The governor of the Bank of Canada Stephen Poloz may be patting Canadian investors on the back, suggesting there is no current evidence of the kind of dangerous property speculation that would denote "bubble" conditions.
“There are many characteristics of a 'bubble' situation that are not present,” Poloz told the House of Commons Standing Committee on Finance earlier this week, pointing to highly speculative behaviour as one example; for instance, people buying multiple properties with the sole intent of selling them at a profit in the future.
This example would suggest that flix-and-flip investments are just not plentiful enough in the current market.
Poloz also said that, thanks to historically low interest rates, Canada's housing market actually helped to buoy the country’s economy during the global economic crisis.
“It would be unusual for us to have a cycle like we’ve had where housing did most of the work keeping us out of recession,” he added. “It would be very unusual to come out of that and not have a degree of overvaluation. One has that in every business cycle.”
The latest Nanos Research poll suggests that more Canadians are agreeing with Poloz that the worst is over, particularly when it comes to Canada’s housing market.
The survey for the week ended April 24 showed that optimism among Canadians that the value of real estate is increasing was 38.5 per cent, the highest it has been in 2015.
“There are more indications for households to consider the worst is behind them,” said Robert Lawrie and Peter Savvin of Bloomberg Economics.
“After all, oil prices and the Canadian dollar have stopped falling, and employment and the labour force participation rate appear to be recouping some earlier losses.”
Thursday, April 30, 2015
Monday, April 27, 2015
How to choose a Realtor to work with
Amazing! You’ve decided to sell your home and/or buy one. That’s very exciting. Now it’s time to hire a Realtor, but what's the best method for choosing one who will support your interests?
It’s no secret that virtually every market in Canada is saturated with licensed Realtors, so deciding on who to use can sometimes be a tricky task. Here are some simple tips to follow when determining what Realtor best suits your unique needs.
1. Don’t feel pressure to use someone just because they’re a friend or family member. Chances are you know a Realtor or know someone who knows one. That person may or may not be right for you, so be sure to do your homework before signing a contract. Don’t be afraid to show your appreciation, but kindly reject.
2. Check references. It’s surprising how rare this is. In all my time in the business I’ve never had a potential client ask me for references. This is a missed opportunity to weed out potential lack-lustre Realtors. It’s true that most references provided will be biased in favour of the Realtor, but if you listen carefully and ask the right questions you’ll often discover the truth – good or bad.
3. Ask about their services. A highly trained and reputable Realtor should be able to speak confidently about their various service offerings. Many Realtors offer similar services, but often times the differentiator between a good Realtor and a great one is how the services are implemented.
4. Interview at least two or three Realtors. Whether you’re buying or selling, it’s always a good idea to speak to multiple Realtors before choosing one. In addition to the services they offer, you’ll want to be able to build a good rapport with your Realtor. Always remember, you could be working with your Realtor for weeks, months and sometimes years, so it’s critical to build a strong working relationship with him/her.
5. Examine a Realtor’s business model and track record. Some people are drawn to the highest performing Realtors or the largest real estate teams in the area. This is neither a positive or negative. Top-producing Realtors are very successful, but make sure they’re able to devote the required time to service your individual needs. Successful real estate teams are another option, but know who you’ll be working with; just because you want to work with the team leader doesn’t mean that’ll happen – it’s possible you’ll be “assigned” one of the team members.
6. Don’t pick a Realtor based on price. If you’re selling a home then it’s your responsibility to pay the Realtor(s) out of the proceeds of your home sale. There’s a growing trend in some markets (e.g. Greater Toronto Area) for consumers to focus too much on commission rates. The old adage “you get what you pay for” still holds true. If you decide to use a discount Realtor, than know what services will be included and excluded.
7. A Realtor should have knowledge of the area. Some will argue this point, but it’s my belief that any Realtor you decide to use should have knowledge of the area in which you’re buying and/or selling. This isn’t just about market stats, as these can be found from almost any location. Neighbourhood trends, future development, zoning by-laws, local activities, family services, personal interests, etc. are much harder to determine from afar, whereas local Realtors will likely be geared with this information or know where to access it easily.
8. Use multiple means to locate a Realtor. There are many ways to find a Realtor – Internet, referrals, newspapers, mailers, magazines, networking, etc. The more you search for a Realtor the more you’ll notice the differences. We may all look the same on the outside, but dig a little deeper and you’ll quickly find we’re not all made the same.
