So you’ve decided to purchase a property in Montreal. By now you’re probably browsing every website for the “perfect home”. But have you taken a real look of the elements needed before buying a home?
There are several factors to consider before entering the market: down payment and financing, the type of properties that meets your needs, areas that fits your lifestyle, and very importantly: a property that meets all of the above criteria and stays within your budget!
There’s one more thing to factor in: Getting your own representative.
Why you should consider getting your own buyer’s agent?
Here are the top 4 reasons:
It could save you money
A buyer’s agent works diligently in researching the property to detect any problems or issues that could influence your decision in purchasing the property. Your agent will also provide you with all the necessary information before making an offer, to ensure you are not overpaying.
The listing (Sellers) broker/agent works for the seller, not for you.
Listing agents have a legal obligation to only represent the seller’s interests and have no obligation to yours. Their responsibility is to sell the property for the highest possible price. A Buyer’s Agent has an obligation towards you, in finding the best selection of homes that fits your needs and within your budget.
Negotiating the best possible price for you.
When arriving to the negotiation time, it is absolutely essential for you to have your own Buyer’s Agent. As your representative, a Buyer’s Agent will negotiate on your behalf with a commitment to protect your best interests, and keep your personal and financial position confidential.
The services are FREE for home buyers.
The listing (seller’s) broker pays the buyer’s agent’s commission, so for buyers this is a fantastic opportunity: you get professional representation and your own negotiator, at no extra cost!
Saturday, May 8, 2010
Friday, March 26, 2010
Real estate agents ready for court fight with Ottawa
Canada’s real estate agents have rejected an offer to try to settle allegations of anti-competitive behaviour, saying they would rather take their chances on a court showdown than make further concessions to appease Ottawa’s competition watchdog.
Melanie Aitken, the Commissioner of Competition, yesterday opened the door to negotiations with the Canadian Real Estate Association, the body that represents the country’s 98,000 real estate agents. Ms. Aitken, who has alleged that CREA keeps prices artificially high for real estate services by tightly controlling who can access the popular Multiple Listing Service, said yesterday that her office “would much prefer to have this resolved consensually” than pursue a legal fight.
But Georges Pahud, CREA’s new president, said his group has already made a number of changes to respond to the criticisms and doesn’t intend to make more.
“We need to do away with these legal issues properly so we can move on and get back demonstrating the value of realtors,” said Mr. Pahud.
The Competition Bureau filed charges with the Competition Tribunal in February, alleging that CREA’s strict rules governing the listings service make it impossible for competitors to offer innovative services to consumers, such as flat-fee listings or a la carte services based on minimal levels of service.
Until Monday, anyone who wanted to list their home on the Realtor.ca site – the public face of MLS, where about 90 per cent the country’s homes are sold – were required to employ an agent through the entire process and pay a commission when the home sold. In essence, the system required the consumer to pay an agent for services they may not have wanted – such as conducting open houses and handling negotiations – in order to gain an MLS listing.
The commission is usually 4 to 5 per cent of the sale price of the home. That means it would cost between $13,100 and $16,400 in commissions to sell the average Canadian home, using the January average price of about $328,000.
In a last-ditch bid to satisfy the commissioner’s concerns and head off the court case, CREA passed rules at its annual general meeting Monday that make it possible for someone to pay a realtor to place the house on the listing service for a flat-fee, and then handle the rest of the sale without the agent’s help. While CREA said the changes were intended to satisfy Ms. Aitken’s concerns, she said the changes were largely meaningless because the association retained the right to alter the rules at any time.
“What they preserved was an absolutely open-ended blank cheque opportunity to pass any rules that they wanted including highly anti-competitive rules. So give with one hand, take away with the other,” she said yesterday at a public appearance in Calgary. “They could reinstate the exact same rules or they could instate even more anti-competitive rules.”
Ms. Aitken said that a negotiated settlement is “always our preference.”
“But when faced with a situation where CREA’s leadership simply wasn’t prepared to deal with us to resolve the problems in a way that we felt was going to be effective, instead of just sort of an illusion, we feel we have no choice but to go to the Competition Tribunal to try to get a permanent solution. That said, if CREA wants to talk to us and we can get a permanent solution through a consent order, we’re all ears.”
As it stands now, there is no incentive for realtors to offer new, scaled-back services to consumers and there’s no downward pressure on prices, she said.
