Category Archives: Real Estate

Multiple-Offers: Winning, or At Least, Not Losing

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Real_Time_BiddingBy now you’ve heard about the wild, buyer free-for-all that is the Toronto real estate market. The number of buyers looking to make a move combined with a shortage of lucrative inventory has created a sellers’ market to end all sellers’ markets. We’re starting to see multiple offer situations on Toronto condos again, a trend not seen in recent years as condo supply reached some record highs.

Chances are you may have seen other stories about multiple offers, but none compare to this one from last week that saw a house in the Yonge & Lawrence area, listed at $699,900, sell for $1,366,000 with 72 offers. SEVENTY-TWO.

I have no idea how this happens. At offer number 10, your odds as a buyer are incredibly slim, to the point that you probably shouldn’t bother. But hey, there’s a chance right? Apparently then, another 62 people proceeded not to care much for the odds either.

Naturally, there were likely a ton of offers in there that were just doing the sellers a favour by boosting the quantity of competition, without being a real threat to the serious buyers. The offers that included sale of property, financing, or insurance conditions would fall into that category. So would anything around asking price. Regardless though, they were there, and on every other bidder’s mind when it came to formulating an offer price.

In competition, the cleaner an offer is, the more lucrative the offer, as oftentimes conditions can be as important as price. When there are 72 offers to choose from, the seller isn’t going to accept a condition that forces them to wait for a house in a less sought after to sell. They’re taking the sure thing.

By far the biggest challenge buyers face in multiple offer scenarios is the blind bidding process. This will always garner the optimal result for the seller and will leave at least one bidder with a bad taste in their mouth, and hopefully that’s if they lose. In the story above, I’m sure all 72 will end up with some degree of animosity. From the guy who bid $675k conditional on the sale of his place in Georgetown; to the woman with the second best offer who lost by a few grand; to the winners who’ll look back at the $1.1M house they just paid an extra $260k for, and who will then be putting another few hundred thousand into fixing it up; they all lose. Working in their sellers’ best interest, listing agents don’t disclose any terms of the competing offers to the buyer agents, which forces buyers to put their best foot forward right off the bat. The best case for the buyer in multiples is that they get a house they love for what it’s worth. With 72 offers, that’s not happening.

Congrats to the listing agent for drumming up that many offers and doing their seller client a huge favour. At the same time, buyers and their agents need to do a better job of knowing what market value on a house like that is. Ultimately, list price doesn’t mean a thing. Only people who are willing to pay what a house is worth should be offering, and I’m willing to bet that 80% of those offers were nowhere close. As Toronto Realtor David Fleming (@TORealtyBlog, a solid twitter follow) was quoted saying, “we’re in a hot market, but no house is hot enough to get 72 offers”.

Fortunately, most of you aren’t buying in Toronto and will probably never encounter such an absurd scenario. There is a chance though, depending on location and market conditions, that you could find yourself in competition with a few other buyers. Let’s take a look at that process and what you can do to win out, or at least feel good about walking away.

As a buyer, you really need to weigh your interest in a property before committing to a multiple-offer situation in an attempt to buy a property. If you really love the house, chances are you’ll find a way to come up with a few thousand dollars if you need it. Because of the competitive nature of things though, it’s important not to get caught up in winning but rather ensuring you still like the house you buy at the end of the day.

When sellers receive multiple offers to purchase they basically have 4 options:

  1. Accept the best offer
  2. Send any number of the offers back for buyers to try again
  3. Counter-offer on the best offer
  4. Work with none of the offers

Number 4 is pretty rare. After all, as a seller, if you go routes 2 or 3, you’re not committing to any of the offers either, but it’s much better to work with an offer you have in front of you than to wait and hope a few more materialize. Your first offer is usually your best offer, so if you can pit more than one buyer against each other, you’re crazy not to.

With option 3, if a seller counters your offer, it gives you a sliver of leverage since you know that there are no other offers in play at the moment, and that the seller has lost their competitive scenario. However, you know that those offers could come back in at any time if you don’t accept the sellers’ counter offer. The seller is basically telling you that your offer was the best, and may be making a change to the closing date or a condition that’s simply there for you to accept and win the battle.

Leverage as a seller is paramount. I’ve offered with clients in a multiple-offer scenario which we lost, but when the other offer fell through, we went back in $5,000 lower than our original offer knowing that we had no competition. My clients ultimately got the house for $3,000 less than their original offer. If you’re a seller, you better make damn sure the counter is going to be accepted if you choose to go with option 3.

If the sellers send you and others back to submit a new offer, it’s for one of two reasons: Either none of the offers were acceptable OR multiple offers were very close to each other and the seller thinks they can get higher bids back from one or more to put them over the top. It’s a bit of a slap in the face and maybe a tad greedy, but if the seller thinks that buyers’ interest outweighs the offense, it’s a seller-friendly strategy that they can employ.