It’s no secret that virtually every market in Canada is saturated with licensed Realtors, so deciding on who to use can sometimes be a tricky task. Here are some simple tips to follow when determining what Realtor best suits your unique needs.
1. Don’t feel pressure to use someone just because they’re a friend or family member. Chances are you know a Realtor or know someone who knows one. That person may or may not be right for you, so be sure to do your homework before signing a contract. Don’t be afraid to show your appreciation, but kindly reject.
2. Check references. It’s surprising how rare this is. In all my time in the business I’ve never had a potential client ask me for references. This is a missed opportunity to weed out potential lack-lustre Realtors. It’s true that most references provided will be biased in favour of the Realtor, but if you listen carefully and ask the right questions you’ll often discover the truth – good or bad.
3. Ask about their services. A highly trained and reputable Realtor should be able to speak confidently about their various service offerings. Many Realtors offer similar services, but often times the differentiator between a good Realtor and a great one is how the services are implemented.
4. Interview at least two or three Realtors. Whether you’re buying or selling, it’s always a good idea to speak to multiple Realtors before choosing one. In addition to the services they offer, you’ll want to be able to build a good rapport with your Realtor. Always remember, you could be working with your Realtor for weeks, months and sometimes years, so it’s critical to build a strong working relationship with him/her.
5. Examine a Realtor’s business model and track record. Some people are drawn to the highest performing Realtors or the largest real estate teams in the area. This is neither a positive or negative. Top-producing Realtors are very successful, but make sure they’re able to devote the required time to service your individual needs. Successful real estate teams are another option, but know who you’ll be working with; just because you want to work with the team leader doesn’t mean that’ll happen – it’s possible you’ll be “assigned” one of the team members.
6. Don’t pick a Realtor based on price. If you’re selling a home then it’s your responsibility to pay the Realtor(s) out of the proceeds of your home sale. There’s a growing trend in some markets (e.g. Greater Toronto Area) for consumers to focus too much on commission rates. The old adage “you get what you pay for” still holds true. If you decide to use a discount Realtor, than know what services will be included and excluded.
7. A Realtor should have knowledge of the area. Some will argue this point, but it’s my belief that any Realtor you decide to use should have knowledge of the area in which you’re buying and/or selling. This isn’t just about market stats, as these can be found from almost any location. Neighbourhood trends, future development, zoning by-laws, local activities, family services, personal interests, etc. are much harder to determine from afar, whereas local Realtors will likely be geared with this information or know where to access it easily.
8. Use multiple means to locate a Realtor. There are many ways to find a Realtor – Internet, referrals, newspapers, mailers, magazines, networking, etc. The more you search for a Realtor the more you’ll notice the differences. We may all look the same on the outside, but dig a little deeper and you’ll quickly find we’re not all made the same.
Wednesday, April 22, 2015
9 reasons your real estate venture could fail
By Ken Davidson
Success in the real estate business looks completely different for every individual. There are literally thousands of paths you can take to get to the same destination and nobody takes the same path twice. Regardless, there are a few common factors that differentiate the real estate projects that succeed from the ones that fail.
More often than not, the root cause of failure in real estate comes back to various incarnations of poor due diligence. Sure, you might think you have planned for every potential scenario, but there are many distracting pit stops on the road to success in real estate – if you aren’t careful, you might run out of gas before you get there.
Otherwise highly intelligent people can find themselves in a serious situation by making one of these nine mistakes that cause real estate ventures to fail.
1. Over-enthusiasm
You should be excited about the projects you’re working on, but jumping into a project where you haven’t done your due diligence is something I like to call “rose-coloured glasses syndrome.” Your reasons for investing in real estate need more justification than good feelings and a desire to get in the business.
2. Choosing the wrong partners
People spend years dating their spouse before they propose and get married, yet they will become business partners in a real estate transaction very quickly simply because one guy has money and the other has a project…and they don’t even know each other!
You need to get to know your partner before you go into a real estate venture with them. If you don’t, the odds are that it’s not going to end the way you thought it would. Can you really afford to risk having a negative outcome over something that is preventable? Even if you can, that’s not sound logic for running a business.
3. Interest rates skyrocket (and you aren’t prepared)
If you don’t take this into consideration before acquiring, you could be in trouble if or when it happens.
