Monday, December 16, 2013

What Type of Landlord Will You Be?

 Rentals aren’t one-size-fits-all. Before taking the cheques to the bank, you need to decide what kind of landlord you’re going to be.

Student Rentals
 There’s great income potential here, if you’re willing to roll up your sleeves and do the work.
PROS:
  • Big rental potential: You can rent by the room, which increases your bottom line.
  • Expensive finishes not needed: No need for granite and hardwood here; units need to be functional, clean, and well done, but high-end materials won’t give you a return on investment.
  • School nearby = guaranteed tenants: I’ve yet to find a university/college town that didn’t lack student housing. You’ll have no problem finding tenants.
  • Parents: You can ask that parents co-sign the lease, so the default rate is very low.
  • Predictable rental cycle – school year starts, school year ends: Leases start and end at the same time every year, which means only having to deal with it once every 12 months.
CONS:
  • High/constant turn-over: You might only need to worry about renting once a year, but depending on how many rooms you have available, that still means a lot of applications and a lot of screening.
  • Not a lot of pride in rentership: It’s true, students aren’t always great a taking care of their temporary home, and not always the most responsible tenants. This isn’t always the case, but it’s something to keep in mind.
  • Maintenance: Student rentals require a lot of it, mostly due to turnover and neglect.
  • Tenants require more “babysitting”: You have to keep in mind that your tenants are often leaving mom and dad’s house and moving into yours. This means that even simple things like changing light bulbs or tripped breakers may result in a phone call or house visit.

Executive Rentals
Whether it’s a businessman in town for work, or movie crews on location, executive rentals can bring in big bucks, but also cost more up-front.
PROS:
  • Big money: Executive rentals can demand double or even triple what the same space would rent for in a regular rental situation.
  • Higher profile tenant: Generally speaking, you don’t have to be concerned about the quality of tenant you’re getting here.
  • Guaranteed income: Depending on our provincial rules, you may be able to collect all your rent upfront (if it’s a short-term lease) and collect a damage deposit (refer to your provincial policies regarding landlord-tenant relationships).
  • Profit: You usually only need to rent for half the year to make one.
CONS:
  • High turn-over: Most executive rentals are short-term leases, so turn-over is constant.
  • Unpredictable: Because of the nature of executive rentals, it won’t always be rented and there’s no certainty about when it will be.
  • The bells and whistles: High-end finishes, nice furniture, linens, towels, dishes -- they all need to be included. Throw in utilities, cable, internet, and regular cleaning service, and costs really start to add up.
  • Posting, applications and screening: Because of the high turn-over, landlord of executive rentals are constantly in a cycle of posting the apartment for rent, reviewing applications and screening tenants. Some people hire a placement/management company to take care of this, but if you choose to do so, that’s another cost that eats into your bottom line.

Secondary Suites
Secondary suites are apartments that exist within your own home.

PROS:
  • Longest term rental scenario: Tenants are likely to stay longer and take better care of the space.
  • Passive rental: Secondary suites don’t take a lot of time and energy.
  • Instant rental situation: You don’t have to purchase another property to be in rental situation with a secondary suite. Have a basement you can make into a legal apartment? Great, you can be a landlord!
  • Return on investment: Adding a secondary suite typically adds a lot of value to your property.
  • High demand: When done legally and safely, these types properties attract tenants everywhere. You don’t have to be downtown, like an executive rental, or near a school, like a student rental.
CONS:
  • Lower cash flow: You won’t bring in as much rent as you would with other types of properties.
  • Learning to share: You’ll be sharing your home with other people, which can be inconvenient at times.
  • Reno time: Unless there’s a secondary suite already existing, putting one into your home requires a significant renovation and may also require a zoning change.

Thursday, December 12, 2013

Five Reasons why you need to close on a home by the end of the year

If you are debating on whether you should make an offer on a new home before the new year, now is the time to stop deliberating and submit your bid. Between 2013 tax benefits, and avoiding mortgage rate roulette and changing lending rules, closing before the end of the year can offer significant financial benefits. Top mortgage and real estate experts share five ways you will benefit if you buy a home by December 31, 2013.

1. Avoid Rising Rates: Mortgage interest rates, while still attractive, are up 1 to 2 percent over this time last year. It's possible to lock in a 30 year fixed rate mortgage at about 4.5%. According to the Mortgage Bankers Association's forecast, mortgage rates will likely rise to about 5% in 2014. If you buy now and the rates drop, you can always refinance. If you wait and the rates rise you are stuck.

2. New Year, New Lending Rule: Lending rules will change on January 1, 2014 and it could be harder to get a loan. 2014's rules will allow you to borrow less, at your same level of income, says. 2013's current mortgage rules allow for a 45% total debt to income ratio; in 2014 this ratio will go down to 43%. What does this mean? You need to make or reduce your debt in order to buy the same house.

3. Easier Financing: If you are waiting for home prices to decrease don't. 2014's  mortgage changes could make it harder to get financing. So if you are looking to save a few dollars by waiting for home prices to drop, you could miss you window to secure a mortgage entirely.

4. Lower Sales Could Mean Higher Inventory: It's an after- Christmas sale before Christmas! While 2013's housing theme was limited inventory and high prices, historically, the fourth quarter of the year usually slows down the housing market and this year is no different. Housing sales have been declining since September so inventory has increased. According to the National Association of Realtors, existing home sales declined for the second consecutive month in October, while constrained inventory means home prices continue to see double-digit year over year gains. You may get the deal of December!

5. Maximize Tax Deductions: It's important to remember that if you buy before the end of the year, you can begin deducting interest and building equity immediately.  Some closing costs and points are tax deductible in the year you buy a home. Buying now allows you to include them on your 2013 tax return. If you buy even one week later in January, you have to wait s year for your 2014 return to take the deduction.

Monday, December 9, 2013

The Inside Scoop on the Best Season to Sell Your Home

Common belief has held that the best time to sell a home is in the spring, and the best time to buy is in the fall. Although there is merit to this argument, not everything can be so definitive and concrete. There are so many variables at play that all must be weighed before jumping into the real estate ring.

1. The Best Time to Sell Spring is most commonly believed to be the best time to sell. It’s the most agreeable weather for showings, most people want to get settled before summer, it’s easiest logistically for moving (who wants to move boxes and furniture through snow?), provides longer days and daylight, avoids the school season and shifting schools mid year for kids, and shows off the landscaping and gardens. However, this is also statistically the time with the most competing sellers on the market. This will affect you most if your home is one of many identical houses in a subdivision. Consider professional staging as a way to make your home stand out if forced to sell in this high-competition season. 2. The Worst Time to Sell Yes, the holiday season is not the ideal time to sell. People are busy or stressed out and are prioritizing family and holidays rather than home buying or selling. Mid December to mid January is the highest travel season, and thus there are fewer buyers around to view homes. There’s also the perception that you are desperate or need to sell if you are listing your home during this time. Buyers will try to be more aggressive with you as a result. However, it is a misconception to say that January and February are not ideal months to sell. The Toronto market has shown great sales in these months and these tend to be high transaction periods for my team. There are tons of buyers and activity on the market, and especially if the weather is moderate. 3. Show Off Your Home’s Best Assets Sell when the features of your home have the most impact. If you have a pool with beautiful stone work or tiling, be sure to sell your home in appropriate weather. Buyers will love your pool when they are viewing on a hot day or be dazzled by pool lights at night versus a pool cover with piles of leaves or melted snow in the winter. If you have tons of windows and skylights, show your home when the sun is shining and you can have the longest showing days (spring and summer). If you have a small bungalow, but an amazing landscaped garden, show when your garden is in full bloom. Buyers may be swayed by the sight of your garden and overlook other shortcomings. If you don't have central air, and you like your house hot and use lots of standing fans, sell your home in the fall or early spring when the weather is more moderate and appealing to the general masses. You can have the windows open for fresh air and avoid the clutter and noise of fans. If you have a showpiece fireplace, have it burning for late fall and winter viewings. Buyers will want to make some cocoa and curl up in your living room. 4. The First Weeks of Summer—Take Caution Cocktails, patios, and cottages, in no particular order or combination, are the holy trinity for Torontonians once the weather shifts into summer. After being cooped up all winter and during the wet spring, Toronto becomes obsessed with the outdoors and socializing. Good luck tearing potential buyers away from their summer holidays to come view your home during early summer. You will have a lot less action on your listing during this time. 5. Condos and Lofts Typically, condos and lofts have a longer sales period as freehold homes, given that the buyers are typically first-time home buyers, or do not have kids. The buyers are not restricted by school seasons and landscaping issues, and moving is less impeded by weather, as they have loading bays and elevators. You can always sell you home, regardless of the season, but you need to be realistic about the circumstances of your sale. Sometimes life forces your hand, but as long as you are realistic with your expectations and smart about your strategy, you should be able to maximize your value.