CREA has until tomorrow to file its defence with the Tribunal, and a hearing could take place in the fall. The Competition Bureau could still withdraw the charges if the two sides reach a deal before the hearing.
An executive at one of the country’s largest real estate brokerages said yesterday that the industry should stop fighting the Competition Bureau and begin rebuilding their relationship with the people who buy and sell homes. Taking the case to court rather than making some concessions on wording doesn’t do anything to help the industry’s already tarnished image, said Michael Polzler, executive vice-president and regional director of ReMax for Ontario and Atlantic Canada.
“The fight is over and we lost,” he said. “Let’s implement these reasonable changes, because I don’t think anything they are asking for is outrageous in this age of technology. How can it be unreasonable for consumers to have options? Let’s move on.”
Melanie Aitken, the Commissioner of Competition, yesterday opened the door to negotiations with the Canadian Real Estate Association, the body that represents the country’s 98,000 real estate agents. Ms. Aitken, who has alleged that CREA keeps prices artificially high for real estate services by tightly controlling who can access the popular Multiple Listing Service, said yesterday that her office “would much prefer to have this resolved consensually” than pursue a legal fight.
But Georges Pahud, CREA’s new president, said his group has already made a number of changes to respond to the criticisms and doesn’t intend to make more.
“We need to do away with these legal issues properly so we can move on and get back demonstrating the value of realtors,” said Mr. Pahud.
The Competition Bureau filed charges with the Competition Tribunal in February, alleging that CREA’s strict rules governing the listings service make it impossible for competitors to offer innovative services to consumers, such as flat-fee listings or a la carte services based on minimal levels of service.
Until Monday, anyone who wanted to list their home on the Realtor.ca site – the public face of MLS, where about 90 per cent the country’s homes are sold – were required to employ an agent through the entire process and pay a commission when the home sold. In essence, the system required the consumer to pay an agent for services they may not have wanted – such as conducting open houses and handling negotiations – in order to gain an MLS listing.
The commission is usually 4 to 5 per cent of the sale price of the home. That means it would cost between $13,100 and $16,400 in commissions to sell the average Canadian home, using the January average price of about $328,000.
In a last-ditch bid to satisfy the commissioner’s concerns and head off the court case, CREA passed rules at its annual general meeting Monday that make it possible for someone to pay a realtor to place the house on the listing service for a flat-fee, and then handle the rest of the sale without the agent’s help. While CREA said the changes were intended to satisfy Ms. Aitken’s concerns, she said the changes were largely meaningless because the association retained the right to alter the rules at any time.
“What they preserved was an absolutely open-ended blank cheque opportunity to pass any rules that they wanted including highly anti-competitive rules. So give with one hand, take away with the other,” she said yesterday at a public appearance in Calgary. “They could reinstate the exact same rules or they could instate even more anti-competitive rules.”
Ms. Aitken said that a negotiated settlement is “always our preference.”
“But when faced with a situation where CREA’s leadership simply wasn’t prepared to deal with us to resolve the problems in a way that we felt was going to be effective, instead of just sort of an illusion, we feel we have no choice but to go to the Competition Tribunal to try to get a permanent solution. That said, if CREA wants to talk to us and we can get a permanent solution through a consent order, we’re all ears.”
As it stands now, there is no incentive for realtors to offer new, scaled-back services to consumers and there’s no downward pressure on prices, she said.
CREA has until tomorrow to file its defence with the Tribunal, and a hearing could take place in the fall. The Competition Bureau could still withdraw the charges if the two sides reach a deal before the hearing.
An executive at one of the country’s largest real estate brokerages said yesterday that the industry should stop fighting the Competition Bureau and begin rebuilding their relationship with the people who buy and sell homes. Taking the case to court rather than making some concessions on wording doesn’t do anything to help the industry’s already tarnished image, said Michael Polzler, executive vice-president and regional director of ReMax for Ontario and Atlantic Canada.
“The fight is over and we lost,” he said. “Let’s implement these reasonable changes, because I don’t think anything they are asking for is outrageous in this age of technology. How can it be unreasonable for consumers to have options? Let’s move on.”
Monday, March 8, 2010
Spring housing market has a bounce with buyer confidence back!
Young Canadians are expected to give a boost to Canada's housing market this year as more of them tie the knot, get full-time jobs, and see those opportunities as major reasons to make take the plunge and buy a home.
