August 17, 2017
Getting a US Mortgage as a Canadian
Buying property stateside is intriguing, often affordable, and considerably warmer. That’s why each year, as cold weather sets in, Canadian retirees go the way of the loon; according to Stats Canada, Canadian residents took 20 million overnight trips to the U.S. in 2010.
I know, I know – Cape Cod is not the south… but the charming property prompted me to look into the possibility further. What does buying a property in the U.S. entail?
The Cross-Border Contrasts
A good place to start is the variances between mortgage rules stateside and back home.
“There are few key differences due to the regulatory requirements, laws, and practices which govern the mortgage industry in the US,” says Alain Forget, vice president of sales for RBC.
Timing is an increasingly important element. “The average is 45 days to apply and secure a mortgage in the US, compared with a few days in Canada,” says Forget. “The main reasons is the number of steps in the process, including application, income and asset documentation, credit report, appraisal, title, credit loan review and approval, closing documents”
Getting a mortgage in the US requires a fair bit more documentation than in Canada. RBC has broken it down here. Expect to divulge details from your passport, Canadian-held accounts, and all Canadian property tax statements in addition to the usual income verification paperwork.
Expect to Pay More for Your Mortgage
Forget also points out that costs in the US can be higher – 3 to 4 per cent overall – when you factor in third-party expenses and pro services like property appraisal and title insurance. “This varies per state, for example Florida averages 2.5 to 3 per cent,” he adds.
There are also some key differences for the interest you’ll pay on your mortgage. “US mortgages are compounded monthly versus semi-annually in Canada,” says Forget. “They may also be tax deductible in the US for US citizens and permanent residents.”
How to Apply
If you don’t mind a few long-distance charges, Canadians are able to apply for a mortgage remotely via phone or email. This is usually done through a bank that has operations south of the border.
“They don’t need to have an account with RBC Bank USA to apply for a mortgage,” says Forget. “However we strongly recommend having a US account to facilitate the funding of the loan and monthly payment as well as to facilitate the transfer of the down payment for the closing.”
You can also pre-qualify before you start the vacation house hunt to give you leverage in the event you get into a bidding war with other snowbirds. “The closing should be done in person in the US, usually at the office of the title company,” adds Forget. “This requires minimum traveling across the border.”
Getting a Competitive Rate
In addition to finding a bank with the capability to deliver the mortgage in the state and county where the property is, you’ll want a Canadian-friendly lender. “Most US banks will not lend to foreign nationals like Canadians – or if they do, they might charge a foreign national premium which can be 1.5 to 2 per cent over the standard mortgage rate,” he says.
Working with a Canadian bank with reach into the US often means you don’t need an American social security number to qualify. The key to finding a competitive rate is looking to open mortgages or ones with various term options, Forget adds.
File Under: Things You’re Apt to Forget
Like property ownership in Canada, you’re going to want to make sure you have an account set up to seamlessly transfer funds between Canada and the US to cover those monthly utility bills and property taxes.
“It is also important to seek professional cross-border advice to understand the legal, tax and estate issues which affect Canadians owning US property, since a number of those issues are different between the two countries,” adds Forget.
See, nothing too daunting, right? Find a banking partner in Canada to help you navigate the legal and money stuff and the rest is all about the search.
If you're considering buying a property in the US, how do you get financing and what are the differences in mortgages between the two countries? Andrew Seale of RateSupermarket.ca offers first-hand advice.
August 11, 2017
Get the Best Deal in a Sellers' Market
Buyers and sellers alike need to understand “fear of loss” psychology in home purchases
Whether you are thinking of buying or selling a home, understanding the current market is crucial. You need to know if you’re in a buyers’ market or a sellers’ market because that’s going to affect how your property is marketed and how much money you’re going to get for your home. If you understand the market, that will tell you what your home is worth and what you can expect if you’re a seller. If you’re a buyer, it is going to tell you what the appropriately priced offer on the property would be.
Using the market on the Sunshine Coast right now as an example, we are in a seller’s market. In a seller’s market, you’re much better off listing your property at a price that is going to attract as many potential buyers as possible and try to create an environment where they have a “fear of loss” motivation; you should aim to capitalize on that and end up in a situation where you have multiple offers.
Fear of Loss Motivation
Here’s an example of “fear of loss” motivation – also colloquially known as FOMO, Fear of Missing Out.
Let’s say you’re looking at a newspaper ad because you’re shopping for a black Dodge Dakota. You look at 15 of them – they all have similar mileage, and they’re all around the same price.
If you are the person trying to sell a Dodge Dakota in that environment, the best thing to do is to position your Dodge Dakota to look the best and price it 5% cheaper than all the other ones. Then all the buyers will want to come have a look. Everyone will look at your price and then make offers because they don’t want to miss this opportunity to get this amazing deal.
It’s the same with houses. Even though you may think that your house is unique, and beautifully decorated, with all sorts of redeeming features, the reality is that when people are initially looking at the information available on the Internet, they typically don’t know any of that. They will call up their buyer’s agent and ask to see the home based on the first impression they’ve had from the photos.
Your listing agent has to make sure when they list your property that they have a good understanding of the market value of the house, and then position it in a way where it’s going to get the most exposure and the most interest as possible. Then what needs to happen, in this market, is the listing agent needs to maximize exposure.
This is what I do. I say we’re not going to accept any offers until “this date,” and I give two to three weeks for everyone who is potentially interested in it to come and see it.
Price it Right
A lot of people make the mistake of pricing their home too high, thinking it gives them room to negotiate. For example, if a house is worth $500,000 and they price it at $550,000 because they think they can negotiate and end up with $500,000. That’s the worst thing you can do because that’s going to put people off.
The average buyer is not a professional real estate agent, and they’re the ones deciding which properties they want to see based on their online research.
If you don’t make your home appear to be a really good deal, you’re going to lose a lot of potential buyers. When they come see your home, then they can find out that it’s got lovely decoration, it’s a great neighbourhood, it’s close to a school, and all the other great features. But until they come and physically see the home, it won’t really be on their list, so you can miss a lot of people. If their search parameters are set at prices under $500,000, your house won’t even show up at all.
Understanding and Expertise
You’re much better off understanding the market, understanding how people buy, and understanding the psychology of buyers and sellers. It’s very important. As a seller, it can make you tens of thousands of dollars, if not hundreds of thousands of dollars, in a market like Vancouver.
As a buyer, understanding this can save you the same kind of money. Right now, there are a lot of buyers in our local market using Vancouver agents, paying tens of thousands of dollars too much because the agent they’re working with doesn’t understand the local market. They’re coming from a market in Vancouver where sellers are selling for $2 million, and then buying a place on the Sunshine Coast for $600,000. They think they’re getting a great deal. If they were using a local agent who knew the market, they would probably get the same home for $550,000. But they don’t and $50,000, compounded annually at 3% is a huge amount of money. A local agent who knows the market and is working as a full-time agent in the thick of things can save you, or gain you, thousands of dollars.
August 11, 2017
8 Hacks for Buying a Home in BC on a Budget
It’s no small secret that the Vancouver housing market is a tough one to break into. Among millennials and young families alike, the idea of buying property within the city limits is a daunting one. However, for would-be homebuyers in the Lower Mainland, there are a few simple tricks that can make the market a lot friendlier.
1. Look outside Vancouver proper
You know what they say: location, location, location! The attractiveness of the area you buy in contributes to a fair chunk of a home’s asking price. Rather than look at popular areas in the city that are going to come with higher costs, consider your options outside of Vancouver proper. While the median sale price in downtown Vancouver in the first half of 2017 was $749,500 (and all but one of those attached units), in Coquitlam it was $675,750 (mostly attached), in New Westminster it was $502,000 (also mostly attached). In Surrey North and Central, the median sale price was only $551,000, with more than 40% of those detached homes. It’s clear that for those who can set up house outside of the city, there are huge savings to be had.
2. Buy in a walkable, up-and-coming location
Consider buying a home in an up-and-coming neighbourhood and avoid excessive listing prices. With projects in walkable neighbourhoods such as Brentwood, Metrotown, Surrey Central and Port Moody, these areas could yield real estate gems. And with so many amenities at your fingertips, you’ll save on things like transit, vehicle costs and more.
