotland. In public school, we did not think about are we Greek, Scottish or Canadian but we grew up to think of ourselves as adults, as Canadians.

His parents did eventually learn English but it was very limited for a very long time. His Father worked in a bakery 6 days a week. Went to work every day at 5am and everyone in that bakery was also Greek. Where was he going to learn English? He worked till 3pm, came home and went to bed by 8 or 9pm to get up again at 3-4am. His wife was a housewife, her job was to take care of the children, the house and to cook 3 meals a day. She had little time for anything else either. What I am saying is that for an immigrant whose first language is not English, learning English will depend on their environment and also their age. It is harder to learn a new language the older you are when you begin as we know. It was much easier for my parents whose first language was English than it was for my friend's parents.

So it never bothered me when I went to my friend's house and his parents spoke only a few words of English. I learned very quickly how to say please and thank you to his Mother in Greek. If my friend had not learned English and his parents had encouraged him to only speak Greek, that would be another thing entirely but they did not, they expected him to do well in school and do well in life, that is what they came to Canada for, not so much for themselves as for their children.

But I also know that my friend who was the oldest of their children, was expected to translate and explain a lot of things for them including politics. They did get Canadian citizenship and they did vote in elections. I would say they did integrate in most ways and become Canadian, they were just Greek speaking Canadians that's all. My wife did not come to Canada at age 53 speaking a language other than English and from a very different culture. That I am sure has made a huge difference in how easy it was for her to integrate. I am sure my friend's parents were proud to say when on a visit to Greece as they got older, that they were Canadian. Believe it or not, I have heard my wife when on a visit to Scotland last year say to someone, 'we are Canadian but we were born here'. What does that tell you?

Retirees and snowbirds generally are not moving for a better life for their family and they are generally moving to a poorer country, not a country with a higher quality of life etc. They do 'look down' on locals as not being their equals. That's the psychological difference I believe that results in most of them not wanting to integrate. In their mind, they never leave home in a way. It's why the biggest reason many don't 'stick' as I said, they can't accept different. They want things to be the same as 'at home'. Where they are is never their home. They have only one 'home'.

I remember well someone in a little local kafenion I frequented in the village where I lived in Greece, saying to me one day, ' yes but, you are Rhodian'. He was referring to how I perceived something being talked about and he was saying I saw it as a local islander as opposed to someone from Athens would and nothing like what a 'foreigner' would see it. I took that as a great compliment. My Greek never got past the elementary stage. I have never been good at learning languages. I failed high school french every year. But I did think of myself as Rhodian after having lived there for 7 years. It has been almost 20 years now since I lived there and I still think of it as 'home' in some ways. As I do Canada and Scotland. What's that saying, 'home is where your heart is', not necessarily just where you live and I for one see no reason why I can't have more than one country I think of in some ways as home. I have a fourth as well, Switzerland. I speak English fluently obviously but I speak only a very little Greek, German, Italian, French and no Romansch at all.

So, I don't think you have to speak a language to consider a place home and some who do speak a language still do not consider a place home anyway.


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## Longtimeago (Aug 8, 2018)

To the Original Poster. If you are reading this, it is considered simple good manners to at least acknowledge you have been back and read what has been posted.


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## moderator2 (Sep 20, 2017)

Toddbrown said:


> Unless you also bought using a mortgage, in which case your banking cash flow plus building equity right? If im paying lets say $10,000/year towards principle and making $10,000/year in cash flow as well, then, assuming theres no depreciation of the asset im really making $20,000/year.
> 
> 
> 
> ...


Toddbrown is a new user, and his posts were not visible under approved. His above post should now be visible to everyone.


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## Just a Guy (Mar 27, 2012)

You’d better make cash flow with a mortgage, otherwise you probably have a bad investment. Personally, I finance my properties 100% so I technically get infinite ROI. Your calculations of 20k are correct. Many people fake the positive cash flow by not accounting for all the money involved. Say they ignore the downpayment for example. I always account for all the money in my calculations. 

