Worlds Greatest Investment Property Guide…Period.

To continue with our “Firsts” theme here’s one for the rookie property investor.

So you think you’re ready to invest some of your hard earned cash in an income property. This may come as a surprise to you but most entry level investment properties aren’t actually cash flow positive. In fact, most single unit investments (condos) basically break even. But with anything less than 20-30% down expect to be taking an annual loss (some investors consider a $100-300/yr out of pocket to be acceptable). The break-even point is becoming even harder to achieve as condo prices have outpaced rental rates in recent years. But due to the lack of residential rental development, newly developed condo units are supplying much needed rental inventory. With well over 140 buildings under construction and dozens ready for occupancy each year, the demand is still outpacing supply with most types of units. Since the demand for rentals has exceeded supply , we’re seeing multiple offers from tenants on most downtown units thus bringing some units back to a neutral position. We wrote a piece a month ago outlining some rental figures.

Just in case you’re buying an investment property as your very first real estate purchase, have a look at the Worlds’ Greatest First Time Buyers’ Guide. It will provide you with loads of knowledge before getting started. Very important to remember that purchasing a property beyond your principal residence requires you to have a minimum of 20% as a cash down payment, plus closing costs to qualify for funding. If you don’t own your principal residence (or any other property for that matter) then you can qualify for as little as 5% down but then you’ll have problems covering your monthly costs with the rental income earned.

How much money do you need? Well that depends on the location and investment goal. Are you happy with someone paying down your mortgage and not earning positive cash flow? Or do you have a larger budget and can get into a duplex, triplex, or quad type of investment? These are the questions you need to ask yourself. The very first step is to see your mortgage broker and get a bank approval for your purchase. This is a show me the money moment, if you don’t have the cash you aint buying, plain and simple.

Accounting

Most people don’t even consider the tax implications of owning/managing/selling investment properties and they fail to consult their accountant. Our man, Grant the CGA has all of the info you could ever need about the tax implications of rental properties and he’d be happy to discuss them with you. All experienced investors (the smart ones do anyway) have a great tax consultant. This quick step can save you thousands of dollars and the headaches of dealing with the CRA. No surprises = stress free investing.

Property type

Again, this all depends on your budget and cash position. We will not get to this point in the discussion until you’ve spoken with your mortgage professional and obtained an approval and we strongly urge you have a discussion with your CGA. As Real Estate Sales Representatives and Brokers we do have the general knowledge to guide you but we cannot replace the specific skills and knowledge of a tax professional.

  • Single Unit Residential

    • Most likely a condo/loft/townhouse: This is usually the safest investment and ideal for first time investors. The price barrier is low, maintenance is low, and the demand for centrally located condo units is high.  You have the option of going with a pre-construction unit or consider resale. We’re leaning more towards resale in this market as the advantages to buying pre-con have essentially disappeared. The days of buying off plan and seeing a sharp spike in price on occupancy day are over. There are still some smart pre con opportunities but they are few and far between. Most pre con developers require a minimum of 15% down within the 1st year and a further 5% on occupancy. This cash is held in trust for years and really doesn’t earn any interest (well it does but it’s not that much). You could put that same amount of money down on an existing, resale unit today and have it earning rental income the following month. With the price of resale essentially the same as pre construction in most neighbourhoods it’s the logical choice for the local investor. Pre con as an investment could make sense for foreign investors needing to park money etc… not ideal for the local, small time investor.  Location is important here for two reasons: First, to attract a ton of potential tenants, Second; for resale value. With the condo market as tough as it has been over the past few months you need to protect yourself. Try and find a unit in less “condo heavy” communities (less competition when selling). Focus more on tight neighbourhoods:  Leslieville, Riverside, Riverdale, Leaside, Highpark, Roncesvalles, Danforth area are prime examples of great communities with fewer condos but high demand for rentals. Keep in mind, we don’t recommend you hold a condo beyond its 7th yr in business. Maintenance fees tend to creep up, demand from buyers decline as they focus on newer, shinier options.
  • Multi Unit Residential