3. Give up the parking spot
Another way to keep your costs low is to search out places without designated parking. Houses, townhouses and apartments without parking spots will nearly always have lower listing prices than their counterparts with driveways or underground spaces, which can easily cost an extra $50K. To keep things convenient, look for listings in walkable areas and that are close to transit corridors and handy car-sharing options.
4. Buy smaller
Forgoing a little space can save you a lot. Think carefully about how much room your family really needs before you commit to a larger home with a higher price tag. For instance, while you always imagined yourself in a fully detached home, you may find that a large townhouse fits the bill. And if you’re a first-time buyer entering the market, try a small one-bedroom or even a studio to get your foot on the property ladder. Assess your needs carefully before committing to square footage.
5. Buy larger and share – or become a landlord
On the opposite end of the size spectrum, look for places that would allow you to create additional suites to subsidize your mortgage. Having tenants does come with additional responsibilities, but multiple families living in a home makes it more affordable for all parties. Alternatively, you may want to apply for a Vancity Mixer mortgage and share your first purchase with family members or friends.This mortgage offers competitive rates plus the legal and insurance support you need to protect everyone’s best interests.
6. Purchase a fixer-upper
An oldie but a goodie, this nugget of wisdom still holds true. Buying a home with a few more cracks will help you save huge on asking price, whether you plan to renovate through contractors or put in the elbow grease yourself to build up that “sweat equity.”
7. Put gifts towards a down payment
Saving for a down payment is tough. One way to create savings is to put monetary gifts towards your down payment. With that goal in mind, ask friends and relatives for cash gifts if possible. Many couples even ask for cash wedding presents rather than items from a registry, with the intention of putting the proceeds towards a new home.
8. Take advantage of available resources
When you’re actively looking to buy a home, knowledge is power. Look to available resources like Vancity’s first time home buyer’s hub, which has tools to help you build your down payment, calculate how large of a mortgage you can afford and explore mortgage options. Planning ahead with expert advice will save you plenty of headaches down the road.
Breaking into the housing market is difficult, but it’s far from impossible. With careful planning and allowances for location and size where they can be made, home buyers on a budget can find the perfect place to call their own.
July 28, 2017
City’s New AirBnB Rules are a Step Too Far
There’s a better solution for the rental crisis than telling people what they can do with their homes, says agent Leo Wilk
The City of Vancouver is proposing (and we all know what that means) some new regulations on owners of real estate who use their residences or investments as income-generators on AirBnB or other vacation rental websites. Of course, this is yet another cash grab and they have claimed this will free up to 1,000 rentals in Vancouver.
The current rules are that zoning regulations do not allow short-term rentals under 30 days unless you are a licensed bed and breakfast. However, we all know people do not listen to the rules, and who is to blame them? I get it if you want to make everyone who uses property they own as am AirBnB have a licence – fair enough. But you cannot keep telling people what to do with their homes they own. Many people work very hard to afford a home in this city and then are told by the city what they can or cannot do. For me, that just does not make sense.
I know so many people who have a home worth a couple million who do not want a long-term tenant but need to AirBnB every now and then to help out. The City, along with many people, think that anyone who owns a home over a million is insanely rich. But those people work very hard to afford their homes and want to enjoy it without someone living below them.
On top of that, there are many horrible renters out there and they are protected by the Residential Tenancy Act, which makes people not want to do long-term rentals. Ever had a hoarder in your rental? Makes short-term or AirBnB look even more attractive. But once that lease is signed it is a free-for-all, according to the Act.
To give you the quick lowdown, the proposed new rules are as such:
Owners and renters (although the owner probably would not allow a renter) would be allowed to rent part or all of their principal residence on a nightly basis, if they have a business licence. To get a short-term rental business licence you would need to prove it is your principal residence by submitting your property title or a tenancy agreement along with photo ID and recent government or utility mail. Laneway homes, secondary suites, investment units and second homes will not be allowed to be rented out short-term. The City will audit licence applications to prevent fraud – and I am sure this process will be done very fast, just like our building permits! Licensed operators would need to post their licence number in all online advertising. People operating rentals without a business licence will face fines and legal action – which of course equals money to the City.
Here is my quick solution.
If the City wants to free up long-term rentals, why don't they change the regulations on strata corporations who have rental restrictions? Make it so that you cannot restrict the amount of rentals allowed in buildings. This would literally solve the rental crisis overnight and thousands and thousands of rental condos would come to market.
On the flip side of that solution, however, I do think it would mean fewer condos for sale, because now all these people who are forced to sell when they need to upsize, downsize, move out of town, etc., can hold their properties and rent them out.
July 27, 2017
5 Terms Every Condo Investor Needs To Know!
For new investors, it’s easy to get overwhelmed by facts, figures, formulas, and different investment calculations. And, although many people are aware of condo investing terms, they have trouble defining them or deploying them properly.
Our goal today is to demystify the most important condo investing terms that you need to know. This will not only make you a better investor, but it will help you impress your boss at the next company meeting.
Although there are many different types of real estate investing, the fact is that there are several key terms that every condo investor should know.
Lucky for you, we’ve compiled them here in a handy list. Think you know them all? Keep reading and see!
Key Condo Investing Terms #1 – Return on Investment (ROI)
ROI, or return on investment, is an important formula to gauge how an investment performs. It’s a simple, quick calculation – easily done on a napkin – that lets you know how profitable an investment is.
The formula looks like this: ROI = (gain from investment – cost of investment) / cost of investment
For example, after four years you decide to sell the downtown Toronto condo you invested in. You bought it for $350,000 four years ago with a 20% down payment, or $70,000. It appreciated at an annual rate of 5.82%, which is the compounded annual growth in Toronto over the past 30 years. So that means your condo is now worth $440,127.
Let’s assume you sell it for $440,000 and have a remaining mortgage balance of $250,000. Your gain on investment is therefore, $190,000.
You also had expenses, including closing costs and upgrades, totaling $20,000. So your cost of investment is your down payment plus expenses, for a total of $90,000.
Now, let’s put these numbers into the formula:
- ROI = (190,000 – 90,000) / 90,000
- ROI = 100,000 / 90,000
- ROI = 1.11
- ROI = 111%
Over four years, your return on investment is 111%. That’s not bad! Some investors set a standard ROI they aim for and won’t buy anything that yields less than that.
Key Condo Investing Terms #2 – Pre-Construction Appreciation
One of the many reasons real estate is a great investment vehicle is long-term property appreciation. But, condos have a second opportunity for appreciation, through the wonders of pre-construction appreciation.
When you buy a condo before it’s constructed, you are paying today’s prices for a condo that won’t be constructed for several years. That means when your condo is move-in ready and you actually buy it (take out a mortgage), it’s already appreciated.
We won’t get into greater detail about the merits of pre-construction condos just now, as we have a lot more juicy stuff about this to share with you in the weeks to come.
Key Condo Investing Terms #3 – Net Operating Income (NOI)
NOI, or net operating income, like ROI, is a great tool for calculating how profitable your properties will be. Although it may sound a little technical, the formula is actually quite easy:
NOI = Revenue – Expenses
This is an annual calculation and assumes you own a property free and clear. Expenses include all your operating expenses such as taxes, insurance, utilities, maintenance, etc.
Imagine you bought a property that produces $21,600 per year in rent ($1,900 per month). Your monthly expenses include the following: property taxes at $200, condo fees at $150, and insurance is $50. This is $400 a month, or $4,800 yearly.
That would mean that your NOI = 21,600 – 4,800 = $16,800. Calculating the NOI is an easy way to compare properties and maximize your cash flow.
Key Condo Investing Terms #4 – Capitalization Rate (Cap Rate)
Now that you know how to calculate the NOI, we can move on to something a little more complicated. The cap rate is another way of calculating the rate of return on your investment properties.
Although this formula is expressed as a percentage, many investors use only the number when referring to a cap rate. For instance, “the condo one of my clients just sold had a 5 cap!”
Here’s how it works: Cap Rate = NOI / Current Market Value
So let’s use the NOI we calculated earlier – $16,800 NOI. And, let’s assume a $350,000 market value of your condo investment.
So, your cap rate = $16,800 / $350,000 = 0.048
Expressed as a percentage, your capitalization rate is 4.8%, or a respectable 4 cap! This calculation is a great way to compare investment opportunities.
Key Condo Investing Terms #5 – Refinancing
Refinancing is a crucial part of all real estate investing, and can save you thousands of dollars per year. Like most other investing concepts, refinancing seems a little scary if you’re not familiar with it, but it is a very straight-forward process.