Renovations, unless you’re doing it to sell. Rarely increase the value of the property. I don’t factor that in personally as any new tenant can quickly destroy the improvements. There is also a difference between my renovations to sell and my renovations to attract a tenant. I’m not sure why you care so much about paper profits, they don’t do you any good other than bragging rights. You’ll find out the true value of your property the day someone writes you a cheque, until then the value is just in your mind. 

As for the conversions, it’s a difficult process, not one for rookies. In most cases, the idea that you can sell individual suites for more than the building is often a misconception. Many people tried this in the past when there was a shortage of first time housing. The early birds cashed in, but the people who came later discovered a little known truth at the time...

People don’t consider a rental apartment to be the same as a first time home and most aren’t willing to buy them. 

So, people went through the time and expense to stratify the building, sold then to family and friends to pay the costs with promises of good profits, only to discover the market went back to the price of a rental unit, so basically the same price per door of selling an entire building. 

So, to state the mistake clearly, it was converting the building in the first place. I make a good profit from buying individual units of stratified buildings once the “investors” get foreclosed on.


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## Eclectic12 (Oct 20, 2010)

Mukhang pera said:


> ... Your statement of life goals also leads one to ask about other assets/income sources. Your identified location of Phils and BC suggests you are living in the RP and intend to remain here ... So, will your BC real estate be the main source of what you will live on in the PI? Are you earning income otherwise, have you or will you have pensions, etc? All of that will have a bearing on how to deal with what you have in BC ...


All good questions ... but isn't the elephant in the room whether the OP plans on cutting residential ties to Canada, in order to live full time in the Philippines? 

If so, then my understanding is that the RE will be subject to a deemed disposition as of the departure date triggering capital gains taxes (aka departure tax).
It may make sense in the long run (IIRC Philippines does not charge capital gains taxes) but may mean needing a fair amount of cash to pay the taxes.

https://thecatalystgroup.ca/leaving-canada-the-canadian-departure-tax/


As well, it seems the rental income will be subject to a flat 25% non-resident withholding tax that won't be reduced by tax treaty. There's an alternative method where one has a Canadian resident agent plus a NR6 form is filed a Canadian tax return and one is up to date on filing a regular Canadian tax return.

https://www.marcil-lavallee.ca/en/r...t_page-----4b17de992910----------------------


Cheers


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## Longtimeago (Aug 8, 2018)

There are several potential elephants in the room Eclectic12 but without more detail, they cannot be addressed.

For example what you bring up is relevant but ONLY if the OP does not plan to dispose of the property before becoming officially non-resident in Canada. 

Another elephant in the room is how old is the OP? That would matter in that if s/he is in say his/her 30s and does not plan on a permanent move until they are 60 or more, that time span means discussing it now makes no sense. The entire world can and most likely will change in 30 years. If on the other hand the full time move is only a couple of years away, then looking at it now is relevant.

There are all kinds of factors that may be relevant and often with posts like this one, what the OP doesn't know to tell us or doesn't know to ask about will change the advice given entirely.


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## Toddbrown (Mar 28, 2019)

Hey guys,

Sorry i've been tardy to reply but been so busy with traveling. Ill try to answer questions and clarify some things that were asked.

- The market of the asset is the comox valley. Its got its own dynamics, the valleys been in a boom for awhile (since I bought the property) but thats a residential boom. The downtown commercial core of Courtenay has been experiencing a bit of a revitalization due to new businesses moving into available units in the area and proving popular establishments. I know in a lot of smaller cities the commercial cores are dying but I think the Courtenay core is a really desireable location for all the small businesses to wnat to operate. Its the only place in the valley with good foot traffic and alot of events get held downtown which brings in a lot of people during those days.

- My parents are managing the property for me free of charge. The thing is as I mentioned its turn key and all my tenants are reliable hassle-free tenants, so they just pickup/deposit rents once a month and chit chat with my tenants about any problems they are having.