As a buyer, number 1 is the easiest to navigate if you win, but sometimes hard to swallow if you don’t. Eventually your agent is going to find out what it sold for (potentially right away if the winning offer is condition-free) and the worst thing that can happen is your agent giving you the sale price and it being something you would’ve been willing to pay. There you’re back to square one. Two of my listings have sold with multiple offers in the last 2 weeks, and the phone calls to the losers in the bidding process are usually tough ones to make. Let’s make sure that phone call doesn’t happen.

Multiple-offers can be a sticky situation as a buyer, so make sure you’ve got an agent who’s been there before and can help you strategize to achieve the best outcome for you. You’ll be glad you did.

First-Time Buyers: Mortgages, Part One

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Yeah. Part One.

Mortgages are quite the animal, so there’s a lot to know before you dive right into one. They’re also not super exciting, so it’s probably for the best that we split it up. We don’t need anyone giving up 2000 words in when we touch on collateral for the 8th time.

I figure we’re best to start with how to determine what we’ll qualify for, and then get into manipulating & expanding that number if your budget doesn’t suit your must-have list in Part Two.

8342940With real estate prices climbing ever higher, seemingly across the board, the Conservative government under Finance Minister Jim Flaherty made an array of changes to artificially cool the housing demand in 2012, reducing the risk of a bubble and simultaneous crash as seen south of the border. Despite it being against traditional Conservative financial policy to tamper with free markets, the government implements these new measures and made home ownership more difficult for first-time buyers and others alike.

The argument, naturally, is that the consumers affected by these changes likely shouldn’t have been buying properties anyway, since their situations were associated with higher risks of defaults and foreclosures. Personally, I feel these situations are better assessed on a person-to-person basis in terms of who can adapt their situations and survive rate hikes or reductions in income. At the same time, you have to respect the government applying the same rules to everyone, though it hurts people who otherwise could’ve managed.

In determining how much you can afford to spend on a home, lenders typically focus on two main ratios. Gross Debt Service, or the amount of the liabilities tied to your home, is currently capped at 39%. This means that the amount of your proposed mortgage payments plus your condo fees (if applicable), property taxes, and utilities should not exceed 39% of your household income. Total Debt Service, the more critical number, is also capped at 44%.This includes the aforementioned GDS components, but also any other personal liabilities you may have. Student loans, credit card debts, lines of credit and car loan payments are the most common additional charges in the TDS calculation. Typically a lender will look for these ratios to be at 32% at 40% respectively, which can be increased to the maximum based on high credit scores. We’ll address those in part two.

A major reason I feel the Flaherty changes were unnecessary is due to the little known benchmark, or qualifying rate. If you’ve never bought a home before, chances are you’ve never heard of this number, the one that likes to deflate expectations for new mortgagors. Here’s a tip: If you’re looking into properties to purchase and you use the mortgage calculator on a website/app like Realtor.ca, use the benchmark interest rate to qualify yourself, as that’s what your lender will be forced to use as well. Even though your ratios may be strong at an interest rate of 2.5% on a 5 year variable rate mortgage, you’ll have to have favourable GDS & TDS ratios based on the higher rate. The benchmark rate, which is the 5-year term fixed posted rate (currently 5.34%) is in place to protect against rate hikes, effectively the same thing Flaherty’s changes were put in place to do.

Once you’ve established what you believe you can afford, the process of choosing your actual mortgage begins. Comparison shopping is essential, and one of the best ways to do this is through a mortgage broker. Ben Melick of Mortgage Intelligence (Kitchener-Waterloo), Randy von Heyking of Mortgage Alliance and Rob Campbell of the Mortgage Wellness Group (Guelph) are all stand-up options for you to consult. It’s not even a bad idea to consult with one before you try and figure out what you can afford. They’ll help you through it. Mortgage brokers understand each product available and can point you in the direction of the product that’s right for you. If you already do all your banking and investing with the same major bank, they could also be a good option for you, since that can typically give you some leverage either for mortgages or other services. They’re not always the lowest rates, in fact they’re usually not, but at least you can be comfortable in having a one-stop shop for your finances and they can easily be managed all at once. That said, if you’re indifferent between loyalties to a bank and trying a mortgage broker, watch this CBC Marketplace episode (Segment 2, about 5 minutes) on big bank mortgages and go from there. It should help you make up your mind.

In Part Two we’ll look at credit scores: how they’re calculated, their impact and how to improve them; various types of incomes and how lenders view them; co-signers, which more and more of us have; mortgage insurance and high-ratio premiums vs. low-ratio mortgages. Let’s be honest though, mortgage posts can only be so long.

4 Condo Buying Questions You Should Know the Answer To

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Dusk 109oz Rendering.jpgLet’s start with the obvious: Buying a condo has a number of key differences from buying a freehold detached home. As with any major purchase, it’s certainly important to do your research before jumping into anything with both feet. Being ill-prepared can lead to costly mistakes, especially when our home is the biggest investment most of us ever make.