    • A property with more than 2 apartments (or 2 min) have the greatest potential for positive cash flow each month but they do have a higher barrier to entry as they tend to cost more and require much more maintenance than a single unit condo investment. If you’re a first timer we’d hope you at least have people in your life that are experienced landlords and can help you when things get tough. Buying near, or on main streets make the best income properties. Main street properties tend to cost 10-20% less than those on quieter residential streets but achieve similar rents. Ensure the property isn’t too far from transit. Subway is ideal but communities with easy access to downtown via streetcar are also fantastic options. Certain ethnic communities are also fantastic options for income properties as families arrive in Canada they begin their journey as renters and some remain in the same property for a number of years.
  • Commercial

    • This option isn’t usually for your rookie. Finance companies do not treat commercial loans as they do residential.  They require much higher down payments (whether you’re a first timer or not. The financing process in general is quite a bit more intense. Could take up to 30 days to even confirm financing as more detailed appraisals are required. If you are newer to real estate investing but are confident and cash heavy, a small building with main floor office or retail with upper level residential would be an ideal option. Always good to be able to diversify and in this case you’ve got a nice mix of res/comm in one investment. Gerrard St East is a great place for this right now as we’re in the early to mid stages of gentrification.  Parkdale area is another good location with great growth potential.

Once we’ve zoned in on the right property type, have our financing approvals in place, and have discussed your tax consequences with your tax professional, we’re ready to get out there and start looking for money makers. One important thing to remember is that you’re not buying this place for yourself so try to put yourself in the shoes of a renter and not someone who may have different requirements as an experienced homeowner for a number of years.

Analyzing the Numbers

 

How to find a Tenant

You’d expect a Real Estate brokerage to insert the cookie cutter “Always us a Realtor to find a good quality tenant” line but we’ll spare you the BS. If you’re dedicated to your investment properties and have made property ownership your career than you’re more than capable of using tools like Craigslist, Kajiji, Facebook, and Twitter to find a great tenant.

For those that have other full time commitments, or are new to the rental game, cannot spend the time to create the ads, efficiently reply to prospective tenants, and would like the added benefit of MLS exposure then we’ve got your solution. At Spring Realty we have dedicated rental agents that can handle 100% of the tenant finding and vetting (which we’ll get to next). The fee for a rental agent at Spring Realty is the equivalent of one month’s rent plus HST. If we rent your space for $1200/mth our fee would be $1200. This can be paid from the initial tenant’s deposit of $2400 (1st and last) and the remainder is returned to you, the landlord.

To discuss your rental property purchase or if you’d like us to help you rent out your existing rental units, please get in touch to discuss. We’ve created an efficient system that includes a full social media campaign, high quality photos, and of course MLS exposure. If we can’t find you a tenant: it’s you, not us.

How to pick the right Tenant?

This is a great problem to have and a common one in Toronto these days. Having a lack of rental inventory has created quite the demand for rentals and it’s quite common to have 2-10 applications within a week on a single property. Here’s what we look for:

  1. Credit report from www.equifax.ca including credit score
  2. Employment Letter to confirm annual salary and length of employment. If self employed we ask and review their NOA’s for the last couple of years.
  3. The Spring Realty rental application which asks for references and other vital information

Once you’ve gone through all three of the above documents. You’ve likely settled on the top tenant. If you only have one application, don’t feel as though you need to take the 1st app that comes your way. Sometimes it’s better to listen to that feeling in your gut and walk away. The Residential tenancies act is set up so that it’s quite difficult to evict a bad tenant even if they’re not paying rent so let’s make sure we wait for the good one, even if that means you will have the place vacant for a few more weeks.

Once you’ve found that dream tenant it’s time to “get them to sign on the line that is dotted” (<– can you guess which movie that line is from?). Our lawyers have created an air tight Lease Agreement specifically for our clients which we’re happy to pass on to our clients.

Apologies for another insanely long post but it’s important to have all of the info you need in one place. If any of this confuses your or if you would like to chat about your options, get in touch and we’ll get started. If you have an invetsment property to sell, check out our post about Dealing with Tenants. Make your you’re connected with us on Facebook and Twitter too.


May not realize full impact of B-20 changes till Spring.