- Im 35 years old. I bought without help from anyone using money made in the retail industry working for myself. I loaned the down payment from personal funds (tax already paid) to the hold co to buy the property, creating a substantial shareholder loan owed by the hold co to me that I can withdraw from the hold co any time without having to pay tax on it. As of right now that remaining amount is about $100k. I intend to withdraw from the hold co and invest a sizeable chunk of that money into stocks very soon through a TFSA brokerage acount... which is a whole other topic to discuss which I intend at some point soon to make a new thread about that here in the relevant section.

- I have a second corporation thats my operating corp which is one of the tenants of my holding corps building (and the holding corp owns shares in the operating corp), the op co leases the $1,250/month unit from the hold co. The op co is involved in retail industry and is my primary source of money. I get money (personally) from the op co by it paying a dividend to me as a shareholder, the dividend caps out per year at whatever that years tax-free allowable limit is (its usually around 30k mark).

- Because op co rents from hold co and something to do with "closely connected cororations" (im still not 100% educated on that), the rent that op co pays for the unit never actually deposits into the hold co account each month. Instead it all happens on paper and my accountant deals with that for me. So even though on paper hold co is pulling the afore mentioned incomes, in terms of funds physically in hold co's bank account that monthly payment from op co's unit does not manifest into the account balance.

- I would think selling the property before becoming a non-canadian resident would be the aim. But I do not know when I would intend to become a non-resident. My accountant advised me to retain residency because it would impact both my hold co and my op co. Also selling the building would only seem most relevant once my op co has outlived its retail lifespan as a business and I shutter it (or sell it). Because the primary reason hold co came to exist and I bought the building originally was because my op co needed a better space to operate in. 

- The line drawn by CRA regarding residency status is very murky waters. I've struggled to find clarification from anyone I can but nobody knows the exact point or criteria that will trigger you being no longer considered a resident of Canada. My accountant has a client who he told me was out of the country for 1.5 years and came back without having lost his residency status as a Canadian. I've been out of the country for about a year now but im still filing both corporations taxes and my personal taxes in Canada and I still pay an electric bill for my apartment back home which is one of the units being rented (short term).

- My op co has been producing less income these days verse times past. Its due to changing industry landscape and a variety of emerging regulatory challenges involved. This money has been my source of income whilst living abroad (I do not use any of my hold co profits off the building, those are just idle in the bank account for now). I've been spending my time in the Phils traveling (as was the case with my absence from replying to this thread). The current moments goal is just to enjoy life as I spent the past 10 years working my butt off to get my life to this point. But I still like to contemplate what all my options in life are and thats what this thread was about was exploring my options more.

- Quality of life scores aside the Philippines is the type of country that really appeals to my hobbies and interests. Its in the coral triangle and my preferred hobbies involve free diving, SCUBA diving, surfing, and beach lounging. Philippines is a mecca for that type of lifestyle. Theres a ton of wonderful places here. Im well aware of the challenges with living here. I've been trying to enjoy my life more and have done exactly that whilst being here.

- To Mukhang, I was just in Cebu and also Bohol for my first time over xmas/nye. My fav is Palawan though which i've been to 3 times now and will go a 4th time in the coming weeks. I'd love to buy a big chunk of land outside Puerto Princesa and build a ranch/farm. Im well aware that foreigners cannot own land directly but theres several options for going around that. Not saying I am going to, but its just something i've always dreamt of. If I did that it would be after selling my real estate asset back in Canada almost certainly.

Hope that clarifies some things that were asked.


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## Longtimeago (Aug 8, 2018)

I see your situation has having two distinct parts. What to do about your business and property and what to do about wanting to live in another country. I will respond only to the second part here.

Re legal Residency status, there are different rules for different things. For example, your eligibility for health care in BC probably says you lose 'residency status' after an absence of 6 months. For CRA, they will attempt to 'deem' you resident using any reason they can find. So owning property is one such reason but so is just having a bank account in Canada or a driving license. To be 'deemed non-resident for tax purposes' by the CRA took me 3 years after leaving Canada, to achieve. You basically have to cut ALL ties with Canada. Paying that electric bill for example is probably enough to keep you from being 'deemed non-resident for tax purposes.' 