Speak to your realtor to advise you about the sellable features of your home, what is sought after in your neighbourhood, and what season will best showcase your home!

Monday, December 2, 2013

Canada Leading the Way in the Mortgage Market

If you are looking to buy a property, the good news is that there are still worthwhile mortgage deals available, despite the Federal Government’s recent moves to tighten regulations over home loans. In fact, the changes have helped to boost the property market, with price rises over the whole of 2013 looking set to top previous forecasts. Summer saw the real estate market in Toronto surpassing expectations, and, by the end of the year, the Canadian Real Estate Association has forecast that the average home price will rise nationally by 3.6%.
Sales in British Columbia are predicted to take off next year, and the C.R.E.A. predicts that price rises in the region during 2014 could be as high as 6.7%, even though the rate of increase looks set to slow nationally. All this is by contrast to the US, where the market has continued to struggle, although there are now some hopeful signs. However, the UK is following in Canada’s wake, with house prices recovering and a rise in mortgage borrowing.
Rates on Hold
The Bank of Canada has signaled that it does not intend to raise rates in the near future. This means variable rates, which are in some cases as low as 2.4%, may now be more appealing, because there is less risk of them shooting upwards. Meanwhile, for those who prefer the certainty of a five-year fix, it is possible to get a deal around the 3.89% mark. Determined actions have recently been taken to avoid the market overheating, and Ottawa has made major changes to the regulations, with new guidelines decreeing that buyers must now have a deposit of at least 5%, or 20% for buy-to-let loans. There are also stricter rules about the amount that can be borrowed when refinancing, and the maximum length of loans has been reduced from 40 to 25 years. Despite all this, mortgage lending is still rising and Canadians are now estimated to owe more than $870 billion in home loans to the chartered banks, a rise of around $60 billion since the start of 2012.
Inspiring Other Economies
As Canada’s economy gathers strength, it is providing an inspiration to other countries, including the UK, where trade leaders are currently involved in a drive to win Canadian investment. The British market is also following Canada in terms of growth in the housing market, with things starting to heat up there too. Recent figures from the UK’s Office for National Statistics showed that the British economy is now growing at the greatest speed since mid-2010, with an annual growth rate of just over 3.3%. However, the housing market is growing faster still, with prices soaring in the south-east and London in particular. With interest rates at an historic low, there are attractive mortgage rates available, and according to money.co.ukthe best current market rate is 1.49% for a two-year fix. Like their Canadian counterparts, the UK Government may come under pressure to take the heat off the housing market and prevent a bubble developing. However, in the meantime, there are mortgage bargains to be had.
In the US, the housing market has been struggling by comparison, but there are now signs that it is starting to follow Canada upwards. Despite a rise in mortgage rates, and problems caused by the recent shutdown, the market is currently gaining strength, and new figures from the National Association of Realtors showed that prices rose in nearly 90% of US cities during the third quarter of 2013. There are even fears of a price bubble in some areas of California, with prices having risen by more than 40% in just a year in Sacramento. However, in some other states, such as Illinois, prices are still falling, and nationally they are still well below the figures reached back in 2007.
As the world fights its way out of the downturn, there are nerves about what the future holds for the housing market, but the current signs are looking good, in Canada in particular, where it seems as if prices will continue to rise in 2014, but at a sustainable level, with no overheating. The hope is that the same will be true for the UK and the US over the year ahead.

Thursday, November 28, 2013

Think 'six' for an investor sweet spot

Given the current Canadian economic and institutional landscape, might I suggest "starting with six," six-plex, that is.
I think that the purpose built six-plex offers new investors their best opportunity to become a real estate investor as it sits in the sweet spot of a Venn diagram, where those three circles overlap. The number three, in fact, represents the key things going for six-plexes.
1. Manageability 2. Cap Rate and 3. Low Interest Rate.

Manageability
Most new investors want to be involved with their real estate investment as they see it being a new adventure (and rightfully so), they want to gain valueable knowledge and experience and they want to save the costs associated with hiring a superintedent and/or property manager. Managing six units may seem like a daunting task at first, but once you dive in, you will realize that it is not all that difficult as long as you are a well-organized individual who has a few hours to spare every week. While managing one unit (eg. condo) is an easier task, the superior return from a six-plex more than offsets the extra effort. Tips to help with efficient management of the property include:
• Ensure close proximity to property
• Try to get post-dated cheques from tenants
• Prepare a list of contractors (plumber, electrician, handyman)

Cap Rate
The cap rate for a multi-unit residential property typically has a directly proportionate relationship between the number of units and cap rate (until it reaches a plateau and levels off). For example, the cap rate for a six-plex is higher than a triplex, which is higher than a single unit. While georgraphy and location play a critical part in determining the cap rate for a typical six-plex, it is safe to say that the cap rate range is somewhere between 5 per cent to 6 per cent, which is significantly better than most condos and triplexes.
The six-plex lets real estate investors start to take advantage of economies of scale and thus provide a better return. Tips for those looking to maximize the return on a six-plex:
• Look outside the big urban centers and look to smaller towns university towns such as Kitchener-Waterloo, Guelph, Hamilton, etc.
• Look for purpose built six-plexes as they have better re-sale value and typically require less maintenance

Low Interest Rate
A low interest rate is the lynchpin to making the six-plex the best place to start for new investors. The math is simple, the cheaper your mortgage interest rate, the bigger the potential spread (difference between interest rate and cap rate) and bottom-line profit. Mortgage rates vary based on whether a property is classified as "residential" or "commercial." They are handled by different departments and have different rates. Commercial rates tend to be higher by a percentage point or two than those offered on residential properties. This is where the secret lies in maximizing your ROI on a six-plex. While just about every financial institution in Canada offers commercial rates for six-plexes, RBC offers financing on six-plex multi-unit residential properties at residential rates. This means getting mortgage rates in and around 3 per cent for a six-plex (at the time of publishing this article the rate of approx. 3 per cent was accurate, however, rates can change without notice).

In Summary
When you put these three components together (manageability, cap rate and low interest rate), the six-plex is the ideal starting point for new investors as it provides an investment that is relatively easy to manage, yet at the same time delivers a great spread of between 2 per cent to 3 per cent based on the economies of scale offered and financing available at residential rates.

Monday, November 25, 2013

Why real estate doomsayers continue to be wrong

Mandy Coz needs a lead. She isn’t the first sales rep from a nearby real estate brokerage to cold call my parents’ home in the suburbs on behalf of a family that badly wants to become our neighbours. But she’s the most recent and she’s on the hunt for a new seller. Her clients “lost out” on another property on our street. 
“This summer has been a bit unusual,” says the RE/MAX Premier Inc. sales representative, who’s located north of Toronto in Vaughan. When warmer weather hits and people start flocking to family barbecues, restaurant patios and cottage docks instead of open houses and showrooms, listings often languish. Not this year, though. More residential homes in Vaughan have been listed and sold in June and July compared to the same two-month period in 2012, according to data compiled by the Toronto Real Estate Board. The homes have sold for more too, with the median sale price up 6.1% year-over-year, translating into better business for local sales reps such as Coz. “Buyers are out in full swing. We’ve been busy during the last two months,” she says. “The market has been quite steady. It’s healthy.”
Her cheery descriptors and sunny outlook are a far contrast to the ever-growing list of bearish economists, industry analysts and even journalists who have issued grim warnings about Canada’s dangerously bloated household debt levels and the potential ramifications of a real estate bust on consumer spending, jobs and growth. But with forecasts ranging from smooth sailing to a soft landing to a U.S.-style crash, the future is foggy at best. For many, even those inside industry players, it’s confusing. “The more you cover the housing market,” says Robert McLister, editor of Canadian Mortgage Trends and a mortgage planner at intelliMortgage, “the more you realize it’s unpredictable.”

