Taxable Income VS Cash flow

[Steven Choi]

Hey everyone, 

New to investing in real estate. Been listening to and watching a lot on real estate investing but a lot of the content is US specific and I'm trying to verify this with seasoned investors for Canada. 

I understand how you calculate cashflow for a real estate investment. Where I am struggling is when you take into consideration the tax due because the CRA taxes you on taxable income (where the big difference being that you can only deduct the interest portion of the mortgage payment so even if you cashflow positive, you have negative earnings after taxes), I find it very difficult to make the math work unless you put high % down payment.

When you invest in Canada, do you only look at cash-on-cash return or because of the tax treatment in Canada, do you look at the taxable income as well? My view is that only looking at cash-on-cash return doesn't give a fully picture of the investment. 

Would love your thoughts. 

Thanks

[Derek Merdzik]

@Steven Choi, I'm not sure I fully understand. If you deduct only the interest portion, then you have even higher income than from just positive cash flow. For example:

2000 rent

- 1200 mortgage (550 principal, 650 interest)

- 400 condo fee

- 20 insurance

- 130 property tax

=250 positive cash flow (I wish!)

But from the CRA perspective you made 800 (250 cash flow + 550 mortgage principal paid).

As others have said, you can depreciate the property to offset this income and defer the taxes until you sell the property.