10 financial mistakes you cannot afford

Making mistakes is part of just about everything – that’s how life works. No one ever said it’s going to be easy, or that you’ll glide through on waters that are as still as a mirror. Of course you’re expected to stumble, to make occasional lapses on your judgement, to fall on your face at least every now and then.
But when it’s about something as major purchasing a property, it would definitely put you in good stead to make a conscious effort to know what to avoid in the first place. That way you don’t waste time and, just as importantly, your hard-earned money in the process. So what are the financial property mistakes you can do without? Here are some of the most common.
Choosing the wrong mortgage
It’s no secret that with the plethora of home loans out in the market today, you have more than enough choices on your hand. That being said, the last thing you want is to end up saddled with a loan that’s not a good fit for you – even in a short amount of time. Do your homework and investigate all possible options, and then gradually filter out your choices as you go along. To make an educated decision, determine important factors like interest rates, both initial and future, and the probability of prepayment penalties.
Confusing “pre-approved” with a “pre-qualified” loan
They may very similar, almost the same, in fact, but they’re not. When you are pre-qualified for a loan, it means the lender is making an educated guess on how much you can borrow, based on the details you provided. Now, if you’re pre-approved, that means that the lender has already confirmed and verified the details you have provided, and is offering to lend you a certain amount at current interest rates – under a set of certain conditions, of course.
Whether you’re pre-approved or pre-qualified, it’s best to remember that the final clearance – your loan commitment – is still subject to an appraisal that’s satisfactory to your lender, a good title, and any last-minute credit checks and verifications that may arise. In order not to be left in the dark, make it a point to ask your prospect lenders to explain clearly about each term or step needed to make a successful loan.
Having too much credit
Anything in excess is bad, and the same goes for too much credit. Even if you have a good credit standing, lenders will still pay attention on just how much bills you have — even if you pay on time. The best course of action is to be mindful of your loans and avoid major purchases until after you bought your house.
Lying on your application
It won’t do you any good to exaggerate on your income when filling out your mortgage application, so best that you don’t. You should also be very careful that you don’t sign your name on a loan application that hasn’t been completely filled out. Loan officers tend to stretch the truth to get a loan approved, but remember that it’s your name on the line. The last thing you need to be at the receiving end of a loan you can’t afford to pay.
Hiding if you can’t make your payments
Whatever you do, do not ignore phone calls from your lender – yes, even if you’re lagging behind on your payments. Lenders actually have quite a lot of options to help you from losing your house to foreclosure, but they won’t be able to assist you unless, of course, they know the difficulties you’re going through.
Skipping a home inspection
Failure to go about a satisfactory home inspection can quite easily spell out a costly mistake. You can opt to hire independent home inspectors; they can aptly let you know if the basement or roof leaks, whether the mechanical systems are functioning, and how long the appliances are expected to last. They may not be able to report on everything, but their trained assessment will still be much better than yours. So consider that $300-400 an investment well spent.
Hiring just about any agent to sell your house
Real estate is a specialized field. That means you can’t hire just any random person and expect him to do wonders with the property you want to put on the market. To get favorable results, look for agents who specialize in your neighborhood, and those with excellent track record. If you’re not satisfied with your prospect agent’s plan on marketing your house, move on. You need to hire the best possible candidate to get the best possible result. And no, opting for relatives don’t count – unless they happen to be reputable agents.
Failing to properly check out a remodeler
Do not even consider hiring a contractor who knocks on your door, or one who claims that his discounted rates will only be valid in the next few days. First of all, notable contractors do not make it a habit to advertise their services on door-to-door basis. Nor do they slash their prices just because they happen to be in your district. Check the credentials and references of your prospect contractor to get a good idea of his professional credibility – or lack thereof.
Paying too much upfront
Be careful if you’re contractor asks for more than a third of the agreed contract price as a down payment; there’s a very good chance that something is wrong. He can be a scam artist with no intention whatsoever of returning once he cashes your check, or on a slightly less comforting scenario, he could be seriously underfunded and can’t afford to buy materials on his own.
Burning your mortgage
You may be tempted to hold a mortgage burning celebration after you’ve paid the last instalment on your loan. And it is quite tempting to do so. After all, the house is yours – finally. The sensible thing to do, however, is to make a copy and burn that instead – not the original. Make sure to keep your loan documents in a secure place, even after it has been fully paid.