Instead of toppling after Finance Minister Jim Flaherty tightened mortgage-lending standards last year for the fourth time since 2008, Canada’s housing market appears to have stabilized and it continues to flex its resilient muscles as shown in the national housing statistics released monthly by the Canadian Real Estate Association (CREA). Existing home sales rose for the fourth consecutive month in June, up 3.3% over the previous month and nearly matching May’s gain, which was the highest monthly growth figure since January 2011. Likewise, the average sale price was up 4.8% on a year-over-year basis, with 80% of the surveyed major markets reporting gains.
BMO Capital Markets senior economist Robert Kavcic noted the figures prove the market is both “balanced and well-behaved” and another blow to the naysayers. Similarly, his colleague and BMO’s chief economist Douglas Porter called the market “incredibly calm, cool, and collected” in a May release. But Kavcic and Porter haven’t always thought this way. When the ratio of new listings to sales was driven to a nine-year high on Apr. 17, 2008, Porter declared the housing boom “officially over.” Two months later, a CREA monthly report that showed both prices and volume slipped in May helped Kavcic confirm that the boom had “fizzled.” Except it wasn’t over then and the boom still hasn’t fizzled.
Frequently quoted housing bear Ben Rabidoux, president of North Cove Advisors, contests BMO’s optimism. “We are seeing a correction in certain metros,” he says, citing Toronto’s overbuilt condominium market, Ottawa, Quebec, eastern Canada and B.C. as markets that are cooling down. “If you’re looking for leading signs of weakness, it’s not hard to find them.”
Evidence of the turning tide may be visible, but a decline has yet to happen when and to the extent many alarmists said it would. They might be right eventually — after all, even a broken clock is right twice a day — but they’ve been wrong every time they said we’d finally reached the top and didn’t during the past five years.

Wednesday, November 20, 2013

Investors need to return to school

Investors need to stop having a negative perception about managing student rentals and embrace the growing base and rising cash-flow that this market provides, according to a leading real estate broker.

Over 950,000 full-time students enrolled at the 82 largest campuses across Canada in September, with 55 per cent of that population living outside of the communities they reside in.
“Almost all universities country-wide need more accommodation. The student market is one of the most under-served yet is the one of best opportunities,” says Derek Lobo, CEO and sales broker at Rock Advisors.
He tells CREW that while the student rental market is more of an operating business with a higher turnover of tenants, investors need to think of the bottom line and not the negatives.  “Some investors do have a negative perception of students, and worry about the wear and tear in the property.  But that is the risk landlords take with all properties, not just students," he says.
Over 10 per cent of the student population comes from outside of Canada with the overall numbers expected to exceed the one million mark in the near future.
“Student rental investing is the most location sensitive business in the world,” he says. “But, it’s also the most lucrative.  For example, a four bed townhouse near Brock University in St. Catherine’s will rent to a family for, on average, $1,300 per month. But by charging per bedroom, you could get $2,000. Student rentals are by the bed so it’s more of cash generating business.”

Thursday, November 7, 2013

How bad can "Grow-Ops" be?

In case you are not aware of what a "Grow-Op" is it is a home that has been used as a growing operation house usually for Marijuana.

I hear a lot about houses and condos being used as growing operations and then being put up for sale. How bad can that really be if all the plants and lights are taken out first?

These properties have been used illegally to grow marijuana and, for long periods of time, the heat and the resultant humidity within an enclosed and unventilated space has most likely allowed an excessive amount of mold growth. If it was confined to bathrooms, as we sometimes see on ceramic wall tiles, it probably wouldn’t be much of a problem. But it can get much worse and spread throughout the property. Walls, floors and ceilings are affected, along with furniture, horizontal surfaces, and worst of all, the cavities behind the walls where no one can see.

It can become very difficult to eradicate and, of course, the mold can be a serious health hazard. A common remedy is to strip the house of its internal walls right back to the studs and spray a chemical mold and fungus killer. To maintain a mold free property, remove the source of the excess humidity and then supply a flow of fresh air.

As you can see, the ramifications of using any property for grow-ops can be enormous.

Thursday, October 31, 2013

10 Tips for Turning a First Home Into an Income Property

For the past ten years, Scott McGillivray, a 30-year-old real estate entrepreneur, has made a living by transforming houses into income properties. The 30-year-old currently manages 18 properties with over 100 tenants, and now he's coming to HGTV to help a "house poor" generation create legal income suites and help offset their rising mortgage payments.

Whether it's a 100-year-old Victorian home, a multi-apartment property or a fully renovated unit in a hip urban area, this entrepreneur can do it all. Check out 10 tips we learned from McGillivray by watching the first episode of HGTV's Income Property:
  1. Make sure it's worth it
    As McGillivray says, the cost of renovations has to be able to pay itself back within two years rent. Scout out local markets, get a professional opinion, and be sure to watch Income Property. Because, hey, who doesn't want to make a couple of bucks on something they need anyway?
  2. Tag team, if you can
    To use a cliché, two heads are better than one, and home-owning is no exception. Getting to your desired final product is a journey, and having a teammate to share frustrations, anxieties and most importantly, costs with is invaluable.
  3. The best way to learn is to go through the experience
    As one homeowner in the show puts it, "you can read as many books as you want, but you have to experience it." Every home is unique, and every home will reveal its own problems and potential solutions.
  4. Whatever you budget, add 25 per cent
    When renovating your space, despite what a professionally quoted budget says, add 25 per cent, just in case. If you don't go over, nothing lost. But if you do, at least you were expecting it.
  5. Houses are like onions
    The more layers you peel back, especially while demolishing, the more problems you're going to find. Count on hidden gems like mould, live wires and any other hidden costs, just in case.
  6. Consider all the options
    If you have a three-story plus basement house, why just rent out only the basement? As we learn in the first episode, doubling the space not only allows you to live mortgage-free by increasing the rent, it also increases the value of the home. But it also may not be the option for you, especially if you plan on expanding a family or you want access to your backyard.
  7. Make sure the space is livable
    If the kitchen has zero counter space and the bedroom can only fit a bed, not only is it going to be hard to find someone to rent out your unit, but think of the types of people who might be wanting to rent out your unit.
  8. Don't skimp on the drywall, especially on the ceiling
    Not only do you want a fire barrier between you and your new housemates, you might be thankful for a little bit of sound-proofing in the long run.
  9. Start on the outside
    A separate entrance is key when renting out a basement, especially if you don't want to mingle too much with your new lessees. And you might want to make sure there are no potential lawsuits hanging around — such as slippery stairs or rotting wood.
  10. Don't turn your house into a home... right away
    If a long-term investment is what you seek, turning your space into a home right off the bat isn't going to help pay those accumulating bills. Your No. 1 priority should be making your home into an income source, or at least a manageable entity

Thursday, October 17, 2013

Staging Tips

Inexpensive staging tips guaranteed to help you sell your home.

1. De-clutter & De-Personalize:
Buyers generally want two main things out of a potential property: they want it to be roomy, and they want to be able to see themselves living in it. Neither of these things can happen if the house is full of your stuff. Clear out a minimum of 50% of your personal belonging when you stage your home – more if possible. Take down all family photos and mementos. Clear out closets as much as possible. Take the kid’s drawings off the fridge. The cost? A few hours and some boxes for storage.

2. Clean, Clean and Clean Some More:
I’ve toured hundreds of properties and there have been times when I wouldn’t touch anything. And while I can see past the pink slime in the shower, dirty doorknobs, and carpet full of pet hair, a lot of prospective buyers can’t. Your home may have tons of potential, but if it’s dirty, the percentage of buyers who can see that potential drops significantly. Clean like you’ve never cleaned before. And when you think it’s as clean as it can get, clean it one more time.

