Buying Strategies For Today's Market

Many clients often ask me if they should wait and save up a larger down payment before they get into the market. This can work, but it often doesn't work out, since you're also paying rent and just saving a small amount. In the meantime, house prices are still rising, and interest rates could go up which can leave you farther behind by costing you more to buy the home and to carry it. As soon as you have an acceptable amount for a modest down payment, it will usually pay to get into a rising market right away.

Start building equity as soon as you can. Some buyers are discouraged by the prices for single-family detached homes and feel that homeownership is beyond their reach. I say, why not start with something more modest? Your first foray into real estate ownership could be a condo or townhouse, or it can be a single-family detached, but perhaps a two-bedroom instead of a more expensive three-bedroom. Get in at a level you can afford.

Many buyers that I work with try to get it all in their very first home, but in a market where prices are high, it really doesn't make sense to buy too much house, that is, a home that can already accommodate future needs. You don't need to be paying for extra bedrooms now if you plan on living there alone. Choosing a home that meets your current needs will keep the price down and allow you to build some equity quickly. Since Canadians tend to move often, when you are ready to upgrade you will have built up some equity to use for your next purchase, and don’t forget, in our beautiful country this is tax-free money!

You may have the option of co-ownership with a family member or friend to help you get into the market. This can be with an absent investor/owner or in a duplex where you both can live and enjoy your privacy. But remember, there’s nothing like money to cause relationship problems, so treat this like a business and be sure to hire a lawyer to draw up an agreement in advance detailing the buy-out conditions should one of the owners wish to sell. Often, one buyer will have more money to invest than the other and will need to ensure that this investment is protected in the future when it comes time to sell the property. Lawyers even give this advice to couples when one person has more invested than the other. In a divorce, your inheritance cannot be touched by your ex, unless you have taken your inheritance and used it to pay off the mortgage of the matrimonial home without separating it from the shared asset. It’s not going to jinx the relationship to have the agreement in place, so go ahead and protect yourself—just in case!

Top Five Things To Think About Before You Buy…

Buying a home is generally an exciting adventure – the thrill of finding a home that you and your family can enjoy, where you will raise your children, make friends – all the good things that home ownership. But there are several things that you should consider before setting down your hard earned money on a home purchase.

1. Does this home make sense? Now when I say that, I mean will this home make sense for you and your family in the long run? Are you a young family and hope to expand? Maybe a two bedroom townhome is not the right buy. Sure, with one child it may be very manageable, but if baby number two is just a year away – you may be forced to move within a couple of years. With transfer taxes and realtor fees, you could eat up any profits made, and that’s just not a smart buy. Ideally you should look for a home that will accommodate you for at least five years. This may mean forgoing some fancy upgrades, but ultimately the cosmetics of a home can be changed, whereas adding square footage is a whole different ball game.
2. Have I fallen in love with the finishings, not the home? This often happens with buyers. The reason show homes are so inviting is that the developers want you to fall in love with an ideal. However with all the fancy furniture gone, you may find the home you bought is not the home you need. You may have ignored all those stairs in that three level townhome because you loved that open concept living area. But if you noticed it when you visited, think about how it will affect your daily life. Do you have small children? Imagine carting baby buggies, strollers, and small children up and down those stairs. Suddenly, that home might not be such a great idea after all.
3. Do you see yourself in the neighbourhood? If there are tons of children in the neighbourhood, and you are a professional couple who crave quiet, then you might be in the wrong place. Conversely, if you have children, but there are no schools within walking distance, and no basketball hoops in the driveways, then they may not have any friends to play with. Make sure you pick an area that fits your lifestyle, whether you’re looking in the city or the suburbs.
4. Don’t buy the best home in a not so great neighbourhood. Ideally, you want to buy in the best area you can, even if that means buying a home that may not have all the extras that you want. Your home is your investment, and ultimately the old saying “Location Location Location” will always hold strong. You can’t make more land, no matter how hard you try. However, you can invest in the home that you purchase through renovation. It doesn’t have to be all at once. But if you buy a home with “good bones” – i.e.: good sized rooms, a practical floor plan, and structurally sound – all within a desirable location – you will be making a sound purchase.
5. Can I really afford this? If you are a dual income couple and are planning on starting a family, you may have only one income for a while. Will the home put undo financial pressure on you? If your income was to go down, would you be able to afford the home? Just because you “can” afford to purchase a home, doesn’t mean you should. Sit down and think about your lifestyle. Do you like to travel extensively? If you do, make sure you budget that into the equation. Are you planning to send your children to private school? Factor in the annual tuition to your costs. Don’t forget to speak with your mortgage broker. Any changes in interest rates could change your mortgage payment in the years to come. Make sure you can handle any upticks in the interest rates.