4. Poor risk assessment
There is risk associated with every real estate venture and if those risks are not taken into consideration when you acquire, things can go sideways before you know it. Truthfully, there is an element of luck here, there’s no question about it. There are always things in real estate ventures that are somewhat out of your control so you have to be looking for those potential liabilities when doing your due diligence.
Let’s say you own a very nice condo unit and your next-door unit sells to a new landlord who allows it to turn into a drug house. That’s a good example of something that’s totally out of your control, but it’s up to you to weigh your decision based upon the risks that are in your control.
5. No exit strategies planned
You bought a piece of real estate thinking you need it for a long-term hold. All of a sudden your circumstances change and you need to break the contract or get out of a deal. Then what?
You should have several exit strategies to choose from so that if circumstances do change, you can look at using one of them. Many people buy real estate with one goal and one intended outcome in mind without considering other possibilities. Take a step back and consider your exit strategies ahead of time.
6. Your partner’s circumstances change
Your partner’s circumstances may radically change and this could put you in a compromising position that threatens your ability to recover. There’s a certain element here that’s out of your hands, but part of selecting the right partner is evaluating potential outcomes in the event something does go sideways. Are you ready for those possibilities?
7. Unexpected expenses
This is another for the ‘due diligence’ category. Depending on the project, I’ll always put in buffers to have room for variances in expenses. How much those buffers are will depend on your risk tolerance and comfort level with the situation at hand.
8. Analysis Paralysis
Over-analyzing can kill any real estate deal. Remember that you can analyze anything and find a reason why it won’t work. Where there’s a will, there’s a way. Take it from an accountant: You can’t always trust the numbers.
9. Revenue is lower than expected
When you’re doing due diligence, you have to build your cash-flow models so there is an understanding of flexibility and variability because NOTHING is going to be as you originally estimated coming into the project.
I’ve seen business proposals for real estate projects where the person assumes they are going to be 100 per cent full, 100 per cent of the time in a residential apartment complex. That’s not even possible.
I don’t care how good the market is. You will have turnover and when that happens, you will have vacancies. Although it doesn’t make sense to plan your financials around being 100 per cent occupied all the time, too often I see people planning for this very optimistic scenario and that’s dangerous. Although the intention is noble, the reality will quickly reveal how misguided this approach is.
Be honest and realistic. Those rose-coloured glasses might brighten the future you think you’re seeing for your real estate project, but the real image will inevitably come into focus. It’s you and your advisor’s job to do your own independent due diligence, plan for the unexpected, and consider all possibilities before you close the deal on a real estate project that may end up being more trouble than it’s worth.
Source: http://www.canadianrealestatemagazine.ca/expert-advice/9-reasons-your-real-estate-venture-could-fail-190149.aspx
Success in the real estate business looks completely different for every individual. There are literally thousands of paths you can take to get to the same destination and nobody takes the same path twice. Regardless, there are a few common factors that differentiate the real estate projects that succeed from the ones that fail.
More often than not, the root cause of failure in real estate comes back to various incarnations of poor due diligence. Sure, you might think you have planned for every potential scenario, but there are many distracting pit stops on the road to success in real estate – if you aren’t careful, you might run out of gas before you get there.
Otherwise highly intelligent people can find themselves in a serious situation by making one of these nine mistakes that cause real estate ventures to fail.
1. Over-enthusiasm
You should be excited about the projects you’re working on, but jumping into a project where you haven’t done your due diligence is something I like to call “rose-coloured glasses syndrome.” Your reasons for investing in real estate need more justification than good feelings and a desire to get in the business.
2. Choosing the wrong partners
People spend years dating their spouse before they propose and get married, yet they will become business partners in a real estate transaction very quickly simply because one guy has money and the other has a project…and they don’t even know each other!
You need to get to know your partner before you go into a real estate venture with them. If you don’t, the odds are that it’s not going to end the way you thought it would. Can you really afford to risk having a negative outcome over something that is preventable? Even if you can, that’s not sound logic for running a business.
3. Interest rates skyrocket (and you aren’t prepared)
If you don’t take this into consideration before acquiring, you could be in trouble if or when it happens.
4. Poor risk assessment
There is risk associated with every real estate venture and if those risks are not taken into consideration when you acquire, things can go sideways before you know it. Truthfully, there is an element of luck here, there’s no question about it. There are always things in real estate ventures that are somewhat out of your control so you have to be looking for those potential liabilities when doing your due diligence.