Refinancing is simply negotiating a presumably better interest rate and/or terms for your property. It is usually done for one of two reasons: either to get a better interest rate, or to free up capital for your next investment. And the beautiful freeing up capital for your next investment, is that you can pull it out free of capitals gains by refinancing. Capital gains aren’t actually realized until the property is sold, whether that is in 1 year or 100 years.
We’ll be going deeper into detail about the power of refinancing next week. In the meantime, consider talking to a mortgage broker to see if your properties are worth refinancing.
The above list of condo investing terms is by no means comprehensive. But, these five terms are some of the most important you need to know as a condo investor.
If you’re consistently putting these concepts into practice, you’ll be in a much better position to analyze and evaluate your existing and future condo investments – which, in turn, means more money in your pocket.
July 17, 2017
Low Supply Keeps BC Housing Prices Climbing
Average sale price increases in every real estate board in the province in June
Sales may be down from last year’s record-breaking activity, but that doesn’t mean home prices across the province are falling, according to the latest figures from the British Columbia Real Estate Association (BCREA) released July 13.
The BCREA reported that 11,671 BC homes were sold on the Multiple Listing Service® (MLS®) in June, a fall of 9.6% from June last year, and down 5.9% compared with May’s surge.
However, the average MLS® sale price in BC was $725,778, up 4.4% from the same month last year, and rising on an annual basis in every one of the 11 BC real estate board areas.
“Although home sales remain well off the record pace set last year, demand is still quite robust," said Brendon Ogmundson, BCREA economist. "That demand is supported by a strong provincial economy and vigorous job growth.”
He added, “Supply remains a challenge, which means most areas are seeing tight market conditions and significant upward pressure on prices.”
The number of total active listings across the province was down 6.2% to 29,651 units compared with June 2016.
Chilliwack was the board to see the highest annual price growth, up 18.3% year over year, followed by Kootenay, Victoria and Vancouver Island. Greater Vancouver saw the lowest average price increase of the 11 BC boards, a rise of 2.7% since last June.
Sales activity painted a different picture – revealing that it is largely supply, rather than sales volumes, that dictates price points. Along with Greater Vancouver, where sales were down around 12% in June year over year, Chilliwack saw an 11% annual sales decrease. In both Vancouver Island and Victoria, where prices are climbing robustly, year-over-year transactions declined 13-14%.
June 29, 2017
Do You Fear An Interest Rate Jump ?
With much speculation that interest rates can only – and surely must – go up, local mortgage expert and broker coach Dustan Woodhouse is asked on a daily basis whether he expects this to happen any time soon.
His answer? It’s the same reply he’s been giving clients for years, as the same question emerges in every hot spring market. And that answer is: probably not – but you have little to fear even if rates do rise.
Woodhouse, a mortgage broker with Dominion Lending Centres, told a recent edition of the Real Estate Therapist show on Roundhouse Radio, “It’s not about the interest rate, that shouldn’t concern you – it’s about the effect that interest rate rise will have on the payment you make on your mortgage.”
Woodhouse pointed out that about half of Metro Vancouver home owners do not have any mortgage outstanding – “that’s our parents and grandparents” – and the average mortgage balance held on the remaining 50% of homes is around $400,000.
He added that the majority of home owners won’t be affected by an interest rate rise, as 80%-plus of mortgage payers are on a five-year fixed rate. Those who locked their rate in three or four years ago will have locked in at a higher rate than today’s, so they likely won’t see a payment rise when they renew in a year or two. And those who have more recently begun their five-year term have plenty of time to pay down the principal at the lower rates and mitigate any payment shock in four or five years’ time.
Even those who are currently on a variable rate might not see any payment increase either, says Woodhouse. Many lenders’ variable-rate mortgages don’t increase payments with a rise in interest rates, they just change the composition of what the mortgage holder is paying back – a little more interest, a little less principal.
Dollarizing the “Payment Shock”
The remaining small fraction of adjustable-rate mortgage payers, who will see payments go up with an interest rate increase, can also rest assured that it might cost much less that they might imagine, said Woodhouse.
“Let’s dollarize that ‘payment shock.’ A quarter-point interest rate movement represents $13 per month, per $100,000 mortgage, for the average mortgage holder. So that’s $52 bucks a month extra on the average $400,000 mortgage balance.
“That does not equate to a housing collapse. That is not blood in the streets... A quarter-, half-, even a three-quarter point rise in interest rates would have any significant impact on the housing market. In fact, it might rush more people into the market, as they think ‘Oh no, rates are going up, we need to get in now.’”
However, Woodhouse was quick to point out that he doesn’t think that interest rates will go up any time soon. He said that considering the federal government is pumping $23 billion into the economy, it wouldn’t make any sense to also increase interest rates, which would slow economic growth.
“They have one foot down hard on the gas pedal to rev up the economy, so to have another branch of the government, the Bank of Canada, raising interest rates – that’s like the other foot being put on the brake pedal.”
June 16, 2017
Vancouver's Affordability Issues Have Only Just Begun
Vancouver housing market "ain't seen nothing yet"
The Vancouver real estate market, far from reaching its peak in terms of unaffordability and lack of housing, is merely “dancing on the edges of a massive problem,” according to one leading development marketer.
Speaking to a packed audience at the Urban Development Institute luncheon on new home marketing at the Fairmont Hotel Vancouver June 8, Cameron McNeill of MLA Canada added, “We ain’t seen nothing yet.”
The panel of well-known development marketing bosses, which also included Scott Brown of Fifth Avenue Real Estate Marketing and Daryl Simpson of Bosa Properties, discussed how blistering demand and a trickling supply of new housing is affecting the affordability of homes in the region.
Event moderator and UDI chair Jon Stovell of Reliance Properties asked the panel whether onerous building permit requirements and slow processing times were affecting home prices – to which the reply was unanimously “yes, absolutely, 100%.”
Cameron McNeill said that the Metro Vancouver region is expected to grow by 250,000 people in next five years, and that it currently takes around six years to get a highrise residential project from conception to occupancy – “if it all goes well”. He said, “And that’s maybe 300 units. The city is 300,000 people bigger by that point.” However, McNeill's comments do not jive with Metro Vancouver's projections for population growth, which would estimate an additional 180,000 people over the next six years.
McNeill added, “We’re dancing on the edges of a massive, massive problem. And it’s not going to change. I just came back from Hong Kong and everybody I spoke to said to me, ‘That’s nothing.’ We ain’t seen nothing yet. This is just the tip of the iceberg for Vancouver.”
Daryl Simpson pointed out that population growth numbers, and therefore housing demand, would likely be even higher than projected, as projections are based solely on permanent residents and citizens. “One thing they rarely look at student visas and multiple-entry visas. There were 67,000 student visas in BC last year. And you have to think, if they’re flying to BC to study, these are students with means, maybe wealthy families. In 2016, there were 315,000 multiple entry visas – they last 10 years and allow people to fly back and forth. So you need to layer those on top of the permanent residents and citizen population growth.”
Scott Brown said, “You can’t fix demand. And if this is a housing crisis as the media says, where is the multi-stakeholder group figuring out how to speed up supply? If we were going to war we sure as hell would be working out how to arm up quickly. But we spend more time working out how to break things apart than how to fix things. We need to work together. We’re trying, but putting one project a time on the market, there’s so much demand, prices just keep escalating.”
Simpson added, “Look at the 450 acres in False Creek Flats, with 1,400 residential units in total earmarked for that area. That’s three homes per acre. That’s insane. Ask Ryan Holmes of Hootsuite what he needs, it’s not 450 acres of industrial land, its proximate residential units [so employees can afford to live in Vancouver close to work]. Ask Amazon, they’ll say the same thing. Go to Seattle, there are more residential units being built by Vancouver developers – Bosa, Westbank, Onni – right across the street from the Amazon HQ than will be built in the whole of the False Creek Flats.”
May 26, 2017
How to Make Your Mortgage Tax Deductible and Increase Your Net Worth
If you have home equity, there's a neat method to use it to make investments and write off the mortgage interest. Jorge and Alisa Aragon explain how
For US homeowners, mortgage interest is automatically tax deductible, but for Canadians, the write-off is not so straightforward. However, there is a way for you to deduct your mortgage interest while increasing your wealth, an approach known as the “Smith Manoeuvre”.