Below is a list of important questions to ask prior to buying into a condo development:

What is a condo?

Let’s start from the beginning on this one. The word “condo” often gets associated with either a towering residential building with a hundred-plus units, or a beachside villa. Great as both may be, “condo” -or condominium, if you want to sound refined/bore people- actually refers to the type of ownership you’re buying into, not the building itself. Condos can even include townhouse complexes or entire communities.

Not only do you own your own “unit” within a complex, you also own a proportionate share of the common areas. In a building, this can include the elevators, hallways, amenities, etc., as well as the exterior land (parking lot, greenspace, landscaping). As a buyer, you become responsible for the maintenance of your unit, but also for common areas, often by way of paying common expenses or condo fees to the condo corporation or a property management company.

What do condo fees include?

condofeesIn every condo, there are costs beyond your monthly mortgage payment and property taxes that you must consider. Both the amount and components of a condo fee can vary greatly, depending on where you buy. One of the biggest considerations to make is the types of amenities you desire. A condo with high-end amenity spaces (lobby, theatre, etc.) will naturally have higher condo fees than a building which doesn’t have any amenities of note. Two of the biggest drivers of condo fees are concierge service and pools. While they’re nice to have, consider how often you will use a pool in your building, and make sure the additional expense is justifiable.

The age of a building can also increase the condo fees. While it may seem counter-intuitive to pay more to own an older unit, an older building requires greater maintenance expenses. Also, look over the financials and see the accumulation of the condo’s reserve fund. A reserve fund covers major expenses like a new roof or the re-finishing of a parking lot. Without a strong reserve fund, you could be on the hook for an unforeseen rise in your condo fees, should either of those need replacing. I’ve seen condos with locked up pools and hot tubs because jets or filtration systems have broken, there was no money in the reserve for them, and the residents that didn’t use them refused a special assessment to pay for it.

On top of maintenance and amenity costs, and reserve fund contributions, some condos will have utility charges bundled into the condo fees as well. This makes for a huge difference, especially if one $300 condo fee includes heating, cooling and water; and another one doesn’t.

Bottom line, find out what is included in your condo fees, and what you’ll have to pay on top. It’ll save you a lot of hassle down the road.

Will I be subjected to any rules or regulations?

The simple answer here is: “Probably, yes”. The number and flexibility of the rules varies from condo to condo, but there will likely be some degree of control put in place. Some of the most common rules surround:

Unit appearance (door/hallway decorations, window coverings, balcony contents)

Pets (size, number, noise)

Access (number of visitors, guest parking)

Noise (party limitations, quiet hours, amenity room closings)

It’s important that you find a condo that suits your lifestyle. After all, it’s a major key to enjoying your new living arrangement. There’s nothing worse than feeling restricted within your home, so make sure that the rules are conducive to the way you live.

What’s a better purchase, a new condominium or a re-sale?

At the risk of being blatantly non-committal, it’s hard to say whether one choice is better than another.

If you’re looking at a new build, there’s usually a cost benefit to buying pre-construction. Builders will offer lower prices earlier in the process and some buyers will flip the condos upon completion for a profit. If you buy pre-construction as well, you’re open to a greater selection variety. Not only can you choose the floor and location of your suite in the building, but you can also select the interior finishes such as flooring, cabinetry and countertops. The new building is also protected by the Tarion New Home Warranty program and condo fees are usually lowest at the birth of a new building due to the lack of depreciation and wear on structures & systems.

On the other hand, there are a number of advantages to buying a condo unit that has already been completed, whether new or previously lived in. For one, your occupancy or closing date will be fixed. In a new build, the builder can delay occupancy given adequate notice and building registration can require a certain number of occupied units before the purchase actually closes. Until the building is registered, buyers who live in the building pay an occupancy fee which basically equates to rent until the mortgage can be applied to the deeded unit. Deposits held in trust for a resale are often much lower than the required deposits in a pre-construction project. Not to be confused with a down payment, the deposit a builder requires can vary from about $20,000 to 20% depending on each builder’s unique structure. On a resale, a $5k deposit will usually suffice until closing. Older buildings often have larger unit sizes, and you can actually tour the suite prior to buying. More and more builders are creating model suites or vignettes; but resales allow you to experience the actual unit, its colours, sizes and views prior to pulling trigger on a purchase.

Whether you buy a new or re-sale condo, here are a few personal tips:

1. Builders always have a target market in mind. Get a feel for what that market is, so you live in an atmosphere wherein you’re completely compatible. If you’re a 20-something, a trendy downtown condo may be more suitable than a suburban tower with amenities geared to older buyers.

2. Spend some time in the unit, especially if it’s your first condo. Moving can be pricey, you want to make sure you get it right the first time. And a condo can be more of an adjustment for some than others. Take a coffee and a book, sit there and see if you can picture yourself spending time in your new home. If not, then maybe that unit’s not quite right for you.