3. Paint:
A fresh coat of paint helps your cause in two ways: First of all, it can neutralize rooms (such as a very pink little girl’s room) so that buyers can picture it as what they’ll need it to be. Secondly, new paint always makes a home look cleaner. Painting isn’t a big financial commitment if you do it yourself. And, the time it takes to paint will pay dividends when buyers walk through your neatly staged home.

4. Minor Repairs (change light bulbs, fill holes, repair screens, clean up exterior):
You might not care that one of your vanity lights is burned out or that your attempt to hang a painting resulted in six holes in your living room wall, but those little things can be a huge red flag for potential buyers. The biggest advice I have is just don’t be lazy. Take the time to replace a window screen or a cracked outlet cover. The cost is minimal and it shows that you take pride in your home. And, maintaining the small things can help reassure buyers that you’ve maintained big tickets items, like your roof or HVAC system as well.

5. Every Room Has a Purpose:
A lot of people have spare space in their homes that are turn into “dead zones” – rooms, closets, corners where “stuff” ends up getting thrown. But when you’re prepping to sell your home, not only should every nook and cranny be clean and clutter-free, they should also have a purpose. That spare room with your old treadmill and drum kit could be staged as an office space. If your basement is unfinished, put up some inexpensive shelving units to showcase how much storage is available. Buyers shouldn’t have to work to picture a rooms as functional for their needs.

Tuesday, October 15, 2013

Scott McGillivray on Vacation Properties as Income Properties

So You Want to Buy a Vacation Property…
Just because summer is over doesn’t mean you should stop thinking about sun and sand. Fall is actually a great time to start thinking about next year’s vacation and where you’re going to stay. Cottages are a big part of the Canadian vacation experience, and buying one might be a great investment if you go about it the right way.

Smart investment or luxury item?
The answer? It’s a bit of both. An inherited cottage or one you bought decades ago during the golden age of affordable lakefront properties could make you a pretty penny today. If you’re in the market to buy though, you have some factors to take into consideration that will drastically affect the price. Buying a property that is accessible, usable and desirable year-round is a much better investment than a property that you can only get to in the summer, isn’t insulated and doesn’t have any merit in the winter. Take advantage of winter sports enthusiasts, as their options for winter rentals are usually pretty limited.
Being less than a 2-hour drive from a city is also going to command a higher price tag, but don’t be afraid to go a little off the beaten track or settle on a smaller lake. There are still deals to be had if you look a little further out and are willing to put in some work. There’s always going to be more work involved with maintaining a cottage, so keep that in mind when setting a budget. Don’t put yourself into a “cottage-poor” situation where you can afford the cottage, but not all the other fun accessories that go along with it, like building a dock for a boat.
Fractional ownership
Want all the perks of a cottage without all the costs? Fractional ownership might be the answer. Of course, the catch is that you only “own” the cottage for half the year. Fractional ownership may not be for everyone – but it is certainly something to consider if it suits your needs and wallet. Buying a property with friends or family may be a way to put cottage ownership within reach. While it sounds like a great way to pool resources and leverage your buying power, have a lawyer draw up an agreement that clearly states who is allowed to use the cottage when and other expectations such as upkeep, mortgage payments and property taxes and how to manage other unforeseen expenses. Also make sure you come to an agreement about the rules on renting out the property during the weeks you “own” the property, but aren’t using it. The best way to maximize a cottage purchase is to maximize the income potential.

Owning a cottage is an amazing idea but before you sign on the dotted line, do your homework. Cottages, unfortunately, are not exempt from taxes, and just like at home, require regular maintenance, cleaning and grass cutting. And while it’s hard to put a price on those summertime memories by the lake, making a smart investment should be your number one goal.

Monday, October 7, 2013

Shopping for a Home in Winter

If you've been thinking about buying a new home, winter is the time to start getting serious. Here are a few reasons to brave the cold and go on a house hunt:
The winter season has fewer units on the market, and sellers tend to need to move from their property. You can use that to your advantage to get a favorable deal.
Winter has fewer buyers in the market. Looking for a home in the winter can be inconvenient, and people are less likely to move. Families also tend to be on a September to June cycle because they are unwilling to move their children to a new town in the middle of the school year. Fewer buyers means less competition.
 
Lenders also usually have fewer loans to process and less paperwork to deal with (though this can change quickly if rates fluctuate). With lenders less hassled, you can expect a smoother process to get approved for a mortgage. But, as reported in Bankrate.com, there are exceptions to this rule, most notably in warmer parts of the country (especially Florida), ski towns, and in parts of the country where demand is so strong that it will not slacken during the winter months.
Finally, as all savvy shoppers know, after the holiday season comes the season of bargain opportunities. This includes houses, as well.

Thursday, October 3, 2013

Foreign buyers fuelling sales in luxury real estate market: report

Sales of luxury homes will likely gain momentum in the fall, fuelled by demand from international investors, according a new report from real estate sales and marketing company Sotheby’s International Realty Canada.
The report released Tuesday suggests the largest proportion of foreign buyers will be from China, Russia, the Middle East, India and the U.S.

Elli Davis, a sales representative with Royal LePage in Toronto, says many foreigners buy condos for their children to live in while they attend school in Canada.
“I’m seeing a lot of foreign names on showings of all of my listings,” said Davis.
“More foreign names than not.”
The Sotheby’s report says the high-end condo market in the Greater Toronto Area has rebounded after a slower start to the year, a trend that is expected to continue into the fall.
“There were a lot of numbers that were starting to look worrisome in Toronto,” said Sotheby’s president and chief executive Ross McCredie.
However, while some economists are cautioning about an oversupply of condos about to hit the Toronto market, McCredie notes that there are far fewer high-end units available.
“It’s not like the $600,000 shoebox condos where you’d have investors buying them and looking to renting them out,” he said.

“If it’s a well-built building in a good location, people want to live there, so it’s more about lifestyle than pure investment.”
McCredie also notes that those in the market for a luxury home are less likely to be deterred by short-term fluctuations.
“They’re not first-time homebuyers,” he said.
“They’ve seen cycles before. Most of our clients remember what it was like in the early 80s and the early 90s, when you had major corrections, so they’re not going into these markets blindly.”
Sales of luxury homes are also expected to gain traction in Calgary and Vancouver and remain balanced in Montreal, according to Sotheby’s.
Sotheby’s said sales of high-end homes worth at least $1 million were up in major Canadian urban markets in the first half of the year compared with the second half of 2012.

Monday, September 30, 2013

The Incredible Shrinking Mortgage Rate

When the Bank of Montreal dropped its key mortgage rate below the 3% threshold in March, Paula Roberts started to get calls from her clients. They wanted to know if they should break their mortgages and refinance at BMO’s limited-time, bargain-basement 2.99% rate—the lowest rate ever officially offered by a Canadian bank for a five-year, fixed-rate mortgage. The sudden surge in interest baffled the Toronto mortgage broker. After all, these were clients who were already locked into mortgages with even lower rates and better terms than BMO’s. “All of our lenders were at lower than 2.99% at that point,” Roberts said.