Source: http://www.canadianrealestatemagazine.ca/expert-advice/item/2111-10-financial-mistaks-you-cannot-afford

Spruce up exterior to attract long-term renters

Jazzing up the exterior of the home will attract renters looking for a place to call home – before they even set foot inside the house. And many of the fixes outside the home won’t cost nearly as much as those inside. Here are a handful of easy renos that can enhance a property.
1. Doors
Doors are one of the first things a person notices about a house. Changing the front door can change the entire look of the home. Add a door with more windows for a light and airy look, or try a steel door for better security. Plus, lots of doors are customizable, making it easy to set your property apart from other rentals on the block.
2. Gates and Fences
Just as there are several different types of doors, there are a slew of different styled fences and gates that your clients can choose from. And like doors, these fences can be used to compliment the style of the home. A quaint property might benefit from a traditional picket fence, while a large stone house might be completed with a wrought iron gate.
3. Front Yard
You don’t need us to tell you how important curb appeal is to a home. Simple landscaping can go a long way. Lay new sod, if necessary, or add colourful plants to a flowerbed. Ensure the front of the property is well-groomed: the lawn is mowed, the weeds are pulled, the plants are watered and the walkway or porch is clean. Potential renters should feel proud of the house they can call home.
4. Back Yard
Canada’s wonderful summers make outdoor living spaces almost mandatory. There are several ways you can play up the house’s backyard space. Again, ensure the lawn and flower beds are well-groomed. If the property has a pool, clean it of any debris before showings. Show potential renters what their summers can be like if they’re lucky enough to live in this house.

Source: http://www.canadianrealestatemagazine.ca/expert-advice/property-management/item/2099-spruce-up-exterior-to-attract-long-term-renters

3 Tips to fix a property disaster

Let’s say you own an investment property and you’re at risk of things turning pear-shaped. Perhaps you overextended yourself financially, or you’ve run into trouble with dodgy tenants? Whatever the problem, there is always a potential solution. Helen Collier-Kogtevs from Real Wealth in Australia explains.
1. Reinforce your finances
If you are facing financial difficulties for a particular reason, such as a prolonged tenant vacancy, then you need some funds to help you manage the situation at hand. My advice would be to immediately focus on creating a buffer account. If you don’t already have a cash buffer account at your disposal to help you deal with unexpected financial emergencies, I suggest you focus on creating one immediately. Savings from your salary, tax returns, redrawing equity in your home loans – do whatever it takes to create a cash buffer account, ideally offset against your PPOR mortgage, so that you are in a position to make clear decisions, without being ‘forced’ to sell any of your properties from a place of desperation. At the same time, make a serious and concerted effort to pay down any ‘bad debts’ such as credit cards, as they chew through your disposable income and divert precious funds and resources away from your investing pursuits. Ultimately, if you do not have a tenant, you want to do what you can to get a tenant in place to ensure you have some rent coming in so that you are not having to fund the full mortgage repayment each month.
2. Get your head out of the sand
Often when a situation is turning negative, we may avoid facing up to it – and this can be a very costly mistake to make. I’ve seen many investors who have needlessly gone to the wall financially, often because they didn’t face their financial woes early enough. The sooner you take a proactive approach, the sooner you can put the right steps in place to turn your situation around.
3. If necessary, seek help
A trusted property mentor, a friend in the industry, a colleague who knows property inside out – turn to those people you know and trust for advice, as they will be able to help you review your situation from a clear, unbiased and objective place. Importantly, they can then help you to strategize how to move forward in a positive way. Remember, there will always be new opportunities to create wealth through real estate, and by having a clear strategy and flexible, honest approach, you place yourself in the best possible position for property success.

Source: http://www.canadianrealestatemagazine.ca/expert-advice/item/2065-3-tips-to-fix-a-property-disaster