Let’s say you own a very nice condo unit and your next-door unit sells to a new landlord who allows it to turn into a drug house. That’s a good example of something that’s totally out of your control, but it’s up to you to weigh your decision based upon the risks that are in your control.
5. No exit strategies planned
You bought a piece of real estate thinking you need it for a long-term hold. All of a sudden your circumstances change and you need to break the contract or get out of a deal. Then what?
You should have several exit strategies to choose from so that if circumstances do change, you can look at using one of them. Many people buy real estate with one goal and one intended outcome in mind without considering other possibilities. Take a step back and consider your exit strategies ahead of time.
6. Your partner’s circumstances change
Your partner’s circumstances may radically change and this could put you in a compromising position that threatens your ability to recover. There’s a certain element here that’s out of your hands, but part of selecting the right partner is evaluating potential outcomes in the event something does go sideways. Are you ready for those possibilities?
7. Unexpected expenses
This is another for the ‘due diligence’ category. Depending on the project, I’ll always put in buffers to have room for variances in expenses. How much those buffers are will depend on your risk tolerance and comfort level with the situation at hand.
8. Analysis Paralysis
Over-analyzing can kill any real estate deal. Remember that you can analyze anything and find a reason why it won’t work. Where there’s a will, there’s a way. Take it from an accountant: You can’t always trust the numbers.
9. Revenue is lower than expected
When you’re doing due diligence, you have to build your cash-flow models so there is an understanding of flexibility and variability because NOTHING is going to be as you originally estimated coming into the project.
I’ve seen business proposals for real estate projects where the person assumes they are going to be 100 per cent full, 100 per cent of the time in a residential apartment complex. That’s not even possible.
I don’t care how good the market is. You will have turnover and when that happens, you will have vacancies. Although it doesn’t make sense to plan your financials around being 100 per cent occupied all the time, too often I see people planning for this very optimistic scenario and that’s dangerous. Although the intention is noble, the reality will quickly reveal how misguided this approach is.
Be honest and realistic. Those rose-coloured glasses might brighten the future you think you’re seeing for your real estate project, but the real image will inevitably come into focus. It’s you and your advisor’s job to do your own independent due diligence, plan for the unexpected, and consider all possibilities before you close the deal on a real estate project that may end up being more trouble than it’s worth.
Source: http://www.canadianrealestatemagazine.ca/expert-advice/9-reasons-your-real-estate-venture-could-fail-190149.aspx
Monday, April 20, 2015
The benefits of owning multiple properties
Investing in cash-flowing real estate is obviously a benefit for an investor, especially if that investor holds onto the property for a long period of time. Every cash-flowing property has three income streams: cash flow, mortgage pay down, and the appreciation of the property.
Cash flow: The rent collected, minus the expenses. A modest cash flow on a single-family home in any of the large Canadian markets can vary, but let’s use $250 a month as our example. Multiply that monthly cash flow of $250 across 10 years of owning the property: that’s $30,000!
Mortgage pay down: All the while you’re holding a mortgage on a property, it’s slowly getting paid down by your tenant. When you sell the property the difference from the first day you got the mortgage until the day you sold the property is yours in the form of equity.
As an example, let’s use a $300,000 purchase price with a 20 per cent down payment, a three per cent interest rate, a 25-year amortization and a mortgage of $240,000. In 10 years, the mortgage amount would be $206,008, a difference of $33,992.
Appreciation of the property: The third stream of income and usually the largest increase to an investor’s wealth. Historically, real estate appreciates over time. Let's say you buy a property for $300,000 with a modest appreciation of four per cent per year – in 10 years the property is worth $426,990. Congratulations, you have just earned $126,990 in equity.
When all three of these income streams are added together, the investor would have a financial gain of $190,982. Not bad for a 20 per cent down payment of $60,000. Actually, when you calculate the return on investment of the actual money invested (which is only the down payment of $60,000), that is a 318 per cent, or 31.8 per cent per year, return on your money.
I honestly don’t know where else you could find a return that good. Please take into consideration that this is just an example and, of course, there are always unforeseen variables that can cause your returns to fluctuate, such as: vacancies, repairs, interest rate fluctuations, etc. Also, appreciation rates can fluctuate, which is why it is imperative to buy your properties in areas with strong economic fundamentals.