A new study by the Royal Bank suggests that younger Canadians aged 18-to-24 are about to take the market by storm, with about 15 per cent of those surveyed in that age bracket saying they are very likely to buy - almost double the level recorded in 2009.
It's a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and a recessions.
The latest survey shows that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it's considered a seller's market.
"Confidence in the housing market is back, essentially," RBC senior economist Robert Hogue said Monday.
Royal Bank said the study found more Canadians are "very likely" to buy a new home in the next two years.
Ten per cent of the 2,047 people of all ages surveyed for the 17th annual RBC home ownership study said they plan to buy a home within two years - up from seven per cent two years ago.
"At this stage last year, there was doom and gloom all around and it definitely affected the housing market," Hogue said from Toronto.
"As we see more and jobs being created and more and more evidence that the recovery is taking hold, and being a reasonable one at that, then it might be another reason to keep the housing market going for a bit."
The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.
One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.
However, the surge in optimism doesn't necessarily mean that Canadians have forgotten about past economic troubles.
The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.
The fixed-rate mortgages would provide certainty to homeowners who are concerned about the potential for interest rates to rise. However, the degree to which they'll save money - compared with variable-rate mortgages - will depend on several factors including the term, specific rates and how much rates change.
Hogue said exceptionally low mortgage rates and improved affordability have been key reasons for the housing resurgence thus far.
Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.
The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.
The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.
Urban starts increased nine per cent to 179,100 units in February.
Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.
The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.
In Quebec, urban starts fell 14.1 per cent.
Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.
A new study by the Royal Bank suggests that younger Canadians aged 18-to-24 are about to take the market by storm, with about 15 per cent of those surveyed in that age bracket saying they are very likely to buy - almost double the level recorded in 2009.
It's a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and a recessions.
The latest survey shows that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it's considered a seller's market.
"Confidence in the housing market is back, essentially," RBC senior economist Robert Hogue said Monday.
Royal Bank said the study found more Canadians are "very likely" to buy a new home in the next two years.
Ten per cent of the 2,047 people of all ages surveyed for the 17th annual RBC home ownership study said they plan to buy a home within two years - up from seven per cent two years ago.
"At this stage last year, there was doom and gloom all around and it definitely affected the housing market," Hogue said from Toronto.
"As we see more and jobs being created and more and more evidence that the recovery is taking hold, and being a reasonable one at that, then it might be another reason to keep the housing market going for a bit."
The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.
One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.
However, the surge in optimism doesn't necessarily mean that Canadians have forgotten about past economic troubles.
The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.
The fixed-rate mortgages would provide certainty to homeowners who are concerned about the potential for interest rates to rise. However, the degree to which they'll save money - compared with variable-rate mortgages - will depend on several factors including the term, specific rates and how much rates change.
Hogue said exceptionally low mortgage rates and improved affordability have been key reasons for the housing resurgence thus far.
Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.
The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.
The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.
Urban starts increased nine per cent to 179,100 units in February.
Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.
The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.
In Quebec, urban starts fell 14.1 per cent.
Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.
Wednesday, March 3, 2010
Investment in Residential Property in Canada
Unlike most residential property markets in developed economies, which have seen sales and prices plunge, the Canadian residential property investment market so far has shown relatively smaller declines in sales and prices. Property investors from abroad have therefore seen their residential property investments in Canada outperform residential property investments in most other places. The outlook for Canadian residential real estate this year and the next is more optimistic than that for most residential property markets abroad, including the United States, United Kingdom, and Australia. This suggests that both home sales and prices will rebound in the coming year, albeit moderately, which could appeal to property investors from abroad. What should especially allure investors is that moderate increases in values of Canada's residential property investments in a deflationary environment may actually turn out to be high when compared to price performance of residential property investments in other nations. Canadian residential real estate thus offers exceptional investment opportunities, especially for property investors from abroad, in an otherwise generally depressed global market for residential real estate.
In most developed nations home sales and prices are expected to extend their precipitous decline this year into the next. Likewise, Canadian market for residential properties is expected to post substantial declines in sales activity this year. However, home sales, which dropped by 17.1 per cent in 2008, are expected to fall at a lower 14.7 per cent rate this year. This should not dent optimism about residential property investments in Canada. Given the better than expected sales turnover so far this year, this 2009 forecast is actually an upwardly revised forecast that reflects a rebound in sales volumes. In fact, this recent improvement in sales activity has prompted most forecasters to revise their home sales forecasts upward. The upwardly revised forecasts reflect the exceptionally strong bounce back in residential; property markets in British Columbia and Ontario. More importantly, home sales next year are forecast to rebound by 7.2 per cent to 397,000 units, driven primarily by an exceptionally robust recovery in sales in British Columbia and Alberta. This sales performance stands out compared to other countries, which should make Canadian residential property market appealing to property investors from abroad.