In order to make your mortgage interest tax deductible, homeowners must be able to prove that the money is being reinvested and is not being used for personal expenses.
A properly structured mortgage-centric tax strategy has several key elements – the most important of which is a multi-component, mortgage or home equity line of credit (HELOC). You will need a readvanceable or line-of-credit mortgage that lets you continuously extract equity as you pay your mortgage down.
Every time you make a payment and reduce your principal, you then immediately extract that equity and add it to your investment account. Since you have been able to deduct your mortgage interest, at the end of the year you will generate a tax refund that you can use to make a lump-sum payment on your mortgage –which makes even more funds available for investment.
It’s best to have a single collateral charge with at least two components – usually a fixed-term mortgage and an open line of credit – that can track and report interest independently. This is absolutely essential under Canada Revenue Agency (CRA) rules and guidelines. In addition, for the interest payment to be tax deductible on any money borrowed for investment purposes, it must have a reasonable expectation to be able to produce an income.
Second, the strategy must employ conservative leverage-investment techniques – which is why a financial advisor must be involved in order to comply with federal regulations. The financial advisor should be a Certified Financial Planner (CFP) who is experienced in leveraged investing and able to actively monitor a homeowner’s portfolio on an ongoing basis.
Homeowners who opt for a tax-deductible mortgage interest plan make their monthly or bi-monthly mortgage payments the same way they would when making any type of mortgage payment. The payments go towards reducing the principal amount of the mortgage, creating equity; which is subsequently available to be borrowed on the line of credit. From there, the equity available in the line of credit must then be transferred to an investment account, which can be done automatically by your Certified Financial Planner.
Essentially, the homeowner is borrowing from the paid portion of the mortgage for reinvestment purposes.
On average, a typical 25-year mortgage can become fully tax deductible in 22.5 years.
The Ideal Client
Ideal borrowers for an advanced mortgage and tax strategy are typically professionals or other high-income earners who have a conventional mortgage, and have at least 20 per cent of the cost of the home to put towards a down payment, or who have built up substantial equity.
As high-income earners, their total debt-servicing ratio will be quite low and they will have excellent credit (680+ Beacon scores). These borrowers are financially sophisticated homeowners that are keenly interested in establishing a secure financial future and comfortable retirement. They also have good investment knowledge.
The financial benefits of tax-deductible mortgage interest are indisputable and justify the risks to the right borrower. That said, a problem can arise if a homeowner spends the funds as opposed to reinvesting them. As well, any tax refunds should be used to pay down the mortgage as quickly as possible – thus making as much of the interest payment as possible tax deductible.
The short-term financial risk is liquidity (sometimes referred to as cash flow risk). Cash flow risk addresses the possibility that interest rates will sharply drive up the cost of borrowing at the same time as markets falter, resulting in a negative client monthly cash flow for a brief period of time.
This short-term risk is typically only prevalent in the first two to four years because, after this period of time, the homeowner has stockpiled enough equity through annual tax refunds that other liquidity options exist and the risk is fully mitigated.
Liquidity risk varies widely based on the balance sheet strength of the homeowner. Highly qualified homeowners are easy to manage as these borrowers have no difficulty meeting the short-term cash flow demand should the need arise.
Combining this tax deductible mortgage with a sound investment strategy can significantly increase your net worth over the long term. Talk to a mortgage expert for a free analysis of how the Smith Manoeuvre can work for you.
February 8, 2015
Buying a condo? Make sure you understand Strata Corporations
If you are buying a condo or any other strata property, it’s essential that you fully understand how strata corporations work. You may decide that you want to be on the council or you may decide to take more of a back seat. Either way, you need understand the system and processes in place to ensure your building is being well managed and your investment is protected.
Strata Corporation as Local Government
The Strata Property Act works like the Canadian constitution in how it divides powers, obligations and rights between owners and strata councils. In fact, it creates a structure that often mirrors our provincial and federal governments.
The owners in a strata corporation can be viewed as the legislative branch of government. General meetings are like legislative sessions, but instead of representing the interests of constituents, each owner represents the interests of their strata lot. The owners in a strata corporation control the budget and generally need to approve capital and unexpected expenditures and any significant changes by three-quarters or unanimous vote.
The strata council is the executive branch of the strata corporation. Strata councils manage day-to-day affairs, spend money approved by the owners and enter into agreements on behalf of the strata corporation. Strata councils also set the agenda for most general meetings, determine whether owners have breached bylaws and rules and hear rental restriction hardship exemption applications.
Like most government bodies, strata corporations are set up to be self-policing. If owners don’t like how their building is being run, they can elect a new strata council. When strata councils or owners fail to meet their legal obligations under the Strata Property Act and the bylaws, they can call on the courts to protect their rights or require another party to fulfill their obligations.
Access to Information
Under the Strata Property Act and regulations, strata corporations must maintain a comprehensive set of records. Owners may inspect or request copies of these records and strata corporations must produce the records, subject to some limitations, within one or two weeks.
Voting and Holding Office
Generally, every owner has the right to vote at a general meeting and stand for strata council, subject to a single exception. The Strata Property Act permits a strata corporation to pass a bylaw restricting an owner’s right to vote or stand for council if the strata corporation is entitled to file a lien against the owner’s strata lot.
Only certain kind of debt are subject to a strata lien and a strata corporation must deliver a special demand for payment at least two weeks before denying an owner the right to vote or stand for council. Outstanding fines cannot be used to prevent an owner from voting or holding office.
Calling Meetings and Setting the Agenda
While a strata council can call a general meeting at any time, the Strata Property Act allows owners to call a special general meeting or require that a strata corporation include one or more resolutions on a meeting if owners representing at least 20% of the votes sign a petition requesting that one or more resolutions be put to the owners.
Where a demand is made under section 43 of the Strata Property Act, astrata corporation must call a special general meeting within four weeks and place the requested resolutions at the top of the meeting agenda. Where a demand is made under section 46 of the Strata Property Act, a strata corporation must include the requested resolutions in the agenda for the next general meeting.
Directing and Restricting Council
Owners have the power to direct a strata council to take certain action or restrict a strata council’s authority by passing a majority resolution under section 27 of the Strata Property Act.
Good Governance Protects Your Investment
In my law practice, I encourage strata corporations and owners to adopt good governance practices in order to strengthen their communities. Strata corporations and owners that obtain timely and knowledgeable legal advice are often able to avoid or minimize conflict and reduce liability while building healthy communities and a better return on their investment.
For additional information on this and other strata property topics, visit my free online strata law guide at www.stratalaw.ca. Finally, always remember that this article provides general reference information, not legal advice. If you have a legal problem, speak with a strata lawyer.
January 18, 2015
Don't Skip these 9 Winter Home Maintenance Tasks
In order to prepare for winter, there are a number of beneficial tasks that you can carry out to ensure that you have a safe and comfortable winter.
Furnace/boiler tune-up, replace filters: Before you experience an issue with the furnace or boiler, it is best t to call in a heating contractor to service the equipment. They will clean it out, test it for safety and replace all filters as needed. While you are at it, have the water heater inspected as well.
Clean gutters: If you live in a location with heavy vegetation, it is a good idea to have your gutters and drains cleaned often, while checking for leaks. Overflowing and or leaking gutters can cause moisture damage to the home, so be sure to have them properly maintained.
Shut off exterior hose bibs: Find out where all of your exterior hose bibs are located, turn them off and drain all the water before it gets too cold. Exposed, pressurized water can freeze and cause leaks.
Test your smoke detectors and replace all expired ones: I recommend checking your smoke detectors at last every six months. If they are six years or older, they are 50 per cent less effective, so replace then if you need to. Also, all smoke detectors should be interconnected and hard-wired so they can be heard on all levels of the home. An electrician can help with this if you are not comfortable with your electrical system.
Have the roof inspected: Although it is much safer in the summer, a good winter roof inspection by a licensed roofing contractor or inspector should be considered, especially if it has not been done recently.
Have the attic inspected and add weather stripping to the hatch: In my opinion, the winter is the ideal time to check the attic, especially when it is raining. You can look for leaks, evidence of pests, insulation levels and ventilation. To reduce your heating costs have a proper weather strip applied on the attic hatch.