It’s an open secret that Canadian homebuyers can secure mortgages on the cheap these days. BMO simply advertised the kind of lending practices that were already widespread. But stating the obvious got the bank plenty of attention—from media, from Canadian borrowers and from the federal government.
Finance Minister Jim Flaherty also picked up the phone, calling BMO to register his disapproval of the rate reduction. “My expectation is that banks will engage in prudent lending—not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States.” He thanked the country’s other big banks for not following BMO’s lead. Manulife Bank apparently missed the subtext of that message, subsequently announcing a 2.89% mortgage offering. Flaherty blasted the promotion, calling it “unacceptable.”
After “consulting with the Department of Finance,” Manulife withdrew the offer the next day. BMO let its promotion expire at the end of March. Thus was restored the don’t-ask-don’t-tell practice of supplying discount mortgages without making too much of a fuss about it. “I bet if you went out today to any bank, if you have the right credit score and the down payment, you’d get a 2.89% mortgage,” says Peter Routledge, an analyst at National Bank Financial.
In reprimanding the financial sector, Flaherty again warned of risky household debt accumulation. But he also objected to the optics of the mortgage fire sale, adding: “It’s also symbolic.” In the midst of the effort to avert a housing crash and convince Canadians to stop borrowing, here were BMO and Manulife publicizing cut-rate housing debt with all the discretion of used-car salesmen. But you can hardly blame them. Fewer homes are being sold in Canada, reducing the demand for new mortgages. It’s simple economics: when demand falls, so do prices. To vie for the patronage of the dwindling ranks of borrowers, banks have to sweeten the terms of their mortgages.
Banks can afford to slash rates because money has never been cheaper in Canada. While the federal government appeals for restraint in debt accumulation, the Bank of Canada’s interest rate policy encourages just the opposite. And since policy rates aren’t likely to budge for at least another year, Flaherty is left to glower at banks from up on high while mortgage rates continue to drop. Just how low they go will be limited only by the banks’ profit margins and the government’s persuasiveness in discouraging loose borrowing and lending. “I really can’t see them going any lower. But I said that before,” Roberts says. “Who would have thought they would have gone this low?” There’s never been a better time to get a mortgage than right now. But there soon could be.

Having saved up enough money for a down payment while living with his parents in Toronto, Lucas Shearer decided to make his first foray into the real estate market in January. He quickly found the right place—a $344,000 condo in the Yonge and Eglinton neighbourhood—after qualifying for a 2.89% five-year fixed-rate mortgage. “At a higher rate, it definitely would not be as attractive,” he says. “I probably would have just stayed at home, saved more money and assessed it in a year from now.” Compared to the average discounted rate on five-year mortgages over the past five years, which according to ratehub.ca is about 4.25%, Shearer will have saved about $18,000 in interest and owe $6,000 less by the time his mortgage expires. Compared to the 6% peak five-year rate over the past five years, Shearer will save more than $50,000.
While Shearer wasn’t compelled to buy real estate by low mortgage rates alone, they were an added incentive that made the market more attractive to him. This runs counter to the government’s deliberate attempt to contain housing activity. Bank of Canada governor Mark Carney warned of a “brutal reckoning” when rates eventually climb and expose the finances of many households as unsustainable. There are those homeowners who can afford a $700,000 home today, but could only afford a $500,000 home at 6.5%, which is where rates could conceivably sit in five years when new mortgages expire, says John Andrew, a real estate professor at Queen’s University.

Four times in the past four years, Flaherty has tightened mortgage insurance rules, each time making it a little more difficult to get home financing. And although household debt continues to hit new record highs—reaching 165% of disposable income by the end of last year—Flaherty has succeeded in slowing housing activity in Canada. But that comes at the expense of the mortgage market, which is the largest of the banks’ lending businesses. Mortgages in the banking sector are currently growing at about 6% a year—half of the pre-recession rate of growth. “The competition between institutions is so fierce that they really have no choice but to compete by offering as low a rate as they possibly can,” Andrew says.

Lenders still make money on low-rate mortgages. Their profit margins are roughly measured by the difference between mortgage rates and the banks’ own costs of borrowing, which is approximated by the Bank of Canada’s five-year benchmark bond rate—about 1.2%. Most of the money the banking sector lends out is provided by retail deposits, supplemented by borrowing on the “wholesale” market. The minimum spread at which a bank would be willing to offer five-year mortgages is about 140 basis points, says Ohad Lederer, a financial services analyst at Veritas Investment Research. That would put a floor on five-year mortgage rates of about 2.6%—assuming the five-year bond rate doesn’t fall any further. Variable or shorter-term mortgages are already available for even less. So yes, there’s still room for rates to fall, and banks may prove willing to sacrifice profitability for market share. “You’re talking about a long-term customer. The vast majority of mortgage borrowers are on a 25-year amortization period, and if they’re with a major lender, they will probably never leave,” Andrew says. “It also opens up other opportunities. Once you’ve got a relationship with a lender, maybe you’re more likely to get a savings account, get a line of credit, or take another mortgage out.”
To Flaherty, the competitive strains of the market do not justify a mortgage rate war in the banking sector. But it’s unusual for a finance minister to publicly scold a financial institution like Manulife for a pricing decision. “The whole thing is puzzling,” Andrew says. “It’s like phoning up Galen Weston and saying I don’t like the price of milk.”
Criticism came from many quarters, including the Conservative party’s own ranks. “Me, personally, I would not dictate to businesses what prices to decide,” Small Business Minister Maxime Bernier said. “It’s the market. It’s supply and demand that decides the prices. It is the case for interest rates; it is the case for other products too.”
The Canadian mortgage market, however, is not exactly free and open. The Canada Mortgage and Housing Corp. insures roughly half of outstanding mortgages in Canada against default. Genworth Canada, backed by a federal guarantee, covers another 25%. So for the great majority of the Canadian mortgage market, the risk of default is shouldered not by the banks, but by taxpayers. “For the banks, it’s fantastic,” Andrew says. “They get their money and they don’t have any of the hassle of the foreclosure process. It’s pretty much an ironclad guarantee.”
Whereas default risk is a natural disincentive to loose lending, from the banks’ perspective, the risk of issuing mortgages is minimal, which helps to explain why they’re willing to loan money at such low margins. It also helps to explain why the government wants to have a say in how mortgages are priced. “The more people take on debt, the bigger the contingent liability the government has, the riskier it gets,” Routledge says.
Of course, the government can always tighten regulations to effectively limit the availability of mortgages. While he has no control over mortgage rates, Flaherty does have the power to further reduce the maximum amortization or increase the minimum down payment on insured mortgages. But there are competing concerns emerging about the Canadian economy, aside from housing, and Flaherty has given no indication he intends to resort to further regulation. Mortgage tightening effectively pushes marginal borrowers out of the market, reducing the size of the pool of first-time homebuyers. And it’s that cohort driving much of the demand for condos and suburban starter homes, Andrew says. The government can’t afford to unduly impair the construction sector. Rather, it wants to slowly let some air out of the housing bubble without triggering anything severe.
Given all of that, the big question is whether rates will sag even lower in the months and years to come. It could indeed happen if the Bank of Canada keeps the overnight rate where it is right now, while a slowing housing market puts even more pressure on the banks to cut their profits as they battle for share in a dwindling market.
As for the first condition, outgoing governor Mark Carney announced on April 17 that the Bank of Canada was yet again keeping its overnight rate at 1% and said the bank was pushing back its own projections for the economy’s recovery to “full capacity” to mid-2015. “This is later than was anticipated by the Bank in January,” Carney said. In other words, the target interest rate looks likely to remain at its current rock bottom through 2014—and perhaps even longer.
The second condition for declining rates will likely be satisfied too: housing unit sales have now been declining for months, unemployment has remained stubbornly high, and economic growth is still sluggish. All these factors further constrict the number of mortgage-worthy homebuyers; as banks scramble to court them, cutting into their profit margins looks ever more likely. That could conceivably take variable rates as low as 2.2%—perhaps even lower.
For the moment, Manulife and BMO have fallen back in line by reducing the visibility of their mortgage rates. But nothing has changed in terms of the mortgage contracts being signed. Roberts, the Toronto mortgage broker, is advising all of her existing clients that if they are currently locked in mortgages at rates of 3.59% or higher, they need to consider breaking their contracts and refinancing, depending on the penalties and time to maturity. The lure of a bargain is hard to resist, and it looks like more bargains are on the way—just don’t tell the finance minister.

Thursday, September 26, 2013

Pensioners, be warned: Tenants offering to do work in lieu of decreased rent may not be as handy and helpful as you think.