Understanding the real value of properties

The first is the comparison method. If I own a three-bedroom home with two baths in a subdivision, the first thing I should know is what other similar properties are selling or sold for in that area. From there, add or subtract based on key features in the home.If the last three homes all sold for in the $240,000 to $255,000 mark, there is a good chance your property is also valued the same.
The second method of determining value is based on the revenue it delivers. The most common method of calculating that is by CAP Rates. The CAP, or capitalization rate, is defined as the ratio between the net operating income (NOI) produced by an asset and its capital cost or alternatively, its current market value. The CAP rate is calculated annual net operating income divided by cost (or value).
For example, if a building is purchased for a $500,000 sales price and produces $30,000 in positive net operating income (the amount left over after the fixed and variable costs) during one year, then the cap rate is 6 per cent ($30k/$500k).
In 2014, investors in the Greater Toronto Area (GTA) are willing to purchase a property that has a much lower CAP rate then they would have been willing to do in 2010. Specifically, in Toronto, where once 6 per cent was the low number, now I’m seeing deals transpire at rates under 4 per cent. Even in Oshawa, where once 8 per cent was acceptable. Capitalization rates are an indirect measure of how fast an investment will pay for itself. A property with a CAP rate of 10 per cent, the payback is 10 years. At 6 per cent, it is 16.6 years.
Debt repayment, however, is not factored in when determining the NOI. If it were included, the CAP rate would be much worse on a building that had a mortgage versus another that is owned free and clear. The owner’s property financing must have nothing to do with a property’s worth.
Now, let me share with you the importance of consistently raising your rental amounts. For example, if you had a property that can be resold with a 6 per cent CAP rate. If you find a way to increase your rent just $10 a month, that works out to $120 a year. That works out to a value increase of $2,000. Therefore, increasing the rent by $10 a month raises the value of the property by $2,000.
An increase of $100 a month means a property value increase of $20,000. If you have the option of doing a repair to a unit and it would cost you $10,000, you can increase the rent by $100 a month, should you do it? My answer is that not only will you receive the extra rental money, but you have built double the equity in your building.
While some believe these figures only matter when you sell your property, this is not always true. Once you have built enough equity in the building, you can do a bank refinance and get much of your initial investment and/or renovation costs out of the property, while still maintaining a debt to equity ratio that our very conservative banks will accept.
Be careful when you see CAP rates. The listing real estate agent or seller may not be including all of the actual expenses or be using projected rental revenues rather than actual numbers. I can show a 10 per cent CAP in all of my properties if I exclude yard maintenance, property management, basic repairs and waste removal. I can also show a zero percent vacancy rate and tell the buyer it is always rented. However, the fact is that these things exist. Get the numbers they provide, and as you are doing the walk through of the property, look for the renovations and services that are not includes in the operating expenses provided.

Source: http://www.canadianrealestatemagazine.ca/expert-advice/item/2087-understanding-the-real-value-of-properties

Bank of Canada to hold rates steady, tone down inflation concern: Reuters poll

Worries about soft growth will keep the Bank of Canada from hiking interest rates until late next year although rising prices are expected to make it temper concerns about low inflation in its policy statement next week, a Reuters poll found.
The Canadian economy geared down at the start of the year, though not as much as the United States. Twenty-five of 33 economists said the fragile state of growth was one of the biggest factors keeping rate hikes at bay in Canada.
Thirteen analysts said concern about the high-flying loonie was another reason behind the central bank's neutral stance, which means a rate cut is as likely as a rate hike. Respondents were allowed to choose more than one option."Investments have improved but employment has not. There is still a significant amount of uncertainty and that is weighing on any decision to raise rates," said John Clinkard, chief economist at Deutsche Bank Canada.The wider poll of 38 economists showed rates will stay at 1 percent, where they have been for almost four years, until the third quarter of 2015, when the Bank of Canada will lift rates by 25 basis points. That forecast is unchanged from May's poll.Governor Stephen Poloz is expected to stick to the neutral tone the bank adopted last October when it shifted away from its tightening bias. Despite the central bank repeatedly flagging downside risks to inflation in recent months, just seven economists said concern about a slow rise in prices was holding back rate hikes.And 21 of 30 analysts said Poloz would tone down his language expressing concern over low inflation at next week's meeting. Still, he is expected to walk a fine line.

"It will be necessary to acknowledge the above-forecast core CPI (consumer price index) trend, but Governor Poloz will do so as dovishly as possible in order to avoid sparking concerns about earlier rate hikes that might send the Canadian dollar stronger," said Avery Shenfeld, chief economist at CIBC World Markets.

Data last month showed the inflation rate rose to a 27-month high in May at 2.3 percent, stronger than expected and higher than the Bank of Canada's 2 percent inflation target. The increase caught the market by surprise and has been a major driver of the currency's rally.More than half the economists polled said the stronger Canadian dollar, currently trading near a six-month high at $1.067 to the greenback, or 93.72 U.S. cents, will not trouble Poloz enough for him to voice it."The loonie is not at a critical level ... for the BoC to intervene directly in the markets or to 'talk down' the loonie," said Sebastien Lavoie, economist at Laurentian Bank Securities.The central bank is hoping to see exports emerge as a greater driver of economic growth, replacing a boom in housing and consumer debt."The Bank of Canada is undoubtedly concerned about all of the above, but it has made no secret that it is hoping for a pick up in exports and business investment to provide more robust and reliable support for growth," said Mark Hopkins at Moody's Analytics."Raising interest rates prematurely would undermine that goal by discouraging borrowing and driving up the value of the loonie."

Source: http://ca.reuters.com/article/businessNews/idCAKBN0FF1YG20140710?pageNumber=2&virtualBrandChannel=0