Caulk windows and doors, add weather stripping: Although summer is the ideal time to do this task, you’ll be able to check for drafts much easier in the winter. Take a trip to the hardware store to purchase the right type of caulking for your needs. Any damaged weather stripping can be applied to exterior doors.
Remove all items and vegetation from the home: All plants growing or storage items against the home should be removed to prevent moisture issues. This is an easy way to maintain the exterior, while preventing damage. In addition, remove snow from the foundation wall and clean all exterior vents.
Repair minor interior items: Why not take the time to repair those miscellaneous items that have been in the back of your mind all year? Loose door handles, trim, handrails, cupboards, bathroom and kitchen caulking, etc, can all be done in the winter.
Of course, many of these tasks can be done before winter, yet it is better late than never.
Source: REW.ca, Sean Moss - registered home inspector
January 11, 2015
New Year? New Job? Here's How it Could Affect Your Mortgage
As we prepare to usher in 2015, many people start thinking about changing jobs. If you’re planning to apply for a mortgage in the coming year, then you may want to consider how mortgage lenders view your employment history as part of the underwriting process.
In an application for a new mortgage, transfer, or a refinance, lenders look at three years of employment history. Most of the time they are just looking to see how stable your position and the consistency of your income. Here’s how your employment history applies to different scenarios:
- Self-employed: If you’ve recently left a job to be self-employed, it could be more difficult for you to qualify for a mortgage because lenders generally want to see two years of income and tax returns for a . Some banks offer “stated income” loans that don’t require income verification but you’d generally need a down payment of 35 per cent or more. You would still need two years of being self-employed for a stated income loan. However, if you are putting down 35 per cent and your current field is consistent with what your experience is in, they may give you an exception. Otherwise, the lender would need to see when the company was registered.
- Salaried job: If you just started a new job, lenders usually want you to pass a three-month probationary period and be a full-time permanent employee. If you are working in the same field and get another salaried job, then you would only need to pass the three-month mark at your job to show that the job has some staying power.
- Job with hourly pay or bonus: If your pay relies on a bonus, or if you are hourly and work more than the normal hours indicated on your employment letter, then lenders will want to see a two year average of your income. I had a client who is a truck driver and because he was in his last job for over 10 years, I was able to use a two-year average, which of course included many hours of overtime. But he decided to go to another job and although he was actually working more overtime and getting a better pay, I could not use any of the extra income because there wasn’t enough history. Some exceptions can be made if the year to date is very strong.
If you plan to apply for a mortgage with a spouse who has stable employment and high enough income to qualify for the mortgage, then these scenarios become less of an issue.But a lot of clients in Vancouver need both incomes to qualify for the mortgage because home prices are so high.
When in doubt, consult a mortgage broker to see how changes to your employment or financial situation might impact your mortgage eligibility before you make the leap.
Source: REW.ca (Atrina Kouroshnia)
December 23, 2014
Buy vs Rent? Which is better long term?
To buy or to rent? It's one of the most hotly debated questions in any city - and nowhere more so than the Lower Mainland. Here, expensive housing means that buying is often a big trade-off between your money and your lifestyle.
While many believe that the benefits of owning your home far outweigh being beholden to a landlord, others argue that more money can be made over the long term by investing the savings made from renting.
So what are the pros and cons of renting versus buying - and which choice is ultimately going to offer the best long-term financial outcome for you?
Check the Vancity Mortgage Calculators and Investor Education Fund Buy-Rent Calculator
1) Live where you want.
When you find a neighbourhood you love, you can probably afford to live there as a renter, even though buying there might be out of the question.
And if you're new to town, renting is a terrific way to test-drive a neighbourhood. Decide you don't like the local shops, length of the commute to work, traffic noise, or view? No sweat at least, it's no more sweat than packing your stuff and moving somewhere else.
2) Stay flexible.
Let's face it, if your job or your round-the-world travel plans mean you'll only be in town for a couple of months or even a year, it makes sense not to be tied into a mortgage. Renting is also far more cost-effective than living in hotel even when you pay the extra for a fully furnished suite plus you get the convenience of extra space.
3) Maintenance? Not your problem.
When you're a tenant and something breaks, help should be no more than a phone call away, with no cost to you to fix it. Consider the expense associated with a leaky roof, water damage from a burst water pipe during a cold snap, or even replacing the shrubbery that expired in an heat wave while your were on vacation.
These are the kinds of sudden expenses home owners face and renters don't. And owners also have to factor the ongoing costs of maintenance into their budget, on top of their mortgage payments. Those are all included in your rent.
4) Avoid the extra costs of buying.
Aside from maintenance costs, buying a home involves a host of extra expenses that add thousands of dollars onto the purchase. These include legal fees, property transfer tax, inspections, sometimes GST and more. Renters escape these up-front costs entirely. (See our infographic on the extra costs of buying.)
5) Know what you'll pay.
And there's the stability of knowing exactly what your monthly outlay will be. In BC, 2014 rent increases are limited to 2.2% by law. Mortgage rates aren't. Although we've enjoyed historic low interest rates for a number of years, there's nothing to protect home owners from a return to higher rates in the future a particularly scary thought for anyone who's paid only a minimal down payment.
6) Invest the difference.
Many owners are stretched and have no room for savings. Smart renters invest the money they save by renting, and make sure their RRSP and TFSA savings are at the maximum so they take full advantage of tax refunds and tax-free growth. It requires discipline and attention (and a trustworthy financial advisor), but the returns over the long term are very close for owning a home and investing in the stock market. John Andrew of the Queen's University Real Estate Roundtable did a study that found TSX annual returns from 1981 to 2012 were 5.45 per cent, excluding dividends, compared to 6.43 per cent for Vancouver housing over the same 30 years. Another study, quoted by Rob Carrick in the Globe and Mail cited stock exchange gains of 8.5 per cent over thirty years.
1) Enjoy the fact it's all yours.
It's a cultural thing with Canadians to want to buy a home about 70 per cent of us do. Pride of ownership, the ability to decorate how you like (even if your favourite wall colour is purple), and the stability of knowing no landlord can force you to move are big motivators.
2) Put your money to work.
Typically the biggest motivator is dollars and cents. Renting means every penny of your monthly payment is spent gone for good period. On the other hand, a portion of each month's mortgage payment goes to reducing your principal it's like putting cash into your own savings account rather than someone else's.
And with time your home's value will probably go up. Historically, housing values continue to rise steadily over time, thus creating a solid investment in your future. As they say in real estate, it's not timing the market, it's time spent in the market.
Then there's the leverage factor. Let's consider a hypothetical $400,000 apartment. A 20% down payment would mean an actual investment of $80,000. As your property value increases, however, you reap the benefit on the entire $400,000 so an annual increase of just 2.5% in property value translates to $10,000 or a whopping 12.5% return on your initial investment. Of course, you could always settle for something closer to the current return of 3% or less on a term note.
Most insiders agree that today's historic low mortgage rates show no sign of bumping up any time soon. And while a 25-year amortization on a mortgage may sound like a long time, it goes by fast and suddenly you're mortgage free with only property tax and maintenance to pay. Rent, on the other hand, never ends it only increases.
3) Benefit from competition for your dollar.
In today's competitive market, developers are offering increasingly innovative incentives for buyers considering a brand-new home. No strata fees for a year or more, legal expenses, exotic vacations, upgrade packages, custom vintage wines, even cars have made appearances as no-cost buyer incentives.
4) Make tax-free profits.
Final thought to ponder. Although an RRSP should be part of every retirement plan, you will always need a roof over your head. You're also forced to convert an RRSP at age 71 and begin withdrawing funds and paying tax on them. But only you choose when to sell your home. Best of all, when you do sell, that profit is tax free on your primary residence and after all, who doesn't like to get a tax-free windfall?
Vancity Mortgage Calculators
Investor Education Fund Buy or Rent Calculator
Let's do a sample calculation from the Investor Education Fund website, taking the example of a person trying to decide between purchasing a two-bedroom West End condo for $500,000 or renting a similar condo for $2,000 a month.
We plugged in the buying scenario of:
$500,000 purchase price;
a 20 per cent down payment;
buying costs of $7,500 (waived Property Transfer Tax as the assumption is this would be a first-time buyer);
a $400,000 25-year mortgage at 5 per cent (monthly payment would be $2,326, according to the Vancity calculator);
strata fees of $5,000 a year;
property taxes at $5,000 a year;
home insurance at $1,200 a year; and
various other standard parameters such as price growth and inflation.