The pessimism that has been ruling the markets since the U.S. election may ease a little today.  President Obama is set to meet with the leader of the Republicans in an effort to avoid the fiscal cliff.  Bond yields are virtually unchanged, up just 1 basis point (bp).

We’ve been enjoying flat mortgage rates for a number of weeks now, with a downward trend in bond rates.  We’ve come down 15 bps over the last month so that being said, there’s little reason for mortgage rates to move up any time soon.  There’s been a bit of a cushion built into today’s rates as the cost to the lenders has come down, yet mortgage rates have not moved with them.

The market is still adjusting to the recent  B-20 underwriting changes that took effect the end of October.  As we go into what is generally a seasonal slowdown, it’s hard to really tell the impact it will have more immediately.  Come the spring, that may be the true test of this latest round of changes.

One can only hope that all this government meddling hasn’t caused more problems for the Canadian housing market.  I can appreciate the intent of trying to provide a soft landing and reduce the household debt issues that have been raised, but needing to step into the market four times in as many years seems a bit excessive, doesn’t it?

BEST RATES: 1yr 2.69% – 3yr 2.65% – 5yr 2.94% – 5yr Variable 2.65%

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, reach out to him if you have any questions about these changes and how they affect you. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you log-in to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!

What's the best available mortgage rate for 1st time buyer?


Best Mortgage Rates in Canada Sept 19th

1 yr – 2.74%  3 Yr – 2.64%  5 Yr – 2.89%  VRM – 2.65%

There have been a couple of highlights for the Canadian housing market in the past week: the U.S. Federal Reserve announcement that it is committed to low interest rates until 2015 and the latest global housing outlook that puts this country in better shape than most.

Anyone looking for a new mortgage or a needing to renew will likely be happy by the American central bank’s interest rate pledge. The commitment to low rates makes it harder, but not impossible, for the Bank of Canada to move on its desire to increase rates.

However, that desire got a boost from Canada’s economic think-tank, the C.D. Howe Institute. It says the central bank needs to change the way it calculates inflation to take into account rising house prices. The institute says the current calculation keeps inflation lower than it really is and puts the Bank of Canada at risk of keeping rates too low for too long.

Of course, if you’re watching your investments, these low rates aren’t going to speed up your retirement plans any.

As for the global housing outlook, it shows Canadian prices continue to rise, albeit more slowly than a year ago. But around the world, countries showing price declines outnumbered gainers by more than two to one.

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you login to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!

 


Best Mortgage Rates Sept 13th, 2012 & Some HELOC Changes.

1 Yr – 2.74 – 3 Yr – 2.64 – 5 Yr – 2.89 – VRM 2.65%

The new guidelines (B-20) announced by the Office of the Superintendent of Financial Institutions (OSFI) kick in at the end of October and many lenders are changing policies now in anticipation of this.  Not ideal, especially for those that decide they would like a home equity line of credit (HELOC), or want to buy a home with 100 percent financing.

That doesn’t mean that you can’t get a HELOC, but the new guidelines limit the maximum amount that you can take out of your home.  Under current rules, you were able to take up to 80% of the value of the home as a HELOC.  The new guidelines cap this at 65%.  The intention is to reduce the ATM effect that was occurring with many homeowners, and contributing to the record household debt levels.  We can still refinance to 80% as a traditional mortgage – phew!

The next notable change is that the government now requires a borrower to have a 5% down payment.  No longer can the client use 100% financing in the form of a 5% cash back offer to finance their purchase.  Some people have great credit, but life happens and they just can’t save enough money for that 5% down and still pay all the household bills.  This represents a very small part of the market and for some reason the government thought it would be a good idea to target these borrowers.

So for the majority of Canadians that go to their bank to arrange their mortgage, these options are no longer available.

But, if you deal with a mortgage broker, or a credit union, you will still have access to these products.  Since OSFI governs federally regulated institutions (i.e. banks), most lenders fall under this purview.  But, credit unions are provincially regulated so they can dodge this bullet and continue to offer HELOCs to 80% loan-to-value, as well as 100% financing.