Having many properties provides the investor with many benefits. So ask yourself this question: What if I owned multiple cash-flowing properties? After reading this article and going over the examples provided, you can answer this question. If an investor can benefit substantially from holding one property for many years, multiply these gains – to put it simply, the more properties held, the better off the investor will be.
Now for the downside. As any seasoned investor knows, issues with your properties are inescapable, and regardless of what they are, they usually do come at a cost. Just as you would multiply the returns on your properties, you may also have to multiply your problems. The question you have to ask yourself is: How many years can you stick it out?
Cash flow: The rent collected, minus the expenses. A modest cash flow on a single-family home in any of the large Canadian markets can vary, but let’s use $250 a month as our example. Multiply that monthly cash flow of $250 across 10 years of owning the property: that’s $30,000!
Mortgage pay down: All the while you’re holding a mortgage on a property, it’s slowly getting paid down by your tenant. When you sell the property the difference from the first day you got the mortgage until the day you sold the property is yours in the form of equity.
As an example, let’s use a $300,000 purchase price with a 20 per cent down payment, a three per cent interest rate, a 25-year amortization and a mortgage of $240,000. In 10 years, the mortgage amount would be $206,008, a difference of $33,992.
Appreciation of the property: The third stream of income and usually the largest increase to an investor’s wealth. Historically, real estate appreciates over time. Let's say you buy a property for $300,000 with a modest appreciation of four per cent per year – in 10 years the property is worth $426,990. Congratulations, you have just earned $126,990 in equity.
When all three of these income streams are added together, the investor would have a financial gain of $190,982. Not bad for a 20 per cent down payment of $60,000. Actually, when you calculate the return on investment of the actual money invested (which is only the down payment of $60,000), that is a 318 per cent, or 31.8 per cent per year, return on your money.
I honestly don’t know where else you could find a return that good. Please take into consideration that this is just an example and, of course, there are always unforeseen variables that can cause your returns to fluctuate, such as: vacancies, repairs, interest rate fluctuations, etc. Also, appreciation rates can fluctuate, which is why it is imperative to buy your properties in areas with strong economic fundamentals.
Having many properties provides the investor with many benefits. So ask yourself this question: What if I owned multiple cash-flowing properties? After reading this article and going over the examples provided, you can answer this question. If an investor can benefit substantially from holding one property for many years, multiply these gains – to put it simply, the more properties held, the better off the investor will be.
Now for the downside. As any seasoned investor knows, issues with your properties are inescapable, and regardless of what they are, they usually do come at a cost. Just as you would multiply the returns on your properties, you may also have to multiply your problems. The question you have to ask yourself is: How many years can you stick it out?
Friday, April 17, 2015
How an energy efficient property will save you money
Home efficiency seems to be on everyone’s minds these days – from existing home renovation projects to new home construction developments and even many local businesses choosing to use products which save energy and reduce utility bill costs while leaving a smaller carbon footprint on the planet.
Natural Resources Canada has three programs – EnerGuide Rating System, ENERGY STAR ® for new homes and R-2000 initiatives – which were designed to assist homeowners, homebuyers, investors and homebuilders to make better decisions regarding a home’s efficiency.
If you’re planning a home renovation this year, increasing the overall level of energy efficiency should be the top priority. Not only will this help you save money on your operating costs by lowering energy consumption, it will also reduce the home’s environmental impact and add value to the property upon resale.
But before improvements can be made, investors will need to know the current efficiency level and you can find that out by having an EnerGuide home evaluation. This is performed by a licensed energy advisor who uses tools to detect the source of home energy loss from blower doors, infrared cameras, furnace efficiency meters and surface thermometers.
The advisor will review your property’s utility bills for the past twelve months then assess every room in the home from the basement to the attic to determine how much energy the house consumes, how much it wastes and what measures can be taken to increase the energy savings.
The homeowner will receive a written report that highlights the areas of energy loss and provides recommendations on the best efficiency upgrades that should be done. The house is given a rating for the current level of efficiency and a potential rating once the home renovation and efficiency upgrades are complete.
There are two simple things you can do in the land of real estate that make sense (and save money) to reduce your individual carbon footprint and lower greenhouse gas emissions. The first is to ensure all of your home renovation projects increase the overall level of home energy efficiency and the second is to purchase a new property that has been constructed using ENERGY STAR or R-2000 Standards. Go green!