Even the earlier forecasts of substantial declines in prices of Canadian residential real estate in 2009, averaging about 8 per cent for the nation as a whole, have been revised to reflect the recently strong housing market activity. This has resulted in a smaller than initially forecast decrease in the average price of a Canadian residential property in 2009. According to the new forecast from the Canadian Real Estate Association, the improved outlook suggests that prices of Canada's residential properties will decline on average by 5.2 per cent in 2009. Next year, however, prices are expected to recover, rising on average by a modest 1.7 per cent rate. This modest growth looks exceptional when compared with an expected additional 40 per cent decline in the U.S. home prices over the next two years. Property investors from abroad should find this growth alluring.
The statistics above indicate that the market for Canadian residential investment properties may be characterized by an exceptional stability. This stability may look appealing to many real estate investors from abroad seeking alternative investments in order to diversify their holdings across asset classes and markets. Foreigners buying property abroad interested in making investments in residential properties or second homes may find many opportunities to park safely their money into Canadian residential property market.
In most developed nations home sales and prices are expected to extend their precipitous decline this year into the next. Likewise, Canadian market for residential properties is expected to post substantial declines in sales activity this year. However, home sales, which dropped by 17.1 per cent in 2008, are expected to fall at a lower 14.7 per cent rate this year. This should not dent optimism about residential property investments in Canada. Given the better than expected sales turnover so far this year, this 2009 forecast is actually an upwardly revised forecast that reflects a rebound in sales volumes. In fact, this recent improvement in sales activity has prompted most forecasters to revise their home sales forecasts upward. The upwardly revised forecasts reflect the exceptionally strong bounce back in residential; property markets in British Columbia and Ontario. More importantly, home sales next year are forecast to rebound by 7.2 per cent to 397,000 units, driven primarily by an exceptionally robust recovery in sales in British Columbia and Alberta. This sales performance stands out compared to other countries, which should make Canadian residential property market appealing to property investors from abroad.
Even the earlier forecasts of substantial declines in prices of Canadian residential real estate in 2009, averaging about 8 per cent for the nation as a whole, have been revised to reflect the recently strong housing market activity. This has resulted in a smaller than initially forecast decrease in the average price of a Canadian residential property in 2009. According to the new forecast from the Canadian Real Estate Association, the improved outlook suggests that prices of Canada's residential properties will decline on average by 5.2 per cent in 2009. Next year, however, prices are expected to recover, rising on average by a modest 1.7 per cent rate. This modest growth looks exceptional when compared with an expected additional 40 per cent decline in the U.S. home prices over the next two years. Property investors from abroad should find this growth alluring.
The statistics above indicate that the market for Canadian residential investment properties may be characterized by an exceptional stability. This stability may look appealing to many real estate investors from abroad seeking alternative investments in order to diversify their holdings across asset classes and markets. Foreigners buying property abroad interested in making investments in residential properties or second homes may find many opportunities to park safely their money into Canadian residential property market.
Tuesday, March 2, 2010
Don R Campbell's Take On The New Mortgage
Real Estate Investment Network: Don R. Campbell's Take On The New Mortgage Changes
What are the intended and unintended consequences of these announcements and what are the details behind the very public announcement? Well they are many and varied.
Let’s start at the beginning with a big (sarcastic) “Thank You Very Much” to all of those people who insist on being speculators by lining up around the block to buy pre-built condos. That is who has brought these changes on to the country’s real investors.
Those who speculate on pre-built condos are just that; speculators. You can equate them to those who speculate on the futures markets around the world. Buying at ‘today’s’ price hoping that the values will be higher in the future so they can sell on. Pork Bellies, Wheat and pre-built condos. That is speculation, not investing. And yes, money can be made doing it if you time it right, know exactly what you are doing and have a “Plan B” when it doesn’t work out. However the downside risk is tremendous as many of these speculators discovered when values took a dip and they couldn’t sell or finance their purchases in 2009.