Just ask the Alberta woman who has seen her investment property taken over by a tenant, identifying himself as a Freeman-on-the-Land, members of a group of so-called sovereign citizens.
Rebekah Caverhill rented half of her duplex in Calgary’s upmarket Parkdale neighbourhood in November 2011 on the recommendation of a friend.  In return for three months reduced rent, the self-described handyman agreed to spruce up the property.
Instead, upon inspection, Caverhill discovered that he completed destroyed the interior of the unit and changed the locks.
Having ignored eviction notices, the case will most likely end up in the civil courts. Now real estate lawyers and agents fear that naïve landlords, and especially pensioners, are being targeted by rogue tenants.
Mark Weisleder, a Toronto-based lawyer, says that all tenants have to be relentless and do whatever it takes to evict such rogue tenants.
Speaking to CREW, Weisleder offers five tips to avoid renting your unit to rogue tenants.
•    Advertise that you will be doing background and credit checks
•    Check out the tenant on social media; for example, if this woman’s tenant was checked out on LinkedIn,  you would see that he claimed to be the senior chief justice at Tacit Supreme law court
•    Regularly inspect the property
•    Interview the tenant where they currently live and see how they treat someone else’s property
•    If you suspect trouble, do not wait; get an experienced paralegal to assist you right away

Tuesday, September 24, 2013

Affordability Options For First-Time Buyers

First-time home buyers who want affordable homes may want to take a hard look at fixer-uppers, smaller homes and cheaper commutes to work to save on the costs of buying and owning a home.
Real estate brokers say many home buyers expect more than they can afford in a home and once they start pounding the pavement for housing their disconnect could be discouraging.
In an online survey of 150 of its brokers, Coldwell Banker discovered some disturbing trends among first-time home buyers.
While nearly half of the Coldwell Banker brokers surveyed said affordability was the No. 1 concern for first time buyers, 81 percent of those buyers also consider move-in conditions to be very important when searching for homes. Only 7 percent are considering fixer-upper homes.
The real estate company suggests more buyers should examine the fixer-upper option -- among others -- to get the affordability they seek.
"In the past, first-time home buyers were willing to purchase older, more basic houses in an effort to save money and break into homeownership," said Jim Gillespie, president and chief executive officer, Coldwell Banker Real Estate, LLC.
"It is important for first-time homebuyers to remember that by considering a fixer-upper for their first home purchase, they can build equity over time and later move up and into their second-stage home that better reflects their expectations," he added.
Buyers looking for affordability who go with the fixer-upper option should get the home professionally inspected to determine what fixing up is necessary, and certainly not bite off more than they can chew. Even homes that need a basic face lift -- paint, carpeting, landscaping, window treatments and other cosmetic touches -- can come with big savings. Homes that may require professional upgrades cost even less, but the buyer has to weigh the discounted price against the cost of the improvement.
Coldwell's study also found some disconnect between affordability desires and what buyers want in home size and its location.
The vast majority of first-time buyers, 71 percent, were looking for larger homes than they were 10 years ago, brokers reported, but bigger isn't better when it comes to price. A smaller single-family home or a condo or townhome can be cheaper by virtue of the smaller footprint and square footage. The smaller cost on a smaller home also could come with affordability
Forty-one percent of brokers also said, for their buyers, proximity to their workplace was numero uno when it came to considerations made when looking for a home. Higher gasoline prices have made the job center location factor even more crucial, however, in most metros, a home's proximity to employment centers comes with an added cost. Homes nearer job centers cost more because of the added value of reduced transportation costs and time (which is money) spent commuting.
However, buyers can enjoy the best of both worlds if they purchase a cheaper home away from job centers, but in a transit oriented development (TOD) or other distant community that offers low-cost public transit to work. Carpooling, trip sharing and car sharing communities boost the idea of affordable housing.
Coldwell Banker also said 46 percent of the survey respondents reported that first-time home buyers look at five to 10 homes, on average, before making a purchase.
The message is simple here. Spend more time looking at more homes for sale. Instead of five to 10, make it 10 to 20. Take the time to find affordability. Discounts were more likely available from homes that had been on the market for 90 days or more; homes for sale that were owned by long-time owners; homes for sale from flipping investors down on their luck; and properties owned by we-want-to-sell-real-estate banks who now know what it means to be careful what you wish for.
While nearly half of the Coldwell Banker brokers surveyed said affordability was the No. 1 concern for first time buyers, 81 percent of those buyers also consider move-in conditions to be very important when searching for homes. Only 7 percent are considering fixer-upper homes.
However, buyers can enjoy the best of both worlds if they purchase a cheaper home away from job centers, but in a transit oriented development (TOD) or other distant community that offers low-cost public transit to work. Carpooling, trip sharing and car sharing communities boost the idea of affordable housing.
Coldwell Banker also said 46 percent of the survey respondents reported that first-time home buyers look at five to 10 homes, on average, before making a purchase.
The message is simple here. Spend more time looking at more homes for sale. Instead of five to 10, make it 10 to 20. Take the time to find affordability. Discounts were more likely available from homes that had been on the market for 90 days or more; homes for sale that were owned by long-time owners; homes for sale from flipping investors down on their luck; and properties owned by we-want-to-sell-real-estate banks who now know what it means to be careful what you wish for.
The real estate company suggests more buyers should examine the fixer-upper option -- among others -- to get the affordability they seek.
"In the past, first-time home buyers were willing to purchase older, more basic houses in an effort to save money and break into homeownership," said Jim Gillespie, president and chief executive officer, Coldwell Banker Real Estate, LLC.
"It is important for first-time homebuyers to remember that by considering a fixer-upper for their first home purchase, they can build equity over time and later move up and into their second-stage home that better reflects their expectations," he added.
Buyers looking for affordability who go with the fixer-upper option should get the home professionally inspected to determine what fixing up is necessary, and certainly not bite off more than they can chew. Even homes that need a basic face lift -- paint, carpeting, landscaping, window treatments and other cosmetic touches -- can come with big savings. Homes that may require professional upgrades cost even less, but the buyer has to weigh the discounted price against the cost of the improvement.
Coldwell's study also found some disconnect between affordability desires and what buyers want in home size and its location.
The vast majority of first-time buyers, 71 percent, were looking for larger homes than they were 10 years ago, brokers reported, but bigger isn't better when it comes to price. A smaller single-family home or a condo or townhome can be cheaper by virtue of the smaller footprint and square footage. The smaller cost on a smaller home also could come with affordability
Forty-one percent of brokers also said, for their buyers, proximity to their workplace was numero uno when it came to considerations made when looking for a home. Higher gasoline prices have made the job center location factor even more crucial, however, in most metros, a home's proximity to employment centers comes with an added cost. Homes nearer job centers cost more because of the added value of reduced transportation costs and time (which is money) spent commuting.

Monday, September 16, 2013

Should you sell your house before you buy a new one?

It’s the first choice you have to make when you decide to move and one that just might define the state of the housing market.
Do you start the process by selling or buying? Buy something and the clock starts ticking on selling your current home because you likely need that money to close the house you just purchased. In markets where sales are plummeting that could be a scary proposition. So you sell first. But what do you do if you can’t find something you like in the neighbourhood you want. Remember, your kids need to go to that local school and be in the district. Are you prepared to rent for awhile?
People in the industry say the tradition historically has been to sell your home and then start shopping for the new one. But in this housing market, with multiple offers the norm and time on the market dropping in many cities, the process reversed and people starting buying, knowing their home would sell with ease.
Could the tide be turning in another sign of a slowdown for housing?
There are drawbacks to both selling first or buying first but the decision is very much based on your view of the market.
Contractor Paul Donadio, own of Terracon Inc., is facing that decision and the 37-year-old married Toronto homeowner has some trepidation about the market in Canada’s largest city.
“I’m going to sell my house first,” says Mr. Donadio. “What if I don’t hit my numbers? I could be stuck with two houses and how do you pay for it all?”