Source: http://www.canadianrealestatemagazine.ca/expert-advice/how-an-energy-efficient-property-will-save-you-money-190148.aspx
Natural Resources Canada has three programs – EnerGuide Rating System, ENERGY STAR ® for new homes and R-2000 initiatives – which were designed to assist homeowners, homebuyers, investors and homebuilders to make better decisions regarding a home’s efficiency.
If you’re planning a home renovation this year, increasing the overall level of energy efficiency should be the top priority. Not only will this help you save money on your operating costs by lowering energy consumption, it will also reduce the home’s environmental impact and add value to the property upon resale.
But before improvements can be made, investors will need to know the current efficiency level and you can find that out by having an EnerGuide home evaluation. This is performed by a licensed energy advisor who uses tools to detect the source of home energy loss from blower doors, infrared cameras, furnace efficiency meters and surface thermometers.
The advisor will review your property’s utility bills for the past twelve months then assess every room in the home from the basement to the attic to determine how much energy the house consumes, how much it wastes and what measures can be taken to increase the energy savings.
The homeowner will receive a written report that highlights the areas of energy loss and provides recommendations on the best efficiency upgrades that should be done. The house is given a rating for the current level of efficiency and a potential rating once the home renovation and efficiency upgrades are complete.
There are two simple things you can do in the land of real estate that make sense (and save money) to reduce your individual carbon footprint and lower greenhouse gas emissions. The first is to ensure all of your home renovation projects increase the overall level of home energy efficiency and the second is to purchase a new property that has been constructed using ENERGY STAR or R-2000 Standards. Go green!
Source: http://www.canadianrealestatemagazine.ca/expert-advice/how-an-energy-efficient-property-will-save-you-money-190148.aspx
Wednesday, April 15, 2015
Don’t let the down market get you down
Since most of us have either invested in real estate or are planning to do so, it’s natural for us to keep an eye on how the real estate market is doing. But when the market is down, is it really such a bad thing?
People tend to assume that when prices go down everyone is affected in the same way. However, that’s just not the case. Firstly, owners of homes that have no plans to sell are not affected in the least by market fluctuations. You can’t assume a gain or loss in real estate until you choose to sell.
But even if you are planning to sell in a down market, not all sellers are affected in the same way. There are typically four types of sellers in any given market.
Seller #1: Planning to buy another home of equivalent value.
In such circumstances, this seller is not affected by a drop in prices because they are not taking their equity out of the market. Though this seller may have to sell at a discount to get their home sold, they will be buying their next home at a discount as well.
Even by selling their real estate at a lower price than they would hope to get, the first type of seller is not losing money. It makes no sense for this type of seller to wait for the market to pick up again because when prices do go up, they will have to buy their next home at a higher price. These sellers might as well buy the homes they want now and live in them while they increase in value because, either way, there is no financial impact on them.
Seller #2: Planning to buy a more expensive home.
This seller is in the best position possible because higher-valued homes tend to lose value much faster than lower-valued homes in a down market. By selling their home now they can take advantage of buying the more expensive home they want at a significantly discounted price.
Seller #3: Looking to cash their equity out of the market with no plans to buy another home.
This type of seller is negatively impacted by a drop in prices because every hit the market takes lessens the equity they hope to withdraw from the sale. If this seller is unable to wait for the market to pick up again, they should sell fast in case prices continue to drop.
Seller #4: In no position to sell.
This is someone who can’t afford to sell in today’s market because they just don’t have enough equity in their home to be able afford another place. For this seller, it’s best to stay in their existing home and focus on saving up for their next purchase.
Before you can truly appreciate how the market will impact you, it’s important to understand which of the four seller categories you fit into. Not all sellers are alike. A down market only has an adverse affect on those looking to cash out of the market entirely. Chances are, you have nothing to be down about in a down market.
Source: http://www.canadianrealestatemagazine.ca/expert-advice/dont-let-the-down-market-get-you-down-190064.aspx
People tend to assume that when prices go down everyone is affected in the same way. However, that’s just not the case. Firstly, owners of homes that have no plans to sell are not affected in the least by market fluctuations. You can’t assume a gain or loss in real estate until you choose to sell.
But even if you are planning to sell in a down market, not all sellers are affected in the same way. There are typically four types of sellers in any given market.
Seller #1: Planning to buy another home of equivalent value.
In such circumstances, this seller is not affected by a drop in prices because they are not taking their equity out of the market. Though this seller may have to sell at a discount to get their home sold, they will be buying their next home at a discount as well.