Diminishing The Line-Ups
These frenzied line-ups are exactly the situations the new ‘investor mortgage’ rule changes are designed to diminish. Yet, the unintended consequences are many and varied. (For instance, I wouldn’t want to be a renter in 2011 and beyond as supply of rental units decreases and demand increases. More analysis on this in the future).
Those also at the effect will be those of us who purchase properties in order to hold for many years and provide rental housing in markets that no rental specific housing is being built. Sadly, under these new rules, we are being painted by the same brush as the speculators.
Lots of Opportunity
That being said, the informed investor knows that within change comes opportunity. This is the first in a many part series on what the changes REALLY are, what is behind them, what details aren’t being discussed and most importantly how to use them to your advantage.
Let’s jump into some of the obvious and less obvious effects of these changes:
1. TDSR RULES CHANGE: The most important (yet not talked about in the media) change is to the CMHC requirements for qualification based on Total Debt Service Ratio calculation. Revised TDSR calculation: now only 50% of the gross rental income from the subject property may be included in the borrower's gross annual income for the purpose of calculating the borrower's TDSR.
Previously, 80% of the gross rental income from all properties was deducted from the total household debt service cost to calculate TDSR. This will be the most dramatic change for investors.
A 50% add-back is significantly less favourable to an investor than an 80% offset. Simply stated if you currently own more than three rental properties, and you are going to try for CMHC financing it will be VERY difficult to qualify for a mortgage using only 50% of the rental income from your portfolio. That is why we are developing solutions for investors and sharing them in great detail. (for instance the use of RRSP financing and Joint Venture relationships will be even more critical than before). This is like going back in time a few years where the informed WIN and the uninformed hit a brick wall.
It is more imperative than ever before to take a big-picture overview of your portfolio and strategically arrange mortgages with the appropriate lenders. For instance, don’t use a ‘investor friendly’ lender to do your personal residence, that would just waste cap room. That is why we are completely revamping the Edmonton ACRE financing portion – and it will be the most important part of the whole weekend (not an overstatement). Whether you have zero properties or 50+ you’ll leave there with actions steps that suite YOUR requirements. We have purposely made the decision to make this a smaller ACRE so you can get more hands-on one-on-one assistance in this critical matter.
2. Increased rents coming. One of the unintended consequences of these rules will be the decrease in the number of rental units hitting the market over the coming 5 years. Currently it does not make economic sense in most regions of the country to build rental specific larger buildings yet the need for rental housing continues to grow (a direct effect of building costs and rent controls). This gap has been filled by investors who have purchased homes, condos, duplexes etc as long term investments. This lack of supply will begin to hit the market at the exact wrong time for renters, as interest rates will have moved upwards (making it more difficult for them to turn into home-owners) and inflation will be back at or above normal (forcing annual rent increases upwards in rent control provinces. Long-term investors, who manage their businesses pro-actively will be the big winners in this scenario. It may not feel like you win under these new rules initially, however watch how supply & demand issues push up not only your values but also your cash flow.
3. Increased Mortgage Fraud. Well, they thought they had issues with mortgage fraud before... sadly these rule changes will push the unsophisticated, uninformed or unscrupulous people into playing in very grey areas just to get mortgages approved. The consequence of this is that as mortgage fraud increases, other rules will change that will affect investors. Watch out for ‘mortgage brokers’ who say they have found loop-holes to get around certain rules. One example you’ll hear will be recommendations to say that you are moving in (when it is obvious your intention is not to do so) just to get it approved at a lower down payment. And believe me they will pitch you very compelling reasons to do so (others are doing it, here’s a ‘legal’ opinion on what constitutes moving in, just stay the weekend and it is moving in) all of which are outright fraud. The only person at the effect when this fraud gets revealed will be you. DO NOT FALL INTO THIS TEMTATION!
4. Increased Multi-Family investing. It has always been easier to arrange financing for multi-family properties (6 units and up) because the properties are treated like the business that they are. The financial institutions have analyzed the properties based on their ability to carry themselves, wherein single-family purchases the borrow is more scrutinized than the property. The rules announced have so far not covered multi-family properties and therefore long-term investors will be moving even more quickly into multi-family purchases. This will NOT add to the number of rental properties (as these buildings already are rental properties) and therefore will not affect #2 above. Watch for our F4 Multi-Family Investment strategies to be updated to give you an advantage in this very profitable area of investing.