3. Look at a few condos. Especially with new developments, the first impressions are great. Everything is clean and new. But that fades, so make sure the meat and potatoes of the unit is to your liking as well. By comparing multiple buildings and becoming a more educated buyer, you certainly decrease your chances of buyers remorse.

4. Act quickly with new developments. Not to contradict my previous point, but if you really like a unit, chances are someone else will too. Odds are, you can get a few of those units in the building, but not necessarily with the same view or options. Once you’ve decided that a condo is right for you, try and see a few in a short time. It makes it easier to compare and feel comfortable in that decision. New developments here allow a 10-day “cooling-off” period wherein you can change your mind and back out of a deal without penalty. Prices of new developments don’t go down after the launch, they only go up. And after all, you’d hate to miss out on that perfect unit.

First-Time Buyers: Negotiating Your First Purchase

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Negotiating a First Home PurchaseStellar, you’ve found the place for you. Maybe it’s home for 3 years, maybe for 10; but after all the searching on Realtor.ca, open houses, newspapers, private showings, you know this is the one you want. Now the question becomes, how do you lock it up and make it yours?

There two big factors in a first-time buyer’s favour when it comes to negotiating a deal on that perfect place. The first is flexibility, the second: cash.

I don’t mean cash as if the world is full of loaded 20-somethings, but rather that the math is all done and the money is there. You’ve been pre-qualified for a mortgage, you don’t have a house to sell and it’s just a matter of pulling the trigger. Many buyers who already own a home aren’t willing to sign an agreement on a new place until they have some assurance that they won’t be burdened with a pair of mortgages for an extended period of time. This means any first-timer’s offer at a similar price-point is more lucrative than one conditional on the buyer selling their current place. The less the seller needs to wait for and worry about, the better, and usually they’d be willing to sacrifice a few thousand dollars for a firm deal.

First-timers are also a pretty flexible bunch. Without kids in the picture, there’s less consideration for the timing of the move, which tend to occur most often when kids are on summer holidays. With a lease, or living at Mom and Dad’s, you can be flexible with your closing date to suit the sellers’ needs. If the sellers want to close in 2 weeks and all you have to do is lug your futon out of your parents’ basement, there’s nothing stopping you from doing it, and that’s rare.

The same flexibility that lets you choose your move in date can also give you the freedom to walk away from a bad deal. Use that to your advantage. If you’re shopping for a townhouse or in a newer subdivision, it’s easy to find the same floor plan for sale nearby. Don’t feel it necessary to overpay for a home that there are an abundance of, especially if you can afford to wait for another similar one to pop up.

There are other factors that can impact your strategy in negotiations- one of which is multiple representation. When an agent represents both the seller and you (as a buyer), they are bound in terms of what they can disclose about the other side. Essentially, calling the listing agent to see a property will put you in this situation every time; and it effectively removes the agent from the negotiating and turns them into a mere paper mule. Multiple representation limits the advising and strategy-planning role of the agent. Not only are listing agents constrained in consulting you as a first-time negotiator, they have an added motivation to put you in the house they’re selling. As a result, you’re better served as a buyer using an agent who will shop different houses with you- establishing a strong understanding of each other and strengthening trust along the process. That way, when you do settle on the right place, they know your needs, motivations and budget and also how to best negotiate on your behalf, representing you alone.

A good offer price is always subjective. Even though 2 agents on either side of the negotiation both likely know what the home is worth, they are only 2 of the 4 players in the game. Sellers may require a certain sale price to validate their move, and buyers often work within set budgets, so houses don’t always sell for their true “value”. Offering on a house differs given a number of factors including buyer & seller motivation, the length of time the house has been on the market, market value, the number of other interested parties, etc. Obviously you can offer lower on a home with a motivated seller whose house has been on the market for 3 months with no action than you should on a property that just hit the market and is likely to garner multiple offers. Situational awareness is key, and a good Realtor will know the signs to look for to get you the best deal.

Strong negotiating is an acquired skill. You don’t want to learn that the hard way on your first home purchase. Consider expert advice and put yourself in the best situation to make an informed decision, whether it be on your own or with an ally such as a Realtor on your side. It won’t cost you anything, so bringing in an agent to work for you is common sense. Failing to do you homework can lead to you not enjoying your first home for all it should be. Just remember, you only get one chance to buy your first house.

Which Renovations Should I Do Before I Sell? Probably None.

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One of the most common questions I get from potential home sellers is: Should I do “project x” or leave it for the next owner? It’s not necessarily clear cut, but if you’re going to do something, you’ve got to do it well, and have buyers perceive it as better than the alternative. If you’re contemplating upgrading your linoleum flooring to higher-end linoleum, you might as well be taking cash from an ATM and stuffing it down a manhole. Things buyers would consider doing anyways (updating appliances, stone countertops, tearing out carpets for hardwood) are the way to create value.