So yes, you will have to sell to become 'non-resident' or 'deemed non-resident for tax purposes' by the CRA. Your accountant's advice there makes sense but the comment about someone being away for 1.5 years without losing residency does NOT make any sense to me at all. If you are a Canadian citizen you will never lose the right to residency in Canada unless you renounce your Canadian citizenship which you should certainly never do. When talking about legal residency, you always have to make it clear just what you are talking about. The criteria differ for being resident for Provincial health cover, income tax, the right to live in the country. Confusing the criteria for one with the criteria for another may be part of the reason you find, " nobody knows the exact point or criteria that will trigger you being no longer considered a resident of Canada."

For CRA purposes ONLY, read here: https://www.canada.ca/en/revenue-ag...x-credits/residency-status-determination.html

Look at the list under 'Ties with Canada' found here: https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/nr73/nr73-17e.pdf Basically, if you tick any of those boxes the CRA will probably try to say you remain 'deemed resident' for tax purposes.

Re what you will do after you leave Canada, that is yet another question entirely. You do not say for example what you would do for an income if you decided to settle 'permanently' in the Philippines (assuming you can legally do so).

I would also caution you that what looks good at age 35 and what looks good at age 65 are rarely the same thing. After years of living abroad in places that suited my interests and needs at the time, here I am back in Canada because it is one of the best countries in the world to live in, in so many ways. That's why I say you should never renounce your Canadian citizenship, it's your insurance of being able to return if you chose to do so one day down the road. 

Having spent time in quite a few countries, I have my own idea of the best countries to live in and particularly when retired and growing older. Interestingly, my own two top picks are the same as the recent US News report. https://www.usnews.com/news/best-countries?src=usn_pr

My first choice would be Switzerland but I can't afford to live there. Canada is my second choice and I can afford to live here and so I do once again. Cost of Living rankings become less important as you age, it is Quality of Life that matters most. At 35, I realize your view will differ from mine, but one day you will be the age I am now. My guess is that at some point you will no longer find some countries as appealing as they are now.


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## Mukhang pera (Feb 26, 2016)

Thanks TB for returning to this thread and providing a bit more info.

I am back in Canada and thinking I should have stayed in the Phils. Woke up to a foot of snow today. I am not far from Campbell River and I know Courtenay somewhat. We make regular Costco runs to Courtenay. I know from a few Lower Mainland types, who have relocated to the Comox Valley in recent years, that what you say about a residential real estate boom is true. Maybe running out of steam now, I don't know. I have no firsthand knowledge of that and I really know nothing about the commercial real estate environment there.

Thank you for the note about the Phils. I too like Palawan a lot. When there a few years ago I looked at a house in the Baker Hill area of Puerto Princesa. It was a big box of a place, reminded me of the type of houses being built on the west side of Vancouver in the 80s, when builders started buying and demolishing the old houses and putting up monstrosities with as many square feet of floor space as the law would allow. It was priced at about CAD725,000! Kano price, I suppose.

As I alluded to in an earlier post, be cautious about the "going around" solutions to land ownership in the RP. Part of the reason for my most recent sortie to the Phils was related to that very thing. An expat who had invested in land and a business, only to find himself excluded from it. I am not a Filipino attorney, but I know a few and I enlisted one from Makati to help out. He managed to salvage something for the unfortunate expat, but it was not quick, easy or cheap and there was still a net loss. 

I expect to be back on Palawan, in the far north, in March or April. I have an invitation as well, to visit the Babuyan Islands. Beautiful there (even though "babuyan" means "piggery" in Tagalog), but decidedly in the typhoon belt. No volcanoes though. That whole north end of Luzon, including such places as Santa Ana, Aparri, Claveria, are all worth a visit.