There are many more intended and unintended consequences to these changes. As our research continues into what is REAL, we’ll post it in this thread. I suggest that you click on the orange RSS feed link at the bottom of this page so you are automatically sent the updates as they occur.
Please ensure you read the top post in this thread for immediate action steps you should be taking TODAY, not tomorrow. Now is the time to be pro-active in your investing business (whether you own 1 or 50+ properties). Although these changes are slated to take place in April 2010, don’t be surprised if the banks start changing their rules this week in anticipation. That is what they usually do.
Be prepared, be pro-active and choose to win
What are the intended and unintended consequences of these announcements and what are the details behind the very public announcement? Well they are many and varied.
Let’s start at the beginning with a big (sarcastic) “Thank You Very Much” to all of those people who insist on being speculators by lining up around the block to buy pre-built condos. That is who has brought these changes on to the country’s real investors.
Those who speculate on pre-built condos are just that; speculators. You can equate them to those who speculate on the futures markets around the world. Buying at ‘today’s’ price hoping that the values will be higher in the future so they can sell on. Pork Bellies, Wheat and pre-built condos. That is speculation, not investing. And yes, money can be made doing it if you time it right, know exactly what you are doing and have a “Plan B” when it doesn’t work out. However the downside risk is tremendous as many of these speculators discovered when values took a dip and they couldn’t sell or finance their purchases in 2009.
Diminishing The Line-Ups
These frenzied line-ups are exactly the situations the new ‘investor mortgage’ rule changes are designed to diminish. Yet, the unintended consequences are many and varied. (For instance, I wouldn’t want to be a renter in 2011 and beyond as supply of rental units decreases and demand increases. More analysis on this in the future).
Those also at the effect will be those of us who purchase properties in order to hold for many years and provide rental housing in markets that no rental specific housing is being built. Sadly, under these new rules, we are being painted by the same brush as the speculators.
Lots of Opportunity
That being said, the informed investor knows that within change comes opportunity. This is the first in a many part series on what the changes REALLY are, what is behind them, what details aren’t being discussed and most importantly how to use them to your advantage.
Let’s jump into some of the obvious and less obvious effects of these changes:
1. TDSR RULES CHANGE: The most important (yet not talked about in the media) change is to the CMHC requirements for qualification based on Total Debt Service Ratio calculation. Revised TDSR calculation: now only 50% of the gross rental income from the subject property may be included in the borrower's gross annual income for the purpose of calculating the borrower's TDSR.
Previously, 80% of the gross rental income from all properties was deducted from the total household debt service cost to calculate TDSR. This will be the most dramatic change for investors.
A 50% add-back is significantly less favourable to an investor than an 80% offset. Simply stated if you currently own more than three rental properties, and you are going to try for CMHC financing it will be VERY difficult to qualify for a mortgage using only 50% of the rental income from your portfolio. That is why we are developing solutions for investors and sharing them in great detail. (for instance the use of RRSP financing and Joint Venture relationships will be even more critical than before). This is like going back in time a few years where the informed WIN and the uninformed hit a brick wall.
It is more imperative than ever before to take a big-picture overview of your portfolio and strategically arrange mortgages with the appropriate lenders. For instance, don’t use a ‘investor friendly’ lender to do your personal residence, that would just waste cap room. That is why we are completely revamping the Edmonton ACRE financing portion – and it will be the most important part of the whole weekend (not an overstatement). Whether you have zero properties or 50+ you’ll leave there with actions steps that suite YOUR requirements. We have purposely made the decision to make this a smaller ACRE so you can get more hands-on one-on-one assistance in this critical matter.
2. Increased rents coming. One of the unintended consequences of these rules will be the decrease in the number of rental units hitting the market over the coming 5 years. Currently it does not make economic sense in most regions of the country to build rental specific larger buildings yet the need for rental housing continues to grow (a direct effect of building costs and rent controls). This gap has been filled by investors who have purchased homes, condos, duplexes etc as long term investments. This lack of supply will begin to hit the market at the exact wrong time for renters, as interest rates will have moved upwards (making it more difficult for them to turn into home-owners) and inflation will be back at or above normal (forcing annual rent increases upwards in rent control provinces. Long-term investors, who manage their businesses pro-actively will be the big winners in this scenario. It may not feel like you win under these new rules initially, however watch how supply & demand issues push up not only your values but also your cash flow.