Buyers these days have more refined taste than ever before, but often you’ll find two types of buyers: Those that want to save money and buy a home they can renovate, and those that are prepared to pay, so long as they don’t have to lift a finger once they move in. If you’re setting your home up to be somewhere in between these two markets, you’re destined to lose. With the former, they’re not typically willing to pay for things they’re just going to do over again. And buyers looking for turn-key homes don’t really care if the home is flashy if it isn’t cohesive.

For example, I went through a house with a re-done kitchen just this week and though the kitchen couldn’t have been but a few months old, the house still took on the “fixer-upper” stigma because of outdated doors & trim, holes in the drywall and ageing structural and mechanical components. There’s a difference between a “wow factor” (a term I hate, personally.) and lipstick on a pig. And it’s important to know whether buyers will see your reno work as the former or the latter.

In the Village by the Arboretum in Guelph, an adult-lifestyle community where I spend a lot of my time and resources, some sellers have installed new carpets, which they perceive as value-added finishes. After all, they often spend money to put in high-quality, plush carpets, and have them professionally installed. Unfortunately, most incoming buyers will see them as disposable as they look to upgrade to hardwood floors, and a detriment to the home. Despite the money put into new carpeting, the home is likely no more valuable in a buyer’s eyes, whereas it could’ve been had sellers made the move to hardwood prior to selling.

This infographic from the California Association of Realtors shows 10 key home renovation projects and the return on investment. One thing they all have in common: none generate a positive ROI. Odds are, most of the time, you won’t recoup the full cost of the reno. It’s not always explicit though. Sometimes, a house can be nearly impossible to sell with an outdated kitchen or a slew of mechanical issues, which makes some renovations necessities. Without some of the necessary renos, you’ll lose more money by reducing the price of a house that sits for sale without any action. That kind of situation makes dropping a few thousand dollars to make the home more saleable the best way to go. It’ll result in a faster sale, if not at a higher price point.

renoreturns

Before you choose to do any of the renovations you have in mind, have a Realtor conduct a market analysis on your home and the surrounding area. They can help advise you as to what kind of improvements will benefit you, and which will leave your bank account reeling. They can tell you the returns on those upgrades for your neighbourhood, and help you determine if they’re a project worth undertaking. Do the homework before you start and see the best returns, plain and simple.

Drake’s On the Move: His $4.2 Million Yorkville Condo

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My Fisher-Underwood mansion profile was the highest viewed RE Play-by-Play blog post to date. Which goes to show that despite my spouting of useful info and opinions, you guys like ogling rich peoples’ places. That’s fine haha, just means I’m back for a little more shameless self-exposure, courtesy our pal, Drizzy Drake.

I got Penthouse walls, I stay high above your a**.

And I can see it all, my balcony is glass.

Funny, he’s not kidding. This line from “Overdose” is spot on, which you now get to see for yourself courtesy the MLS and your favourite Realtor.

Maybe record sales are down, maybe Drake got tired of watching the Raptors lose, maybe he’s over paying $3,361 in condo fees every month. Whatever it is, he decided it was time to sell his 22nd-storey gem in Yorkville, seen here on MLS.

DrakesCondo1Priced at $4.195 Million, the 3 bedroom, 3 bathroom suite has some finishes worthy of a whiskey commercial. Think, Wiser’s. There’s walnut flooring everywhere to go along with meticulous custom millwork, and the whole place has a very rich feel to it. That said, the place is equally tame and subdued. Not what you’d expect from a young guy with millions to throw around. It’s one of the most tasteful, mature decor schemes I’ve seen.

Drake’s also got himself a nice little bit of outdoor space. With 500 extra sq. ft. spread heated terraces outdoors, the penthouse has what it needs to set itself apart from some of its competition. And though his unit doesn’t face south out over the lake, he’s had plenty to take in, with exposure in each of the other three directions.

The building itself is a work of art. Though it’s a new build, One St. Thomas has all the stylings of a 1930’s high-rise. It’s been described in different outlets as both luxurious and a “fusion of sophistication and class”. Have a look at it in this video, but turn the sound down, or else you’re just hear the wind.

You’d think the amenities here have to justify the over $3k per month condo fees. There’s a pool, exercise facility and terrace, fairly standard options across the market. There’s also full valet service, which Drake can use to park either of the cars he gets a parking spot for. Keep in mind that condo fees are apportioned based on the square footage of a unit, so naturally the penthouses pay the most for their use of the exact same set of amenities. So, here’s hoping that his heat and hydro are lumped into this as well. Not that $3,000 is even going to be missed in this guy’s chequing account.

Is Drake’s pad what I’d be lining up to drop $4 Million plus on? Probably not. But given that he just sold off 2 Miami condos to Mario Chalmers of the Heat, he might have some bigger plans in the works. Maybe that’s some motivation to cut us a deal.

First-Time Buyers: Down Payments

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Soon-to-be first-time buyer? Well, that’s me. And based on this blog’s readership, there’s an 80% chance that’s you too.