On the volcano topic, in 2002, I came very close to buying (well, my SO buying) one hectare of land at Talisay, overlooking Taal Lake and the volcanic cone on the middle of the lake. It was a beautiful lot and a fine view. On a hillside, but flat, with lots of space to build and grow things. There were mature banana and mango trees, as well as suha (pomelo), langka (jackfruit), etc. The price even then was unbeatable - about CAD65,000. We had made many trips to the Tagatay/Taal area looking at land and that was the best by far. I transferred the money to our account at the Equitable Bank and had our attorney neighbour check the title and poised to to the transfer when my SO got cold feet. So we killed the deal. I regretted that until just the last week or so. Since that time, one would never find a lot like that at that price. But now, with the volcanic eruption that is in the news, that hectare is under a thick layer of ash, I suppose. It lies in the evacuation zone. Reminds me of the Garth Brooks song - Thank God For Unanswered Prayers. We had architectural drawings for a very nice house we wanted to build on that lot. It would be a sorry mess now, I think. So now I can get over missing out on owning a place overlooking the lake and volcano.


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## Eclectic12 (Oct 20, 2010)

Toddbrown said:


> ... - I would think selling the property before becoming a non-canadian resident would be the aim. But I do not know when I would intend to become a non-resident. My accountant advised me to retain residency because it would impact both my hold co and my op co.


The it would seem you might be better to be more of a snow bird, living as much as possible outside Canada. It only partially meets your life goal.

You probably also want to make sure any capital losses are built up to reduce the capital gains as well as make sure you've planned with your accountant for what can be done.




Toddbrown said:


> ... - The line drawn by CRA regarding residency status is very murky waters. I've struggled to find clarification from anyone I can but nobody knows the exact point or criteria that will trigger you being no longer considered a resident of Canada.


 The factors are easily available ... where the primary ones are minimal or aren't in play, how the secondary ones add up isn't all that clear.

For income tax purposes to determine if you are Canadian tax resident, the primary residential ties are owning a home in Canada, a spouse/common-law partner in Canada and/or dependents in Canada. Secondary ties are personal property, social ties, economic ties (ex. bank accounts, credit cards), Canadian driver's license, Canadian passport and health insurance with a Canadian province or territory.
https://www.canada.ca/en/revenue-ag...-moved/determining-your-residency-status.html

There's also the possibility that where one is claiming to have moved to a new tax residency, a tax treaty between Canada and the new tax residency country may add tie breakers to the mix.
https://www.canada.ca/en/revenue-ag...etermining-individual-s-residence-status.html




Toddbrown said:


> ... My accountant has a client who he told me was out of the country for 1.5 years and came back without having lost his residency status as a Canadian. I've been out of the country for about a year now but im still filing both corporations taxes and my personal taxes in Canada and I still pay an electric bill for my apartment back home which is one of the units being rented (short term).


Sure ... but keep in mind Canada uses a self-reporting tax system. Where neither of you have filed a final tax return that spells out a date of departure (i.e. that you are emigrating) and nothing has flagged you to CRA's notice like say requesting a determination of your tax residency, CRA is going to assume you are still a Canadian tax resident.

There's nothing in it for CRA as the both of you are filing tax returns while paying through taxes for things you aren't in the country to use (ex. health care). If the non-resident taxes would be at a more favourable rate, it might be you who are losing out.


If you keep your op co and hold co running while becoming a Canadian tax non-resident, I'm not sure what the tax implications would be. I expect that the corps would lose their tax advantages (or at least some of them) as they would no longer be Canadian Controlled. It looks like at a minimum, the small business deduction would disappear.
https://www.taxtips.ca/glossary/ccpc.htm

It's likely why the accountant advised you to keep your Canadian tax residency.