3. Increased Mortgage Fraud. Well, they thought they had issues with mortgage fraud before... sadly these rule changes will push the unsophisticated, uninformed or unscrupulous people into playing in very grey areas just to get mortgages approved. The consequence of this is that as mortgage fraud increases, other rules will change that will affect investors. Watch out for ‘mortgage brokers’ who say they have found loop-holes to get around certain rules. One example you’ll hear will be recommendations to say that you are moving in (when it is obvious your intention is not to do so) just to get it approved at a lower down payment. And believe me they will pitch you very compelling reasons to do so (others are doing it, here’s a ‘legal’ opinion on what constitutes moving in, just stay the weekend and it is moving in) all of which are outright fraud. The only person at the effect when this fraud gets revealed will be you. DO NOT FALL INTO THIS TEMTATION!
4. Increased Multi-Family investing. It has always been easier to arrange financing for multi-family properties (6 units and up) because the properties are treated like the business that they are. The financial institutions have analyzed the properties based on their ability to carry themselves, wherein single-family purchases the borrow is more scrutinized than the property. The rules announced have so far not covered multi-family properties and therefore long-term investors will be moving even more quickly into multi-family purchases. This will NOT add to the number of rental properties (as these buildings already are rental properties) and therefore will not affect #2 above. Watch for our F4 Multi-Family Investment strategies to be updated to give you an advantage in this very profitable area of investing.
There are many more intended and unintended consequences to these changes. As our research continues into what is REAL, we’ll post it in this thread. I suggest that you click on the orange RSS feed link at the bottom of this page so you are automatically sent the updates as they occur.
Please ensure you read the top post in this thread for immediate action steps you should be taking TODAY, not tomorrow. Now is the time to be pro-active in your investing business (whether you own 1 or 50+ properties). Although these changes are slated to take place in April 2010, don’t be surprised if the banks start changing their rules this week in anticipation. That is what they usually do.
Be prepared, be pro-active and choose to win
Friday, February 26, 2010
From PROFIT magazine, March 2010
Real Estate Housing's comeback
How to cash in on the rebound in new construction.
Residential construction drives so much economic activity that the dizzying drop in housing starts in early 2009 hammered more than just hammer makers. Yet, since then, home building has become a powerful expansionary force as record-low mortgage rates have fueled demand. Canada Mortgage and Housing Corp. estimates that housing starts topped 186,000 in January, up from last April's trough of 118,000. Western Canada led the country, with starts more than doubling.
Total starts remain below the average of 221,000 from 2002 through 2008, says Alex Carrick, Markham, Ont.-based chief economist at Reed Construction Data Canada. Still, says Carrick, "This is an extraordinary comeback, rather than the gradual recovery that was expected." He disagrees with the common view that housing starts will slow once interest rates begin to rise. He figures that potential home buyers, believing that more rate hikes are on the way, will jump in and buy while they can still afford it.
Housing economist Peter Norman of Toronto-based Altus Group calls this "a good, solid housing recovery" but not a boom. He says the rebound is increasing home builders' demand for legal and accounting services, employee health insurance and software for processes such as design and site management. One promising area, says Norman, is to help builders become more productive: "They're looking, for instance, for better ways to design houses and manage inventory, and products to help them reduce waste".
Real Estate Housing's comeback
How to cash in on the rebound in new construction.
Residential construction drives so much economic activity that the dizzying drop in housing starts in early 2009 hammered more than just hammer makers. Yet, since then, home building has become a powerful expansionary force as record-low mortgage rates have fueled demand. Canada Mortgage and Housing Corp. estimates that housing starts topped 186,000 in January, up from last April's trough of 118,000. Western Canada led the country, with starts more than doubling.
Total starts remain below the average of 221,000 from 2002 through 2008, says Alex Carrick, Markham, Ont.-based chief economist at Reed Construction Data Canada. Still, says Carrick, "This is an extraordinary comeback, rather than the gradual recovery that was expected." He disagrees with the common view that housing starts will slow once interest rates begin to rise. He figures that potential home buyers, believing that more rate hikes are on the way, will jump in and buy while they can still afford it.
Housing economist Peter Norman of Toronto-based Altus Group calls this "a good, solid housing recovery" but not a boom. He says the rebound is increasing home builders' demand for legal and accounting services, employee health insurance and software for processes such as design and site management. One promising area, says Norman, is to help builders become more productive: "They're looking, for instance, for better ways to design houses and manage inventory, and products to help them reduce waste".
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