These are just a few things to consider when you enter the world of real estate. But ultimately common sense will rule the day. Always make sure that when you are shopping for your new home, you leave your rose coloured glasses at home!

Article taken from HGTV.ca by Sarah Daniels

What Makes Real Estate Go Up In Value?

Contrary to popular belief, real estate doesn’t go up in value. The change in prices is only an aberration reflecting the devaluation of paper currency due to inflation. If you can come to appreciate this fundamental principal it will help you to make a lot of moneyin real estate investments.

To help you better understand, real estate is a constant, a bell weather, generally real property if anything devaluates over time through wear and tear, obsolescence, or changes in fashion and taste. However as money devaluates over time it takes more paper dollars to acquire the package of utility that the property represents. Yes it is true that there may be variations on this theme due to supply and demand factors. For example, people flocking to Alberta due to the oil boom faster than homes can be built has caused the price to be driven up, or the collapse of property values, for example, when a mine closes in a one industry town. But these plays are highly speculative and can turn against you as much as work in your favor.

Trying to get in and get out at the right time with the transaction costs what they are, is difficult. Buy low, sell high is the axiom! But these days you would have to say buy high sell higher, and hope there is something left after the land transfer taxes. Few people would sit down to a game of blackjack in Las Vegas with a purse of ½ a million dollars or make a purchase on the stock exchange of the same amount of money on the hope that they could catch the win and get out before the price goes down or the cards turn against them. But average people do this every day in real estate.

So the principal assumption is to have the largest mortgage possible where the payments can be maintained by the rental income.The sure way to win with real estate is as a long term holding.The win is not actually as a result of the property going up in value, but as a result of the borrowed mortgage money going down in value or purchasing power. If money devaluates by 5% annually, in 13 years your mortgage is being paid back with 50 cent dollars. Were you to sell the property at this time it would likely sell for twice what you paid for it because the purchasing power of the money is half.As an example: you purchase a property for $500,000 and for sake of example, you finance 100%-$500,000 paying interest only. 13 years later you sell it for 1 million, repay the $500,000 mortgage for a profit of $500,000. But in reality that is only 50 cent dollars of tomorrow. The purchasing power of which is only $250,000. This is a proven strategy which has worked well for me over the years.

Also worth noting is that if there is a shortfall between the interest cost of the mortgage and the net rental income it would likely be deductible against earned income for tax purposes (Check with your accountant). To my understanding if the shortfall is considered to be a business loss (i.e from the business of renting the property) such shortfall would be deductable from your earned income for tax purposes dollar for dollar. If you consider that the loss is actually being converted into property value as the prices inflate it is actually flow through. On disposition this value will be taxed as a capital gain that is included in income at only 50% of the gain therefore 50% of that income is never taxed. That’s better than any RRSP. With the additional bonus that you can leverage against the equity in your property investment you can’t leverage against your RRSP

Five Reasons to go Urban or Suburban

The battle over deciding whether to buy a home in the suburbs or within an urban city centre is a debate that plagues many prospective homebuyers… Here are some reasons one area may be more suited to your needs over the other, with top five reasons to go urban or suburban from Sarah Daniels and Philip DuMoulin.
Top 5 Reasons to go Suburban
By Sarah Daniels
There are a lot of weird biases against the suburbs – no you don’t have to wear “mom jeans” and lose all semblance of “coolness” – the SUBURBS are where it’s AT!

1. Bang for your buck – generally you will get more square footage for less than it will cost in the city. Why buy a two bedroom cramped condo in the city when you can have a three bedroom home with a garden in the suburbs? Young families need affordable space – and the suburbs offer that!
2. Less crime – statistically, the suburbs are safer. Chances are you will know everyone on your block, something that doesn’t often happen in the bustle of the city. Knowing that the neighbours will watch the house when you are away, or feed the cat – well that’s something money can’t buy!
3. Better schools – For parents, this can mean all the difference when it comes time to buy. Schools tend to be newer, with more amenities, and better access to the outdoors including playing fields and playgrounds. Classes are less crowded – and that means more attention paid to your children!
4. Convenient shopping – yes, that’s true! With a mix of big box shopping, boutiques, and everything else, you’ll be able to find everything you need, without the hassle of finding a parking spot, AND having to pay for it!
5. Access to more outdoor activities – you’ll generally find more parks, community centres, and ice rinks, not to mention pools and golf courses.