Then we compared this with renting the same apartment:
$2,000 a month rent;
2 per cent annual rent increase; and
the renter investing all the savings (money not spent up front and on monthly fees such as strata fees and taxes, as well as the difference between rent and mortgage payments) into a 3 per cent return investment.
The graphic results below indicate that after 19 years, this particular person could be better off buying than renting.
However, this calculation makes some huge assumptions - such as a mortgage rate that averages 5 per cent over 25 years, and this person being a first-time buyer. A few adjustments in down payment, mortgage rate, strata fees, taxes, investment return and so on can make massive differences to the results. It is essential to work out what is best for you based on your individual factors.
- See more at: http://www.rew.ca/news/buy-vs-rent-which-is-better-long-term-1.1341666#sthash.QYsQye61.dpuf
Source: REW.ca, by Susan M. Boyce
December 23, 2014
Investing in Real Estate: Finding the best locations
By: Ken Davidson
I was recently asked by a real estate investor group to speak at one of their meetings. The topic of real estate is a broad one, so I asked if there was something specific they were interested in learning more about.
Not surprisingly, the topic they wanted to focus on was what to look for when finding the perfect community to invest in, i.e. what are the signs that identify the communities with the best investment potential?
I don't look at major cities. These markets are watched intensely by many in the industry who buy using different parameters and who are okay with a smaller ROI. Personally, I look at regional centers -- the smaller cities that form the hub for many outlying communities.
The following are important factors in determining if an area is a regional centre:
1. It is highly accessible. Access is key, and that usually comes along with a regional centre, but I look for good highways and airport access. How easy is it to get in and out of the community? This is important.
2. Investment from the private sector. If newer big box retailers are entering a community, the odds are that they have access to much better research on the community than I do. They want to be in a community that is growing and vibrant, and this is the same type of community I prefer to invest in.
3. Re-development of public infrastructure. I look for upgrades occurring in public buildings and other public assets in the community itself. If school districts are growing, hospitals are expanding and recreation centres are being constructed, the federal, provincial and municipal governments are probably investing money into the area.
4. The purchase price works. It might be obvious, but the purchase price always has to work. I make sure that the purchase price of properties in the community is going to give me my required ROI based on normalized market finance terms and conditions. We can all negotiate low interest, short-term, vendor-take-back financing, but when you’ve overpaid and it comes time to refinance, be prepared to open your wallet. Fantastic short-term financing is a bonus, not a plan.
5. Strong employment. I am in real estate for the long-term so I prefer middle class, working communities over boom-and-bust areas or tourist towns. I search the city’s economic page on their website and read local papers for news of new industries coming to town, transportation hubs, medical centres or other places where people are employed in large numbers.
6. Stable increase in population. If you are looking at investing in a community and the population is declining, you really have to determine what your exit strategies will be. Who is actually going to buy your property if the population is going down? Population growth is usually linked closely to new industry employment.
7. Talk with property managers in the area. When I go into a community I always interview local property managers. You need a great property manager on the ground to solve issues as they arise, quickly and efficiently, especially if you don’t live in that community yourself. You need a property manager who is willing to give you all the information you feel you need to be comfortable managing from afar.
During the interview ask for a list of the properties currently under their management and do a drive by. Find out what they feel about the local rental market and what they charge for rent. Inquire about what type of vacancies they have with their current projects and just get to know them in general.
8. Is the area large enough to create inventory? As a real estate investor, the areas I look at need to be large enough that I can buy enough inventory to justify the management and travel expenses created by it.
Are there enough properties that are going to become available over the next few years that will allow me to have more than one property in the community? If you only have one property in a community, the percentage of revenue allocated to managing it is significantly increased.
9. Expanding a remote market. When looking to expand outside of a market that is already a plane ride away from where I live, I try to stay within a one-hour drive from my hub city. This allows for ease and efficiency of business travel.
For instance, when I selected my target city in Ontario I tried to keep all properties within an hour’s drive in any direction. I then copied this model in Nova Scotia, British Columbia and parts of the US. I fly in, rent a car, drive to inspect my properties, meet with the necessary people, then return to the airport and fly on to my next hub community.
10. Speak with an advisor. There is always the chance that a community you are considering is experiencing the downward part of a cycle. If this is the case, and it’s a good vibrant community that has come out of similar cycles in the past and you believe it will in the future, there is a potential opportunity there as well. Speak with a trusted advisor and seek sage counsel before investing in a situation like this.
Ken Davidson is an investor and partner at BDO
December 2, 2014
Avoid These Mistakes When Buying an Investment Property
Owning an investment property can be a great way to create financial security for you and your family. Buying a condo, townhome, house or small multi-unit building has lots of advantages, including monthly rental income, property value appreciation, tax deductions and the ability to use the bank’s money to make more money for yourself.
However, you have to invest in an investment property with your eyes wide open. Here are some potentially expensive mistakes to avoid:
- Treating the property purely as an investment and not as a business. Owning an investment property is like owning a business. People think the only thing they have to do is buy it, rent it and forget it. Decisions will need to be made from time to time regarding maintenance and upgrades, rent reviews, new leases, etc. Even if you hire a property manager that will do the work, they can only do what is instructed.
- Unwittingly breaking a law. Before you buy, do some research. Make sure you understand landlord laws, your responsibilities and liabilities, and the ins and outs of leases.
- Not getting pre-approved first. Talk to a mortgage expert before you start your search so you know how much you can qualify for and you know what you are going to require.
- Not factoring in running costs. The price of the home is only the first of a series of home ownership expenses. Before you rush off at buying consider some of the costs such as property taxes and strata fees if applicable.
- Working with a buyer’s agent. Work with a trusted real estate agent that has experience and knowledge on buying investment properties. Buying an investment property is about numbers while buying your own home is about an emotional purchase.
- Buying a property sight unseen. This could be a recipe for disaster. Unless you do a site inspection yourself or have your real estate agent who knows exactly what you want. This is a big investment surely you can take the time to inspect it.
- Not checking out the property adequately. Having the property professionally inspected can help avoid unexpected expenses. There are many potential problems with any home that you are not likely to pick up yourself.
- Not having enough funds to cover unexpected expenses. What if your property sits vacant for a few months? Will you have enough to cover your mortgage payments? What if you suddenly need a new roof or furnace? It’s wise, if possible, to keep an emergency fund of about 10% of the value of the property to carry you through the tough times.
- Not having a proper and efficient maintenance schedule in place. All properties, their fixtures and fittings wear out! Damage does occur. It is important to keep maintenance up and have it done on time.
- Expecting too much. If you expect to get rich quick, you may be tempted to set the rent too high and lose your tenants. Research comparable and be reasonable.
- Becoming a slave to the property. Decide how much your time means to you. If your investment property becomes a second full time job, is it really worth it? Factor in the cost of a property management company, if necessary.
- Not checking out tenants adequately. Ask for references (especially their past landlords) and follow them up. Run credit checks. If applicable, drive by the prospect’s current property and see how well it’s cared for.
- Not doing regular (at least annually) financial analysis. Remember, this is a business. All business owners regularly review their financials. Your property manager should provide you with monthly and annual statements of receipts and expenditures. Consider doing an annual market appraisal to see how the value of the property is going. Sometimes it is strategic to sell of some assets and purchase new ones.
One way to help make things go more smoothly is to join your local landlord association. These groups can update you on laws, supply sample lease agreements, recommend suppliers, etc.
These mistakes to avoid are not intended to discourage you from buy an investment property but to assist you to proceed with open eyes and know what you are getting into. Buying an investment property means work but it is a great way to create wealth and financial security for you and your family.
If you would like some help to analyze your financial ability to invest in an investment property give us a call.
Source: REW.ca, credit Jorge & Alisa Aragon
November 17, 2014
B.C. Residential outlook to remain strong - CMHC
Nary a negative word was said regarding the outlook for B.C. housing activity over the next two years at Canada Mortgage and Housing Corp.’s (CMHC) annual housing outlook conference on November 4.
CMHC analysts were more tortoise-like than bullish, so far as they heralded a steady market over the next 24 months, disturbed only by the potential of interest rate hikes in late 2015 and the impact affordability – or its lack – could have on transactions.
“Housing demand will remain strong,” opined Bob Dugan, CMHC’s chief economist, in an overview of national activity.