One option is to demand a closing date on your purchase a little further out, increasing your odds of selling. At the end of the day, you might need an escape clause and Mr. Donadio has one in his income property he’s prepared to move into should he have trouble buying. Renting is an option, but that market can be tight too.
“You have to live somewhere,” says Mr. Donadio. “You don’t want to end up buying the wrong house. I want to buy a house that I can fix up. Selling is more stressful than buying.”
His real estate agent David Batori says he’s telling his clients to sell first because he believes more listings will come to market in the spring. But he points out that, for a young family, selling first comes with the risk of not finding something in the right neighborhood.
“If you are too picky, you’re in trouble,” said Mr. Batori, who adds if you can carry two properties you should buy the home that is perfect for you with that long closing date.
You are going to need a lot of capital to pull that off because bridge financing at the banks is difficult to obtain without a buyer commitment for your existing home. The banks will provide bridge financing about two percentage points above prime if the closing date for the sale of your home comes after your purchase date, but you have to have a committed buyer.
Ultimately, if you buy first you can reduce the price of the home you are selling to move it.
Forget about trying to walk away from your purchase though, you’ve made a commitment to buy and left a deposit. “You can’t just walk away, you’ll be sued, you are in breach of contract,” says Mr. Batori, adding he has only seen someone try to walk away because of a death.
You can try to buy a home with a condition that says the purchase is subject to the sale of your existing home but you are going up against people with no conditions.
“Sellers will laugh at you, “ says Mr. Batori, adding before anybody agrees to that type of offer they’ll have an escape clause in case a firm bid comes in. That clause might give you a right of first refusal but you’ll have to come back with a clean offer with no conditions.
Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, cautions against buying without having a firm seller for your existing home.
“You can have the equity for two properties but you also need to have the income to carry both properties,” said Ms. Haque, adding the bank probably won’t extend credit to you for two homes without a high enough income. “It would put you in a situation that is uncomfortable and maybe not even affordable. Do you want to sell a property because you are desperate?”
Doug Porter, chief economist at BMO Capital Markets, said any shift in the trend to buy or sell first will depend on the city because some cities are still sellers’ markets.
“In a sellers’ market you can [buy first],” said Mr. Porter. “In most major cities, we are shifting. Personally, I would sell first.”
Ultimately, it comes down to your view of the market. You want to buy first, you have to be pretty confident you can sell. Are you?

Wednesday, August 28, 2013

Market cap compression: Don't get squeezed

No doubt, some of you read the title of this article and thought ... huh?
Well, "market cap compression" is just a fancy term for when prices for commercial real estate continue to rise. The market cap has an inverse relationship to the price/value of a commercial property. In essence, as the price/value of the property goes up, the market cap goes down or becomes "compressed." In the past few years we've seen significant market cap compression in the commercial sector, which is primarily a function of low interest rates coupled with no real alternatives to park investment dollars. The question is, what does this mean for the average investor either looking to buy their first property or their fifth?

1. Look outside of major urban centres
I've always been a major advocate of investing outside of the major urban areas such as Toronto, Calgary and Vancouver. As much as I would love to buy properties in those cities, the cap rates for multi-unit residential properties have reached historic lows and thus don't make economic sense for investors looking for cash flow. Five percent market caps have now become the norm in Toronto. I've even started to see caps as low as 3.5%. With caps that low, your investment property is unlikely to cash flow. Further, when the mortgage resets after the initial term, investors are opening themselves up to signficant risk if and when interest rates rise.
Why look to the smaller urban centres? Because cap rates in the smaller urban areas tend to be a percentage point or two higher than their more densely packed counterparts. That's not to say that all smaller areas are created equally. Investors need to focus on the key metrics to find the right place to invest which includes GDP Growth, low unemployment, low vacancy rates, population growth, etc... Smaller cities that investors should be looking in include, but is not limited to, Kitcher/Waterloo, Guelph, Cambridge, Hamilton, Durham region (Pickering, Ajax, Whitby, Oshawa) and Kingston.

2. Watch the bond markets
The bond markets are a critical metric and commercial investors need to keep an eye on them as they are used to establish the ultimate cost of funds (mortgage rate). Over the past 30 days, the Canadian bond markets have seen a significant increase in bond yields which will ultimately place upward pressure on commercial mortgage rates. In the longer term, if the movement in bond yields proves to be a trend and not just a blip, market cap compression will begin to reverse as cap rates have a close correlation to the cost of funds. Investors need to be weary in the short term that they aren't buying commercial properties today based on the recent trend of extremely low cap rates and getting financed at the new higher mortgage rates.

3. Lock into longer terms
With mortgage rates at historic lows, even with the recent run in the bond market, locking into longer term rates such as 5 and 10 year terms will make economic sense for most long term investors. This type of certainty allows for predictable cash flow and signficant mortgage paydown during your mortgage term. More importantly, it significantly mitigates the risk of rising interest rates.

4. Ensure you have a healthy spread
The key to profitable investing is to ensure that you have a healthy spread (the spread is the difference between the market cap and your cost of funds). Market cap compression in the larger cities such as Toronto have all but squeezed the spread in most cases to zero. To illustrate this point, the average 12-plex in Toronto has a cap rate of approx. 5%. The cost of funds for this type of property are typically between 4-5%. In essence, there is almost no spread, which means that the investment property is unlikely to cash flow. Even worse, the investor could be in a negative cash flow situation having to pull money out of their pocket every month. I personally like to work with spreads of 2.5% to 3% to ensure healthy cash flow and to provide a buffer should interest rates rise upon rate reset.

5. Be weary of too much leverage
Real estate investing and leverage go hand in hand. In fact, without leverage, most real estate investors wouldn't exist as they wouldn't be able to pay for their property entirely in cash. As much as I love leverage and have used it extensively to make significant gains, it must be approached with extreme caution. Basically its the old adage ... too much of a good thing. While taking on large amounts of leverage/debt may seem like a great idea now that interest rates are at historic lows, one must keep in mind that in all likelihood, when the mortgage resets in 3, 4 or 5 years from now, on a balance of probabilities, mortgage rates will be significantly higher than they are today. If you are overleveraged this can pose a significant problem with your cash flow and your ability to service your debt. As a rule of thumb 65% to 75% LTV, in a longer term (5 or 10 year) are usually a pretty safe bet.

Monday, August 19, 2013

True Tales About Termites

Termites are tiny wood-boring insects that are extremely destructive to homes and other buildings. They have been around since the beginning of time because they are adaptable to ever-changing environments. The most common type found, subterranean termites, is extremely tough to control. They’re of increasing concern to homebuyers in North America because they can cause serious structural damage.
Termites live in the soil, but feed off the cellulose in wood, breaking it down and returning it to the soil. Be forewarned that any untreated wood that comes into direct contact with the soil surrounding a home provides a perfect entry point for those destructive, menacing insects. And because they basically never stop working and eating for even a minute out of the day, their ability to tunnel their way through a home’s wooden structure and leave it destroyed is truly frightening. An average termite colony is over one million strong, and thanks to the fact that they remain unseen and cause their destruction under the surface, they can be very difficult to detect. If they are found in a home’s support beams, thereby jeopardizing the integrity of those beams, they can put the entire home at risk!

Monday, August 12, 2013

Realtor Commission Rates

There was a time long ago when REALTOR commission rates were determined by the local real estate board or association.
However, that changed a few years back. Independent real estate brokerages now set their own REALTOR commission which they charge their clients. Having said this, many brokerages permit their sales people to choose their own real estate agent fees. They often insist, however, that their agents offer the cooperating brokerages, who represent buyers, a competitive real estate commission. In Ontario, a popular rate for the buyer brokerage is 2.5% plus applicable HST. This is determined by the seller and their REALTOR®, in compliance with the sales rep's brokerage policy, on an individual basis during client consultation.
Currently, in Ontario at least, with the change in market conditions from a strong seller's market to a more balanced market, we're beginning to see higher REALTOR commission being offered occasionally to buyer agents in order to attract attention.
Different brokerages may have different real estate commission policies, so a home owner certainly has various options from which to choose.

A Word to the Wise


The old adage, 'you get what you pay for', often holds true in this situation. A full service REALTOR® will usually provide full service in return. And a discount or flat fee brokerage usually provides a discounted minimal service. When deciding about realtor fees, think about ...

Incentive


The greater incentive you offer your REALTOR®, the greater chance your property will sell, not only because of the potential higher financial reward, but because they'll likely invest more of their own resources into the marketing of your property.

Bottom line?