If you or someone you know is considering any of these borrowing options, then I’d encourage them to talk to their mortgage specialist soon before the major lenders have all changed their policies to comply with B-20.  But if the need arises after October 31st, rest assured, we can still explore options.  You just need to consult your local mortgage broker.

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you login to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!

 

 


Best Mortgage Rates for Sept 5th 2012

1 yr 2.74 – 3 yr 2.69 – 5 yr 2.94 – VRM 2.65

We got our rate announcement from the Bank of Canada today and they have indicated that they are leaving rates as they are, much to everyone’s expectation.  This is great news for everyone in a variable rate mortgage!  As well as those with lines of credit or student loans that are tied to prime.  There’s no expectation rates will be moving before the end of this year – yay!

In fact, the Bank of Canada can’t see rates really moving until foreign policymakers can get their act together and put policies in place to alleviate the debt crisis in Europe.  China is also experiencing some slow down which will have some drag on the global economy.

When things do start to pick up, the Bank of Canada sees it as slow and gradual.

Although we did have a slight up and down with bond yields the last few weeks, it seems that most rates have levelled off and the major lenders are staying away from another major rate war, still recovering from the previous couple bouts.  That being said, fixed rates are still really low and there are still a couple specials that offer sub-3% rates for a 5 year term.  None of these offers are from a major bank.  Very interesting.

The next Bank of Canada announcement is October 23rd and I’ll keep you updated on that yawner too.

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you login to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!

 

 


Best Mortgage Rates for August 24th, 2012

1 Yr – 2.49% – 3 Yr – 2.64% – 5 Yr – 2.89% – VRM – 2.65%

Canada Mortgage and Housing Corporation is adding its voice to those announcing a slowdown in Canada’s housing market.

Their third quarter market review projects “measured” growth through the rest of this year and into next. CMHC sees a slowdown in housing starts and in price growth and points to “balanced” housing markets in most Canadian centres.

The CMHC forecast supports what already appears to be happening across the country. The Canadian Real Estate Association says its July figures indicate a balanced market.

Prices dropped a modest 2% from a year ago while sales remained virtually flat compared to June and new listings decreased a moderate 3.3% from June.

Still market watchers remain divided over the impact on the economy. Some point to the broader impact the housing industry has on employment and consumer spending. They say job losses from a slowdown in construction and the fact that falling home prices will have Canadians feeling less wealthy could be a serious drag on the economy. Several others see a 10% to 15% dip in home prices over the next two to three years as a modest contraction, especially compared to the vigorous and price growth experienced over the past decade.

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you login to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!


Best Mortgage Rates for August 16th 2012

   1 Yr – 2.49% – 3 Yr – 2.64% – 5 Yr – 2.89% – VRM – 2.65%

Wow!  This week has proved even quieter than the last.  No major economic news was announced, but we do have inflation numbers coming on Friday.  With Mark Carney already threatening the need to remove financial stimulus, he wants the market to believe that if this comes in higher than expected that we could see rate increases happen earlier than most are projecting.

I don’t think most economists are really giving this idea any serious attention as the economic fundamentals are too stacked against the option to increase rates.  Mark Carney has been crying wolf for too long and there are no obvious reasons to increase rates.  The economy isn’t at full capacity, we still have high unemployment, the dollar is playing with parity and they aren’t any further ahead in Europe.  Until these economic headwinds start changing direction, there really is no room for the Bank of Canada to make any rate changes.  Hence the mortgage announcement we got on June 21st.  I wouldn’t bet variable rates, but I think we should be here for a while still.

That being said, bond yields are still up, and we have some increases in rates, but there are still some great rates to be had out there:

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you login to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!


Best Mortgage Rates August 8 2012: Bye bye sub 3%?

It’s a quiet week for economic news, coming off a long weekend.  The unemployment report is out on Friday, but that’s the only real noteworthy item this week.

Best Mortgage Rates Canada 5yr fixed 10yr fixed variableWhat will be making more headlines will be the increase in bond yields we’ve seen the last week or so, as much as 25 basis points (bps).  At these levels lenders are starting to increase their rates and we’ve already had a few send us notice.  This could mark the end of the sub-3% five year rates.  We still have a few but unless yields reverse, more lenders will increase.