It’s a grind. Believe me. If you’ve looked into buying your first house, you understand the weight of your decision (hopefully); and if not, you’ll realize when you look for the first time. As many of us battle along, whether under the ominous cloud of a student loan or the pain-staking job search in a slowly recovering market, it’s important to keep our goals in mind. The pressures of the current day-to-day can detract from our ability to see our endgame.

For many of us, that next big goal is home ownership. It’s an ever-evolving need, but a strong investment in our futures at the same time. It’s a shelter for our earnings, a store of value, a forced savings, and our greatest chance to build equity in ourselves. The type of home and where it’s located can vary for us over the years, but the equity we build up in it will follow us throughout our lives.

So how do we start? Well, man, that’s a tough one. It’s hard to say, given that we’re all unique in our situations. Some of us have jobs, but tens of thousands in student loans. Some of us don’t have the loans, but can’t find that job that’ll take us to the next level. And for the select few that have managed to string it all together so far, congrats.

The hardest part is saving for the down payment, I think everyone can agree on that. Buying a home on budget is pretty easy, and you can adjust your price range accordingly. It’s coming up with that extra chunk of money that gets in the way for a lot of people. In a recent TD survey, up to 60 percent of first-time buyers weren’t satisfied with the size of their down payments. Not only does a larger down payment make for smaller mortgage payments, it reduces the amount of mortgage insurance you’re liable for, plus it makes refinancing easier when the time comes. This is an interesting catch-22. On one hand, most folks would rather own a home sooner and stop paying someone else’s mortgage. But at the same time, a smaller down payment is a handicap of sorts, and makes the budget that much tighter on a monthly basis. The trade-offs are never crystal clear.

There’s no magic number for a down payment, but there are 2 key thresholds: 5% and 20%. 5% is the absolute minimum down payment you’ll need to make on your home, and 20%, the minimum amount required to avoid mandatory mortgage insurance. Breathe at 5, shoot for 20. And though it can seem like a bit of a daunting task at times, the majority of people don’t expect the extra savings to take too long. Once you establish the routine of saving, and get to a point where you can put extra cash aside, it only gets easier.

It’s like losing weight. Sure, it’s tough to start a new routine or regimen, but once you find your groove, it’s all gravy. Low-fat, tofu gravy.

So if you’re at the point where you think your first purchase is on the horizon, let’s have a chat. A real estate agent can help you set those goals and establish a budget. And who better to have on your side than friend, in the same boat, who’ll work for you for free? I’m here to help. Let’s get started.

Is an Income Property Right for Me?

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Not literally, guys.

Didn’t mean that literally, guys.

Real estate investing has never been sexier.

Whether its the rock bottom American home prices creating opportunities, the volatile stock market, or the bargain basement interest rates available to home buyers, real estate has become an investment haven for more and more people. It also doesn’t hurt that the media has promoted real estate investment through a wider array of programming featuring home flips, renovations and other ways to maximize a home’s utility.

If you’re considering investing in real estate, you have a few options at hand. If you’re a hands-on type investor, you can control your own destiny with an income property. If you like sitting back and watching your money work for you, something like a REIT could be right up your alley.

The growth of REITs (Real Estate Investment Trusts) is a clear indication of investors’ urges to profit from a strong Canadian real estate market. REITs are a great option for those looking to earn dividends on their stocks, as by law, REITs are required to pay back 90% of their taxable income to investors. They are as liquid as stocks; have preferential taxation rules; and have been on an absolute tear lately, soaring in value. Canadian REITs have recently been generating dividend yields (dividends per share/share price) in the area of 9-12% annually, due to growth and that required payout.

EDIT: REIT’s have slowed as of late, but from 2010 to year-end 2012, the S&P/TSX Capped REIT Index produced annual returns from the sector of 19.7%. Annually.

Even with those statistics, income properties have become a hot topic too. You’ve likely watched a contractor’s show where they convert a basement or run-down duplex into a cash cow. If it made you want to get in on the action, you’re not alone. Instances of second-property ownership are on the rise, and the federal government has recently taken action to make sure that this influx of investors is under control; in that people aren’t buying multiple properties and getting themselves into high-risk, low-equity scenarios. Owning another property is different from investing into a third-party, in that ultimately you control where your dollars go and how they’re used. It’s more direct, hands-on and you control your own destiny.

When looking to purchase a second property, there are a number of considerations that need to be made. Essentially, you’re becoming an entrepreneur. You’ll soon be generating revenues and paying expenses just like any other company. REITs do well when they have tenants, and lose with vacancies. When owning a second place yourself, full occupancy should boost your income potential beyond that of the average REIT, but extended vacancies can cripple your finances. Fortunately, the needs of tenants are easy to predict, with little changing on a year to year basis. Basically, if you’re able to find a place that works for tenants, you can milk that cash cow for an extended period of time.