“Housing starts will follow resale activity,” Carol Frketich, B.C. regional economist, said of the provincial situation.
“What we’re seeing is a very balanced housing market,” concluded Robyn Adamache, senior market analyst for Vancouver with CMHC.
Housing starts in metropolitan Vancouver are expected to hit 18,700 in 2015, down from a forecast of 18,900 for 2014. Projections peg them to reach 19,250 in 2016.
Veteran condo marketer Bob Rennie was the keynote speaker at the CMHC housing outlook conference, and he dished his own take on Vancouver’s residential market as well as the state of discourse regarding housing issues in advance of civic elections on November 15.
“‘I am pro-affordability, and I am anti-development.’ I think that will get you elected today, and they don’t make sense – the two can’t go together,” he said.
Sizing up the main contenders for Vancouver Mayor Gregor Robertson’s job, Rennie dissed – without naming names – Non-Partisan Association mayoral candidate Kirk LaPointe for shying away from meeting with developers.
“He doesn’t live in Vancouver, vote in Vancouver or pay taxes in Vancouver and has never held political office,” Rennie said. “Not meeting with developers says to me, if elected as mayor, he will stay out of touch.”
Coalition of Progressive Electors (COPE) contender Meena Wong also came under fire for proposals such as a duty on vacant homes that would interfere with property rights.
“If we have a problem with vacant west-side homes, let’s deal with it as a community improvement issue, not the colour of someone’s skin,” Rennie said.
Rennie also pushed back against developers critical of burdensome community amenity contributions, which are assessed to fund community amenities. Reducing them could leave municipalities passing costs onto taxpayers, Rennie said, creating the politically unpalatable and divisive situation Melbourne faces.
“We are not going to solve homelessness, affordable rental or family housing without taking the planning and political risks,” he summarized. “We really need parental guidance out there, is my view. The city of Vancouver and every city and municipality is going to need to champion some form of development.”
Whatever worries plague the Vancouver housing market, at least there’s housing here to worry about.
That’s not always the case in other countries, where having a roof over your head (let alone four walls around you) is a greater concern. Without stable housing – as advocates in Vancouver know – multiple other basic needs risk not being met.
Providing stable housing in some of the world’s poorest communities is the goal of Vancouver-based World Housing community contribution company, a social enterprise launched last year that seeks partnerships with developers to build a unit of housing in less developed communities for each unit developed elsewhere.
Its first partner is Westbank Properties Corp., which is supporting the development of one unit of housing in Stung Meanchey, Cambodia, for each unit sold at Vancouver House – the 52-storey collaboration between Westbank and Danish architect Bjarke Ingels.
Sales to date of units in the 378-unit tower have resulted in gifts of 120 homes, while an additional 70 homes are built and awaiting donation.
The homes are 132 square feet each and elevated six feet off the ground. The cost of approximately $2,500 apiece includes a common washroom for every six dwellings.
Occupancy is overseen through the Cambodian Children’s Fund (CCF), which has secured leases of up to 20 years for the home sites.
Recipients are typically the families or guardians of schoolchildren. Children must attend school and be well cared for – not abused – for the families to be eligible.
“It makes a massive difference. It’s one of the many motivators to get the child into school on a regular basis,” said Scott Neeson, CCF founder and executive director.
World Housing expects to announce a second project in Taiwan later this month and is discussing partnerships with Canada and U.S. developers active in the San Diego, San Francisco and Waikiki markets.
November 11, 2014
Why you should consider commercial investing
Commercial real estate investing. This combination
of words seems to always evoke a heady mixture
of thoughts and emotions in my clients: attainable wealth, uncertainty, tentative excitement, fear, and an affluent retirement lifestyle. I would postulate that both the positive and negative thoughts evoked are usually the result of an incorrect assumption and a lack of knowledge with regards to investing in commercial properties.
A lack of knowledge is the biggest difference clients can face when considering the merits of commercial real estate investing and other types of investing, including residential. It takes real knowledge of retail, industrial, multi-family, the commercial real estate market, property management, financing, and more, to avoid making costly mistakes.
Most people investing in condominium units can afford to make a mistake or two. Usually the sums of money involved in such investments are smaller ($300,000-$500,000 is a typical investment condominium price) than in commercial real estate investments. Not only are the purchase prices of commercial properties higher than those of residential properties, but the amount of down payment you have to commit to a transaction is also more - often 30 to 50 per cent down.
At this point you might be wondering if you will ever be able to stomach the risk and take the plunge into commercial real estate investing. However, the two largest benefits commercial real estate investing offers over residential are as follows;
1. The landlord has more power than the tenant (anyone who is a residential landlord in Canada is aware that more often than not, landlords are at the mercy of their tenants); and
2. The owner has myriad opportunities to increase the value of the real estate asset by decreasing expenses, replacing a tenant with a better paying one, dividing space and charging more per square foot, changing the allowed use of the property, redeveloping the property, and so on.
If you really want to learn about commercial investing, ask investors who are actively in this property area. You should also reach out to Realtors, lawyers, and friends that are involved in this sector, and get them to tell of the bad stories they may not be keen to recall. Feel free to shoot us an e-mail or leave a comment in the section below.
When did they lose money? What went wrong? What would they do differently now if they faced the same situation. As I regularly say to my students: The most important thing in commercial real estate investing is to know what questions to ask and who to ask them of.
These questions alone will not only keep you out of trouble (i.e., keep you from losing money), but will likely allow you to create more wealth for yourself in commercial real estate.
October 28, 2014
Best Grants and Rebates for Home Owners and Buyers
1.Home Buyers’ Plan
Qualifying home buyers can withdraw up to $25,000 (couples can withdraw up to $50,000) from their RRSPs for a down payment. Home buyers who have repaid their RRSP may be eligible to use the program a second time.
For more information go to Canada Revenue Agency at www.cra.gc.ca
Enter ‘Home Buyers’ Plan’ in the search box or call 1.800.959.8287
2. GST Rebate on New Homes
New home buyers can apply for a rebate for the 5 per cent GST if the purchase price is $350,000 or less. The rebate is equal to 36 per cent of the GST to a maximum rebate of $6,300. There is a proportional GST rebate for new homes costing between $350,000 and $450,000. At $450,000 and above the rebate is nil.
For more information call 1.800.959.8287 or go to Canada Revenue Agency www.cra.gc.ca and enter ‘RC4028’ in the search box.
3. BC Property Transfer Tax (PTT) First-Time Home Buyers’Program
Qualifying first-time buyers may be exempt from paying the PTT of 1 per cent on the first $200,000 and 2 per cent on the remainder of the purchase price of a home priced up to $475,000. There is a proportional exemption for homes priced up to $500,000. At $450,000 and above the rebate is nil.
For more information go to BC Ministry of Small Business and Revenue at www.sbr.gov.bc.ca/business/Property_Taxes/Property_Transfer_Tax/ptt.htm or call 250.387.0604.
4. First-Time Home Buyers’ Tax Credit (HBTC)
This federal non-refundable income tax credit is for qualifying buyers of detached, attached, apartment condominiums, mobile homes or shares in a cooperative housing corporation. The calculation: multiply the lowest personal income tax rate for the year (15 per cent in 2012) x $5,000. For the 2013 tax year, the maximum credit is $750.
For more information go to Canada Revenue Agency at www.cra-arc.gc.ca or call 1.800.959.8281.
5. B.C. Home Owner Grant
Reduces property taxes for home owners with an assessed value of up to $1,100,000. The basic grant gives home owners:
• a maximum reduction of $570 in property taxes on principal residences in the Capital, Greater Vancouver and Fraser Valley regional districts;
• an additional grant of $200 to rural homeowners elsewhere in the province; and
• an additional grant of $275 to seniors aged 65+, those who are permanently disabled and war veterans of certain wars.
For more information go to BC Ministry of Small Business and Revenue at www.rev.gov.bc.ca/hog or contact your municipal tax office.
6. B.C. Property Tax Deferment Programs
Property Tax Deferment Program for Seniors. Qualifying home owners aged 55+ may be eligible to defer property taxes.
Financial Hardship Property Tax Deferment Program. Qualifying low-income home owners may be eligible to defer property taxes.
Property Tax Deferment Program for Families with Children. Qualifying low-income home owners who financially support children under age 18 may be eligible to defer property taxes.