Realtor commission is negotiable. But remember that your REALTOR® may decline to accept the listing of your property if they feel the compensation is insufficient relative to the risk involved. REALTORS® work on spec, that is if (and it's often a big if) the property sells, they'll be rewarded for their efforts and risk, and compensated for their out of pocket expenses.
I also ask you to consider that in many areas, the vast majority of REALTORS® sell fewer than five or six properties annually. Fewer and fewer agents are generating an increasing number of the real estate sales. So, unless your REALTOR® is a top producer, they may not be able to afford to discount their fee.

Monday, July 29, 2013

How To Negotiate the best Deal

Buyers are finally being able to take advantage of cooling trends in previously hot markets. Multiple offers are no longer being thrown at sellers as soon as the For Sale sign hits the front yard.
 
Competition has dwindled in many areas as investors disappear and buyers take to the sidelines. Unless a buyer thinks his local market is headed for a big downturn, this could be the pause that allows him to get into the market with a few perks unheard of in recent years as a bonus.
So how do you know what shape your market is in? Economists believe that real estate is closely tied to employment, so if you’re in an area of growing employment, don’t expect to see double-digit depreciation anytime soon. In areas such as the Midwest, where auto manufacturing is king, prices have fallen sharply and will likely continue until the industry rebounds.
 
Here are 10 things buyers need to know to negotiate the best deal in a market shifting to their favor:
 
1. Human nature is the biggest problem for sellers and buyers to overcome in a changing market. Prices stagnate or drop a few percentage points and it’s amazing how different buyers and sellers react. Sellers still think their house is “special” and immune to the market. Buyers figure every seller is about to be foreclosed on and make ridiculous low-ball offers. Smart buyers do their homework, know what size home they need, how much they can afford and then search the market for what they want and negotiate fairly.
 
2. When you make an offer, know the recent comparable sales; it’s the best bargaining tool. “See what’s going on out there,’’ says Beverly Durham of ReMax Gold Coast Realty in Camarillo, Calif., where entry-level single-family homes begin at $500,000. “Make an offer $10,000 to $15,000 under what the last one sold. Even in this market, if you insult your seller, they won’t want to deal with you. Sellers know what the last one sold for. You want them to at least look at your offer.”
 
3. Find out as much as you can about the seller’s motivation -- retirement, job, divorce, wants to move up but only if he gets the right price. Durham says if a buyer knows the seller’s motivation they can negotiate a better deal or move on to the next property.
 
4. Multiple Listing Service (MLS) properties usually state what the seller owes. If not, your agent should be able to track down the figures. There’s a big difference in negotiating with an owner who owes more than the house is worth and one who has a lot of built-up equity.
 
5. “After 45 to 60 days the seller is usually absolutely sick of keeping their house spotless and sick of people walking through,’’ said Durham. This is when a seller may be the most anxious about selling their house as traffic to their house has likely fallen sharply.
 
6. Unless you’re incredibly handy and have time and cash, go after houses that are as updated as you can afford. This is easier to do in a stagnant or falling market and fixers aren’t usually discounted enough to be worthwhile.
 
7. In a tighter market, it’s not too much to ask the seller to add the closing costs to the price of the house. It’s better to put 20 percent down and add the closing costs to the loan than put 15 percent down and pay the costs upfront.
 
8. Items to ask for that shouldn’t offend sellers are paying for new kitchen appliances or washer and dryer. Most sellers will be willing to do so to close the deal. Durham also says it’s OK to ask sellers to pay up to the first year of homeowner association dues.
 
9. Don’t request anything that requires quality workmanship. “Don’t ask them to paint,’’ Durham said. “They won’t do it the way you want. They’ll do a lousy job.’’ Also, don’t get carried away and ask for the entire store. Be reasonable.
 
10. Make sure to look at the big picture. In changing markets you should be planning to stay for at least five years, so don’t get caught up in a $2,000 price difference. Remember, the goal is to get the house you want to live in for some time, not to impress friends with how you worked the previous owner.

Thursday, July 25, 2013

Frequently asked questions about buying a home

 
“How can I compare my monthly rentalpayments to mortgage payments

Of course, the amount of your mortgage payments will depend on the price of the home you buy, the size of your down payment, prevailing mortgage rates
and the term and amortization you choose. But it’s actually quite easy to estimate typical payments using the mortgage calculators available online.


“How do I know how big a mortgage I will qualify for?”
 
A pre-approved mortgage is a great way to know how much you can borrow for your home. This, in turn, helps you set a price that’s realistic for your

financial situation. It’s important to note that having your mortgage pre-approved doesn’t obligate you to buy a home: it’s simply a way to know how much your mortgage lender will approve you for.
Our mortgage specialists can meet with you in your home, at your workplace or at a branch to take you through the pre-approval process. Simply call

1-800 ROYAL

® 7-0 (1-800-769-2570)

to arrange a convenient meeting time.


“I want to become a homeowner as quickly as possible but I haven’t saved a large down payment. Any suggestions?”

You’ll be glad to know there are different options available, depending on how much of a down payment you can afford. A low down payment mortgage is required when your down payment is less than 20%. You can purchase a home with as little as 5% down. All low down payment mortgages require mortgage default insurance. Mortgage default insurance premiums can either be paid up front or added to the amount you borrow.  With the federal government’s Home Buyers’ Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help pay for your down payment on
your first home. You then have 15 years to repay your RRSP.
 
“Where can I find up-to-date information on home prices and the real estate market in my area?”
The Multiple Listing Service (MLS) offers an easy way to browse through home listings in every part of Canada. Easy links let you look at the housing market in specific cities by neighbourhood, price range, type of home and other parameters. It’s a great way to get a sense for the types of homes available
in your community and their features and price ranges. Visit  www.mls.ca.
The Canadian Real Estate Association (CREA) website helps you look at average home prices in communities across Canada and locate a realtor in your area. The site also includes useful home-buying tips and a glossary of common real estate terms. Go to www.crea.ca.
 
The Canadian Mortgage and Housing Corporation (CMHC) provides a content-rich website with detailed, step-by-step information on buying, selling and

renovating a home, as well as up-to-the-minute news of interest to homebuyers and sellers. Visit www.cmhc.ca and click on “Buying or Renting a Home”.

Monday, July 22, 2013

Buying A Home- What Can You Afford?

It's a Personal Decision

While you may qualify for a certain mortgage amount, you should also consider how it will impact your lifestyle and other things that are important to you.
Will you be able to maintain your current lifestyle with the mortgage payments you're considering. Are there changes to your current spending that you can make to be able afford that new home?

Be Honest

Be honest in deciding what you can afford! Small minor changes to your lifestyle are likely doable - however major changes really need to be considered.
Look hard at your current lifestyle - how much do you spend on going out to dinner, movies, travel, etc. You may decide to eat at home more often, watch movies at home instead of going out; whatever your change, you need to assess how drastic is this change in your lifestyle. Will you be satisfied with the changes you've made? A dramatic change in your lifestyle would not be recommended or may not necessarily happen. You still need to lead your life!

Future Considerations Too!

It is also important to think ahead. Where will you be in a few years - kids, new job, etc. How this will affect your future cash flow? Future changes to consider:
The impact of family changes will affect cash flow and your ability to meet your monthly financial obligations. For example, the birth of a child can mean less income coming in due to maternity leave, increased expenses with new clothes, furniture for the baby's room, strollers, car seats, etc.
Look at your employment situation - will you be getting a salary increase soon? Is your spouse/partner going back to work? You may then want to look at stretching yourself now, for the added flexibility later - getting into that home you really want now.
Some additional thoughts - if you have never owned a home before think about the additional costs associated with owning a home that will impact your cash flow:
  • Utilities - heat, hydro, internet, etc.
  • New fencing, deck
  • New furniture, window coverings
  • Shovels, rakes, etc.

Think About Balance

So you will need to decide. Is the starter home right for you? Something that will allow you to be a home owner now, understanding that in a few years as your family grows and changes, you may need a larger home. Or do you want to stretch and get that dream home now - and potentially never have to move again.
You'll be living with this decision beyond today so you need to think about balance. Remember you want to be able to sleep at night knowing you can make your payments!