Even by selling their real estate at a lower price than they would hope to get, the first type of seller is not losing money. It makes no sense for this type of seller to wait for the market to pick up again because when prices do go up, they will have to buy their next home at a higher price. These sellers might as well buy the homes they want now and live in them while they increase in value because, either way, there is no financial impact on them.
Seller #2: Planning to buy a more expensive home.
This seller is in the best position possible because higher-valued homes tend to lose value much faster than lower-valued homes in a down market. By selling their home now they can take advantage of buying the more expensive home they want at a significantly discounted price.
Seller #3: Looking to cash their equity out of the market with no plans to buy another home.
This type of seller is negatively impacted by a drop in prices because every hit the market takes lessens the equity they hope to withdraw from the sale. If this seller is unable to wait for the market to pick up again, they should sell fast in case prices continue to drop.
Seller #4: In no position to sell.
This is someone who can’t afford to sell in today’s market because they just don’t have enough equity in their home to be able afford another place. For this seller, it’s best to stay in their existing home and focus on saving up for their next purchase.
Before you can truly appreciate how the market will impact you, it’s important to understand which of the four seller categories you fit into. Not all sellers are alike. A down market only has an adverse affect on those looking to cash out of the market entirely. Chances are, you have nothing to be down about in a down market.
Source: http://www.canadianrealestatemagazine.ca/expert-advice/dont-let-the-down-market-get-you-down-190064.aspx
Monday, April 6, 2015
CMHC insurance hike not as menial as believed
The Canada Mortgage and Housing Corp. announced it will increase insurance premiums for those homebuyers and investors who put less than 10 per cent down, and industry players expect the move to impact one type of client in particular.
“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” said Steven Mennill, CMHC’s senior vice president of insurance.
“The premium increase for homebuyers with less than a 10 per cent down payment reflects CMHC’s target capital requirements which were increased in mid-2014.”
This is the second such move in two years. CMHC hiked its premiums from 2.75 per cent to 3.15 per cent in 2014.
Effective from June 1, the insurance premium will rise 45 basis points to 3.6 per cent for those mortgages with less than a 10 per cent down payment. The housing authority said the move, announced late last week, will only add about $5 per monthly payment.
As such, CHMC said it does not expect the increase to have a material impact on the housing market. But that is not a sentiment that’s shared across the country.
“It most certainly will, especially for first-time homebuyers,” said Ron Hollett, an agent in Dartmouth, N.S. “When it’s your first time buying a home, you’re trying to save every dollar and then there are more fees.”
Hollett said the increased insurance rate will then have a domino effect on the market, making it more difficult for homeowners to sell and move up.
For now, though, he’s telling his clients to work hard to make the down-payment cut-off and realize the benefits of homeownership.
“If they can do it, go without the CMHC fees,” he added. “See if they can get money from another source, like family. Nevertheless, we’ll have to work with [the fee increases].”
Source: http://www.canadianrealestatemagazine.ca/news/cmhc-insurance-hike-not-as-menial-as-believed-190000.aspx
“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” said Steven Mennill, CMHC’s senior vice president of insurance.
“The premium increase for homebuyers with less than a 10 per cent down payment reflects CMHC’s target capital requirements which were increased in mid-2014.”
This is the second such move in two years. CMHC hiked its premiums from 2.75 per cent to 3.15 per cent in 2014.
Effective from June 1, the insurance premium will rise 45 basis points to 3.6 per cent for those mortgages with less than a 10 per cent down payment. The housing authority said the move, announced late last week, will only add about $5 per monthly payment.
As such, CHMC said it does not expect the increase to have a material impact on the housing market. But that is not a sentiment that’s shared across the country.
“It most certainly will, especially for first-time homebuyers,” said Ron Hollett, an agent in Dartmouth, N.S. “When it’s your first time buying a home, you’re trying to save every dollar and then there are more fees.”
Hollett said the increased insurance rate will then have a domino effect on the market, making it more difficult for homeowners to sell and move up.
For now, though, he’s telling his clients to work hard to make the down-payment cut-off and realize the benefits of homeownership.
“If they can do it, go without the CMHC fees,” he added. “See if they can get money from another source, like family. Nevertheless, we’ll have to work with [the fee increases].”
Source: http://www.canadianrealestatemagazine.ca/news/cmhc-insurance-hike-not-as-menial-as-believed-190000.aspx
Subscribe to:
Posts (Atom)