Top 5 Reasons to go Urban
By Philip DuMoulin

1. Convenience – let’s face it, every possible amenity is available at your doorstep in major urban centers!
2. Typically less market volatility - losses are typically less dramatic but gains are usually higher due to the urban core being "built out."
3. Established neighbourhoods and amenities - beautiful mature lined streets, heritage buildings, architecture, and specialty stores not to mention the incredible shopping, are established city trademarks.
4. Transit - there is better access to all types of public transit as well as service route options.
5. Traditional services, Hospitals etc. - whether it’s seeing an orthodontist, a chiropractor or a "specialist" there will always be greater options in the city.

What Key Elements of the Home will Increase Resale Value?

Resale value is now always considered when a potential buyer is deciding upon a home to purchase. The ongoing debate is always - where is one’s money best spent to increase the value of the home? Budgets play a big part in a renovation and I see too many “all-in” renovations... In other words, homeowners blow their entire budget on one room and neglect the rest of the home. At “for sale” time this can leave a bad taste in a purchaser’s mouth, mainly due to the renovation of the one room having dated the rest of the home even more so. Unless you have an unlimited budget, here are some helpful do’s and don’ts that should assist you when coming to the renovation decision.

1. Never...ever...proceed with a cosmetic renovation when there are structural or plumbing/electrical issues with the home. I know these aren’t sexy fixes but they should always be a priority when doing renovations. Let’s face it, there is nothing worse than redoing your master en suite and then having a roof failure and water damage to the ceiling etc. I’m sure you have heard of the expression “good bones”...make sure you start any renovation with a solid foundation/structure.
2. The biggest mistake I see in renovations are the disconnects, an example being granite counter tops installed on 40 year old bathroom cabinets. You may consider this an upgrade but to a potential buyer they see this as putting “lipstick on a pig”. If you are trying to sell the bathroom as updated, good luck, no buyer will pay for poor renovations, especially when they have to be completely redone.
3. On a limited budget? Be smart! – consistent renovations are by far the best bang for your buck. In other words, do some mild updating in all of the rooms. You would be surprised how fresh a home looks with new paint, light fixtures/switches and modern baseboards. In most cases, for the average size home this will cost under 10K but it will most certainly add value when it comes time to re-sell.
4. Changing a traditional floor plan of a home and creating a more functional one is great for resale. Tearing a wall out can create that “open concept layout” one desires and it doesn’t have to be expensive.
5. Timeless design – when renovating, choose styles and fixtures that will remain current, what you like may not be appealing to the masses.
6. The kitchen is always the most expensive room in the house to renovate, so proceed cautiously! It can make or break the resale of the home so choose your layout, design and fixtures with care and hiring a designer for input, wouldn’t be the worst decision one could make.

So remember to always have a plan before starting a renovation. There is nothing worse than a half finished kitchen and no money left in the budget to finish it!

As Outlook Debated, Home Buyers Comb Meager Late Year Listings

One Toronto couple recently sold their house for $3.6-million in less than 60 days. They saw another property they liked and called on their real estate agent, James Warren, to put in an offer only to find the house had already sold.
“We went out to buy and we couldn’t find anything,” says Mr. Warren, who says he could sell two or three houses right now if only the listings were available.
“If there’s something tasty out there it well get bought.”
He’s recommending that sellers who are thinking of pulling their listings off the market over Christmas wait at least another week because there are people out there who have sold and need to find a new place.
But in this waning market of fall, 2012, buyers are not in a hurry to pay full price and they are definitely skittish about multiple offers, agents say.
Mr. Warren says that Canadian ex-pats returning from Europe are looking for houses near good schools.
“There’s no question Europe’s in a recession,” he says. “Ireland’s a disaster, Italy’s a disaster – and Greece and Spain are disasters. Canada continues on.”
Meanwhile, economists generally agree that Toronto’s housing market is weakening but there is a range of opinion on whether it will land gently or with a thud. At Capital Economics, economist David Madani says the slump in sales of condo units before construction points to a hard landing and he expects some hefty discounting in condo prices over the next year or two.
Anecdotal evidence suggests that condo developers slashed the number of project launches in Toronto to five in the third quarter, he adds. Guided by the recent past, Mr. Madani would have expected to see 13 projects unveiled in the quarter.
“Over all, the evidence suggests that Canada’s housing market is unlikely to enjoy a soft landing,” says Mr. Madani in a note to clients.
At BMO Nesbitt Burns, economist Robert Kavcic says the modest decline in Canadian housing starts in November does point to a softly-landing housing market.
“If anything, the recent cooling is a welcome phenomenon,” he says.