If you were sitting on the fence about whether or not to jump in now, this could be your wake-up call before all the rates bump.

Best to contact your mortgage professional and talk to them about getting pre-approved so they can lock in these rates for 120 days.

BEST RATES

1 Yr – 2.39

3 Yr – 2.64

5 Yr – 2.89

VRM – 2.65

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Heard about our awesome new home search tool? We’ve opened up the MLS just for you. Make sure you login to our custom Spring Realty Homefinder Tool and give it a spin! Find us on Facebook and Twitter too!


Doom or Boom? Best Mortgage Rates for August 3

This week we received conflicting reports about the so-called “condo bubble” in Toronto. One report from RBC seems confident that we are not in a bubble. The pace of construction is keeping pace with the creation of new homes in Toronto. Since land is becoming scarce in Toronto, builders are being forced to build up, and not out anymore. That being said, they do foresee a cooling, with a 2-7% drop in condo prices brought on by recent government changes.

The government can’t change interest rates so the changes announced on June 21st were designed to take some of the steam out of the Toronto (condo) market, while trying to engineer a soft landing.

The other report released this week came from the doom-and-gloom Capital Economics. They have been predicting for two years now a 25% decline in housing prices. That wasn’t speaking to the GTA or condos specifically, but more to the broad Canadian housing market. As a reader and someone in the industry, I take this report with a grain of salt. My guess is they are trying to grab headlines, as they did last year, with these horror-filled predictions. They point the finger at the Finance Minister’s changes and a growing reluctance for buyers to pay today’s top dollars in light of the global economic uncertainty we are in. While there may be some truth to these reasons, in the short term, it would be near impossible for prices to drop 25% with rates so low. As rates increase, which may not be till 2014 now, then it would be expected to see some pull back in the market.

In terms of the impact that the government changes are having on the market, it’s still too early to tell. I can say that in my office, very few clients were impacted by the change. Pundits may point to the lower numbers being generated this month, but this is also seasonally a very slow month for new deals to be written. I think we’ll need to wait until the fall market to see how much of an impact it really had.

The last bit of news to share is that ING is officially on the chopping block. Our Big Banks seem to be circling as the world’s largest insurer looks to divest itself of some of its holding in light of the bailout package it received. It will be interesting to see who ends up with the $1.7 billion in assets, and how they incorporate the ING clients and business model into their current holdings.

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Please remember to the Spring Realty Insider Club list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments right to your inbox. Find us on Facebook and Twitter too!


Fixed or Variable Mortgage? All the Rates look good!

We’ve had some interesting data recently that has some Canadians wearing smug looks. The most gratifying is the hotly-debated report from Environics which indicates Canadians are richer than Americans. It says the average Canadian household was worth about $363,000 in 2011, compared to almost $320,000 in the U.S., a difference of more than $40,000 – dollars that are pretty much at par. Of course, home prices had a lot to do with it. Canada didn’t see the collapse that the U.S. did and skyrocketing values in Vancouver and Toronto did a lot to jack up the national average.
The big credit monitoring firm, Equifax, says Canadians have slowed the speed at which they are driving themselves into debt. It says the rate of debt-growth dropped to 3.1% from 4.4% on a year-over-year basis. Credit card debt is down 3.8% and Canadians are sticking with their existing debt vehicles and not opening new accounts. Mortgage debt isn’t included.
And one dire sounding report that isn’t as bad as it seems from the Canadian Institute of Chartered Accountants. It suggests 48% of the people surveyed would find it “challenging” to meet their mortgage or debt payments if there was a “significant rate hike”. By “significant”, they appear to mean a 3.5% increase over what they are paying now. Rate increases will surely come but, given the current state of affairs, that sort of bump is highly unlikely. Also, keep in mind that “challenged” is not the same as “unable”.

BEST RATES

1 Yr – 2.39%

3 Yr – 2.64%

5 Yr – 2.89%

VRM – 2.65%

Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each week for you to enjoy. Please remember to the Spring Realty Insider Club list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments right to your inbox. Find us on Facebook and Twitter too!