Cheers
- My op co has been producing less income these days verse times past. Its due to changing industry landscape and a variety of emerging regulatory challenges involved. This money has been my source of income whilst living abroad (I do not use any of my hold co profits off the building, those are just idle in the bank account for now). I've been spending my time in the Phils traveling (as was the case with my absence from replying to this thread). The current moments goal is just to enjoy life as I spent the past 10 years working my butt off to get my life to this point. But I still like to contemplate what all my options in life are and thats what this thread was about was exploring my options more.

- Quality of life scores aside the Philippines is the type of country that really appeals to my hobbies and interests. Its in the coral triangle and my preferred hobbies involve free diving, SCUBA diving, surfing, and beach lounging. Philippines is a mecca for that type of lifestyle. Theres a ton of wonderful places here. Im well aware of the challenges with living here. I've been trying to enjoy my life more and have done exactly that whilst being here.

- To Mukhang, I was just in Cebu and also Bohol for my first time over xmas/nye. My fav is Palawan though which i've been to 3 times now and will go a 4th time in the coming weeks. I'd love to buy a big chunk of land outside Puerto Princesa and build a ranch/farm. Im well aware that foreigners cannot own land directly but theres several options for going around that. Not saying I am going to, but its just something i've always dreamt of. If I did that it would be after selling my real estate asset back in Canada almost certainly.

Hope that clarifies some things that were asked.[/QUOTE]


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## Toddbrown (Mar 28, 2019)

I got ash rained down on me pretty good in Manila when Taal first went. It was more sand than ash though. I'd gladly take ashfall over snowfall anyday however 

Northern Palawan is great, i've been to almost every part of the province except for the outlier Cuyo islands, Cagayancillo, and Tubbataha reef. Balabac down in the south is very nice too and practically no tourists and same is true with Linapacan area up north. I just got back from latest trip and it was as expected beautiful, did Port Barton and El Nido. This time I did some surfing both at Nagtabon beach near Puerto Princesa and Duli beach up near El Nido. Both offered better than expected surfing experiences which only served to heighten my lust for living there. The freediving is also great allover the province, but the best reefs I ever freedove were in Taytay bay just southeast of El Nido by about 1 hour. Namely a privately owned island called Abaton, you can visit it if you book island hopping through Casa Rosa hotel in Taytay town whose owner is the owner of that island. If your in that area and you snorkel/dive/freedive I highly recommend you go island hopping in Taytay bay theres very little tourism there and the reefs are the best i've ever seen anywhere in Palawan, or anywhere in my lifetime.

I've yet to get up to north luzon, ive been to the southern tip and allover the central area to as far north as la union and baler for surfing but no further than that yet. Im sure I will though, theres gotta be some good surfing up there.


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## Toddbrown (Mar 28, 2019)

As to the topic at hand, I appreciate the information clarifying more things with canadian tax residency status. It definitely seems to be in my best interest to maintain tax residency status for the time being so it's been a fair concern of mine as to where that line is truly drawn. It sounds like I should be okay with my current situation.

I have no intention to renounce my citizenship ever just to clarify that.

As to lifestyle, yes your right at 35 years old my priorities are a lot different on a personal level than they likely will be at 65, although I do hope I will be in good health to still partake in my hobbies at that age. I've known a few guys who even into their 60's were still incredibly active and fit people. I totally idolize that and aim to be the same as I get older but who knows what health matters may come into play in the future. I've always been a very physically active person in life so it would be hard for me to not live that way.

Thanks for all the input guys. I think I will just stay the course for now and focus on what to do with other funds for investment unrelated to my building while letting it build up a small nest egg of surplus funds to finance a future exterior renovation. Maybe talk with a real estate agent to get an idea of what they think its worth just to satisfy my curiosity.


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## Eclectic12 (Oct 20, 2010)

Not sure what the "renounce citizenship" part is about. I've heard of only two countries that tax based on among other things, citizenship - the US and Eritrea.

I suppose renouncing Canadian citizenship might matter if one wants citizenship in a new home country, where it does not allow dual citizenship. I didn't get the impression from the thread that citizenship in a new country was desired.


Cheers


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