In a “university town” like Guelph, many people enter the market looking to purchase student rental property. Here, those properties span from London Road to Clair, from Victoria to Imperial, and with each location offering unique amenities to their potential tenants, they’ve proven successful in a variety of neighbourhoods. Which location you buy in will determine the ease of finding tenants; and just like homeowners, renters can have different opinions of value and different criteria for an ideal place. Common “wants” within the student community can include: Access to transit, proximity to the university campus, ease of access to downtown, updated units, newer buildings; the list goes on and on. Knowing your target market will help you find the best locations, most suitable units, and how to generate rents that meet your goals.

How good are you as a property manager? Sometimes a firm understanding of accounting or finance might be help you with the ins and outs of generating a return, but how are your people skills? Keeping tenants for an extended stay is cheaper than finding new ones, so the daily operations of your property can be critical. Make sure you’re up to the task. If not, consider hiring a property management firm. They’ll take between 5-10% of your rental income, but they can relieve a lot, if not all of the hassle. They handle maintenance, rent collection and can save you money by finding qualified, well-suited tenants on your behalf. And if your decision to buy is hanging on by that 5-10%, the second-property route might be a little risky anyways.

Ultimately, you’re the one making the decision, and nobody knows your skills, tendencies and comfort level better than yourself. That said, it’s always a good idea to consult an expert before you make a play. Talk with your financial planner, mortgage agent and a Realtor; and then decide whether direct or indirect real estate investment is the smarter play for you.

What’s my home worth? This flyer told me I should know.

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You know what people hate? Junk mail.

You know what some Realtors love to send people? Junk mail.

I’m sure there are more than a few people wondering what’s involved in one of those “free home evaluations” that you always get a flyer for. Hell, I got two this week (Sorry fellow agents, I threw them out), they must be important. Truth is home evaluations are actually a pretty handy marketing tool for agents, and useful knowledge for homeowners.

Are us Realtors really just giving away services? How do we make money?

As a seller, you've got a few options...

As a seller, you’ve got a few options…

Well, a home evaluation or “complementary market analysis” is a gateway, commonly referred to as a loss leader. They’re like a kids eat free promotion at a restaurant that gets hefty, football-watching, mammoth dads through the door to throw back a giant slab of meaty goodness for $30. Sure you lose out on the 5 bucks from little Jimmy’s grilled cheese and fries, but he’s not paying the bills or making the decisions. Realtors spend the time, for free, to scout your home and harvest you as a prospective client. Then they make that money back down the road on the sale of your home when you inevitably call them because they’ve established a relationship with you. This isn’t a tactic or scheme, it’s smart business. You’re not tied to them at all, so you’re still free to use whoever you’d like. It’s just that you’re more likely to call them, and they now know your home better than any other agent.

Keep in mind that as we go along here, there’s a difference between Realtors and appraisers. A Realtor can quickly give you a very good estimate of your house’s value, often from experience alone. It serves to come up with an attainable list price for your home that the market would be willing to pay. Realtors are often immersed in the marketplace on a daily basis and have a good sense of market conditions. Despite being accurate very often, they are certainly an opinion and the market will react as it will when the time comes. And, just like any business, you may get one or two “professionals” who are off-base, so make sure you do a little homework to pick someone well-qualified (Sidebar: I am well-qualified). It won’t hurt to get a second opinion if you feel the first is out of line.

There are 3 main methods of appraisal: the cost approach, sales comparison approach, and the income approach. The instances where each are used vary, and typically all home evaluations are done via a single means, due to their accuracy and consideration of timing.

The one you’re least likely to see is the income approach, unless you’re selling a multi-unit dwelling from which you garner regular revenues. It is mostly used for commercial and industrial valuations, and involves the use of discount rates and cash flows to determine a reasonable price to generate a sufficient return for the buyer. If comparable properties to the one we’re trying to price have a discount rate around 8%, and our unit brings in $24,000/year, then our value would be $300,000 ($24,000/0.08).

Still with me? Remember, that one doesn’t get used often. If you’re already lost, then I’ve done my selling job and made you need me even more. Excellent.

The second method -one that can be used more frequently in residential valuations- is the cost approach. Effectively, it equates to the cost to replicate the building, if the buyer were to build it to its current condition. It considers the value of the property, and then adds the cost of improvements, before also accounting for depreciation.

Here’s a VERY simplified example:

If a house was worth $250,000, and the seller installed a $10,000 rec room theatre system with a 20 year life, 3 years ago, the cost approach would then re-value the house at $258,500.

Make sense? The trouble with this method is that upgrades rarely see the true cost returned to a seller. If a house goes from a dump to fully-turnkey, there may be a profit margin for the seller. Often though, if there is more work to be done, buyers will see that before the true value of renovations. It is also hard to gauge land value premiums, and incorporate those true costs, since the available for vacant land, particularly in subdivisions, has been slim for many years.

So let’s take a look at the one your Realtor will do for you, since it’s the one that you’re probably most interested in.