For more information go to www.sbr.gov.bc.ca.
7. Canada Mortgage and Housing (CMHC) Residential Rehabilitation Assistance Program (RRAP) Grants
This federal program provides financial aid to qualifying low-income home owners to repair substandard housing. Eligible repairs include heating, structural, electrical, plumbing and fire safety. Grants are available for seniors, persons with disabilities, owners of rental properties and owners creating secondary and garden suites.
For more information go to www.cmhc-schl.gc.ca or call 1.800.668.2642.
8. Home Adaptations for Independence (HAFI)
A program jointly sponsored by the provincial and federal governments provides up to $20,000 to help eligible low-income seniors and disabled home owners and landlords to finance modifications to their homes to make them accessible and safer.
For more information go to BC Housing at www.bchousing.org/Options/Home_Renovations or call 604.646.7055 or toll-free 1.800.407.7757 extension 7055.
9. CMHC Mortgage Loan InsurancePremium Refund
Provides home buyers with CMHC mortgage insurance, a 10 per cent premium refund and possible extended amortization without surcharge when buyers purchase an energy efficient home or make energy saving renovations.
For more information go to www.cmhc.ca or call 604.731.5733.
10. Energy Saving Mortgages
Financial institutions offer a range of mortgages to home buyers and owners who make their homes more energy efficient. For example, home owners who have a home energy audit within 90 days of receiving an RBC Energy Saver™ Mortgage, may qualify for a rebate of $300 to their RBC account.
For more information go to www.rbcroyalbank.com/products/mortgages or call 1.800.769.2511.
11. Low Interest Renovation Loans
Financial institutions offer ‘green’ loans for home owners making energy efficient upgrades. VanCity’s Bright Ideas personal loan offers home owners up to $20,000 at prime + 1 per cent for up to 10 years for ‘green’ renovations. RBC’s Energy Saver loan offers 1 per cent off the interest rate for a fixed rate installment loan over $5,000 or a $100 rebate on a home energy audit on a fixed rate installment loan over $5,000.
For information visit your financial institution.For more information go to www.vancity.com/Loans/TypesOfLoans/BrightIdeas and www.rbcroyalbank.com/products/personalloans/energy-saver-loan.html
12. B.C. Hydro Appliance Rebates
Mail-in rebates for purchasers of ENERGY STAR clothes washers, refrigerators or freezers.
For more information go to www.bchydro.com/powersmart or call 1.800.224.9376.
13. B.C. Hydro Fridge Buy-Back Program
This ongoing program rebates BC Hydro customers $30 to turn in spare fridges in working condition.
For more information go to www.bchydro.com/powersmart or call 604.881.4357.
14. FortisBC Rebate Program
A range of rebates for home owners include a $75 rebate for upgrading to an ENERGY STAR clothes washer, $300 rebate on an Ener-Choice fireplace and a $1,000 rebate for switching to natural gas (from oil or propane) and installing an ENERGY STAR heating system.
For more information go to www.fortisbc.com/NaturalGas/Homes/Offers/Pages/default.aspx or call 1.888.224.2710.
15. FortisBC Rebate Program for Businesses
For commercial buildings, provides a rebate of up to $60,000 for the purchase of an energy efficient boiler, up to $15,000 for the purchase of a high-efficiency water heater and receive funding towards a new construction energy study.
For more information go to www.fortisbc.com/NaturalGas/Business/Offers/Pages/default.aspx or call 1.866.884.8833.
16. LiveSmartBC Small Business Program
Business Energy Advisors (BEAs) delivers free energy assessments. Help business owners tap into available product incentives and cash rebates for lighting, hot water, heating and ventilation improvements. Help business owners coordinate product installation. NOTE: this program expires March 31, 2014.
For more information go to www.livesmartbc.ca/incentives/small-business/index.html or call 1-866-430-8765.
17. City of Vancouver Rain Barrel Subsidy Program
The City of Vancouver provides a subsidy of 50 per cent of the cost of a rain barrel for Vancouver residents. With the subsidy, the rain barrel costs $75. Buy your rain barrel at the Transfer Station at 377 W. North Kent Ave., Vancouver, BC. Limit of two per resident. Bring proof of residency. There is also a limited time offer for short rain barrels for small yards. Cost $50.
For more information go
to http://vancouver.ca/engsvcs/watersewers/water/conservation/programs/rainbarrel.htm or call 604.736.2250.
Other municipalities have similar offers.
18. Local Government Water Conservation Incentives
Your municipality may provide grants and incentives to residents to help save water. For example, the City of Coquitlam offers residents a $100 rebate and the City of North Vancouver, District of North Vancouver, and District of West Vancouver offer a $50 rebate when residents install a low-flush toilet.
Visit your municipality’s website and enter ‘toilet rebate’ to see if there is a program.
19.Local Government Water Meter Programs
Your municipality may provide a program for voluntary water metering, so that you pay only for the amount of water that you use. Delta, Richmond and Surrey have programs and other municipalities may soon follow. Visit your municipality’s website and enter ‘water meter’ to find out if there is a program.
Source: Real Estate Board of Greater Vancouver.
October 22, 2014
Vancouver Property Tax is Outdated and Unfair
For Vancouver home buyers who get the shivers at high prices for
even run-down houses, there is also the haunting sight of a tax goblin.
The B.C. government’s property-transfer tax has become a growing burden for buyers in the Vancouver region’s housing market over the past 27 years. The province introduced the PTT as a way to generate revenue, especially targeting the upper crust of B.C. house purchasers.
But the province-wide formula for the tax hasn’t changed since 1987, when Vancouver-area homes were much cheaper. Today, on the purchase of a $5-million home, the buyer has to pay $98,000 for the PTT. On a $2-million home, the tax rings in at $38,000, and on a $1-million property, the extra outlay is $18,000.
The B.C. government collected $937-million in the 2013-14 fiscal year from the tax. Housing industry observers note that the province’s coffers get an added lift when wealthy buyers, including those offshore, acquire high-end homes.
The PTT formula works like this: On the initial $200,000 of the purchase price, the home buyer must fork over 1 per cent of that first tier and then pay a 2-per-cent tax rate on the amount above $200,000.
The Real Estate Board of Greater Vancouver estimates that 96 per cent of properties in the region sold for at least $200,000 last year. That contrasts sharply with 5 per cent of properties in 1987 that changed hands for $200,000 or higher.
Far from being a targeted tax on the wealthy, the PTT’s net captures the vast majority of buyers of detached homes, townhouses and condos in Greater Vancouver, the board argues.
In this past February’s provincial budget, the B.C. Liberal government announced an improved break for eligible first-time home buyers. Those who qualify could save up to $7,500 on buying their first house, as long as that property is acquired for $475,000 or less, up from the previous threshold of $425,000.
B.C. Finance Minister Mike de Jong tweaked one aspect of the broader tax system in February to make up for the revenue lost from giving tax relief to some first-time home buyers. The province decreased the threshold for phasing out the homeowner grant from $1.295-million to $1.1-million in a property’s assessed value, effective the 2014 tax year. In short, the change means that more homeowners will be paying higher municipal property taxes annually.
Despite the tax burden, housing demand remains robust in Vancouver, says Dan Scarrow, vice-president of corporate strategy at Macdonald Realty Group.
Mr. Scarrow doesn’t see a Vancouver housing bubble because many existing homeowners have lived in their abodes for at least 15 years, before the sharp run-up in prices. With small or non-existent mortgages, there isn’t financial pressure on those long-time homeowners to sell, and they can afford to hold out for higher offers when they do decide to move for whatever reason, he reckons.
“It comes down to huge demand globally and restricted supply locally,” Mr. Scarrow says.
The benchmark home price index last month hit a record $633,500 for detached homes, townhouses and condos sold in Greater Vancouver, which includes suburbs such as Richmond, Burnaby and Coquitlam. On Vancouver’s west side in September, the index hit a record of nearly $2.3-million for detached properties.
Having grown accustomed to a cash cow, the B.C. government isn’t about to dramatically revise the PTT formula any time soon. The province conservatively forecasts that revenue from the PTT will be $854-million in 2014-15. That would be down 9 per cent from the previous fiscal year but still more than double the revenue garnered in 2002-03. From the province’s viewpoint, the tried-and-true PTT isn’t a scary trick, but a valuable treat inside its revenue bag.
Source: Globe & Mail