The sales comparison approach is what you’ll get when you bring in a Realtor, be it from junk mail or their awesome, informative blog posts- either or. It’s the most effective way of determining market conditions on a city-by-city, neighbourhood-by-neighbourhood, street-by-street basis. Using information that they alone can access, Realtors are able to determine the market value of your home by comparing a number of variables within your home, to others that have sold previously.

A Realtor will develop a list of similar properties called “comparables”, and adjust their estimate of your home’s value by the differences in those homes and the subsequent changes in price associated with those differences. Some common variables include, but are certainly not limited to: the number of bedrooms and bathrooms, square footage, sale date and house style, all of which can have a large impact on the price of the house. With the development of subdivisions and model homes, it’s become even easier to find accurate comparables, since identical layouts and floor plans are used in multiple homes in the same area. Sometimes, variables such as how well a home shows to potential buyers requires putting a dollar value on a qualitative impression. That quantifying ability comes from experience and knowledge of what attracts buyers, along with what buyers are willing to pay for…and ultimately, how much.

Here’s an purely hypothetical example that illustrates the sales comparison approach. Again, it’s very simplified, but hey.

Mike’s house has 3 bedrooms, 2 baths, 1800 square feet and is a 2-storey detached house in the Westminster Woods neighbourhood.

Now, a value is determined for each variable, which is then roughly applied to the price of the best comparables. This can be done using common market estimates of value, or for the most specific info, by virtue of a regression analysis. For the purposes of the example, we’ll say that bedrooms are worth $25,000;  full baths are $20,000; space is valued at $50/sq. ft., and comparable home prices have gone up an average of $24,000 in the past year.

So, with that taken into consideration, Mike’s Realtor finds that a good comparable for his home is another two-storey detached home sold in Westminster Woods, 4 months ago. It had 4 bedrooms, 2.5 bathrooms and was 1920 square feet. It sold for it’s full asking price of $465,000.

Here is where being decent at math is a big plus. You’d first subtract $25,000 from that price to account for the drop from 4 bedrooms to 3; then take off another $10k for the half-bath Mike doesn’t have. By also having 120 less square feet, the Realtor would drop $6,000 off the $465,000 as well. It’s not all bad news for Mike though. Given the strong market and home values rising $2,000/month, Mike can expect $8,000 more than he would’ve got if the houses had sold at the same time.

Therefore, we can see the value estimate as follows: $465,000-$25,000-$10,000-$6,000+$8,000= $432,000. Even though his house was valued at $432,000, Mike would probably factor some negotiating room into his listing price. For that reason, Realtors are invaluable, since the sale price should be a much greater consideration than the listing price, which is often all the public has access to.

Every house has a price, but finding the right one, right away, is the key to a quick, hassle-free sale. If you comparison shop Realtors and get multiple estimates before listing your home, keep in mind that the highest one isn’t necessarily the best. It might be, and your house may sell for that. But overpricing your house can be dangerous, since a house that sits develops a stigma and can often sell for less than it otherwise may have if priced correctly at the beginning.

Realtors are an invaluable resource when it comes to selling your home. A home evaluation can be helpful to homeowners, even before the time comes to sell. It can help establish a budget for your next purchase, and plan for your future. For a free home evaluation, call me at 519-837-0900, or just wait for anyone to drop a flyer in your mailbox. I know which one I’d choose.

For Sale: The Fisher-Underwood Mansion in Ottawa

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FisherwoodCelebrity homes are great. Most of them make more money than we ever will, and as a result, their houses are a heck of a lot nicer than our own. MTV Cribs made a ton off our thirst to gawk at these awesome places for a few minutes at a time. We love it.

I see a ton of cool features in homes, and compile them into a “someday” list. It’s really just a big tease, but hey, that’s what the lottery is for.

Topping my list are: fantastic wine cellars (I’m not even a big wine guy), theatres and sharp rec rooms. Toss me a hot tub or a pool in the backyard and I’d be pretty content.

Well, needless to say, I’d be through the roof locking down a place like Mike Fisher and Carrie Underwood’s pad in Ottawa (even though Carrie’s not included). Jesus definitely took the architect’s pencil on this one, the place is a masterpiece. It’s somewhat understated, but when it’s one of 3 or 4 places you own, they can’t all be over the top.

They’re asking $2.2M for this 5 bedroom, 5 bathroom estate; basically a half year’s salary for the poor one of the family. It seems like a pretty great deal considering that the elliptical that toned a certain pair of legs can probably be lumped into the price. Equipment like that doesn’t come along every day, guys. I’ll assume the majority of the workout gear’s been moved out for a while, since I would’ve expected that gym to be a little more stocked. That or Mike doesn’t do the whole “working out at home” bit.

Anyways, take the full tour. The video’s down below, the MLS listing is here, and it’s a pretty good way to kill 5 minutes. Let me know what you think. Or hey, if you want to buy it, we can take a trip up to Ottawa too. I can be available.