What You Need To Know Before Investing In Real Estate

Investing in real estate may seem like an overwhelming process, but it has the potential to be so rewarding. REC’s friend Sue Murphy as a prime example of what is possible in this field, in just a few years she went from 0 properties to 11. Beginning with a semi-detached house, she expanded her portfolio to a number of different types of homes to capitalize on the benefits of the industry. Yes, initially starting the process is scary but if you want a secure way to become successful this is one of your best opportunities.

The sooner you jump in the further ahead you’ll be. What’s crucial to know about real estate is that it’s not a get rich quick scheme, it requires a healthy amount of patience to become fruitful. It generally requires time more than effort. The earlier you delve in, the sooner you will be to reaching your goals.

You don’t need to be a risk taker to invest, as long as you do your due diligence you’ll be safe. With proper research of the location, the types of homes in the area and knowledge of price trends, you will have a strong grasp of what you need to know to mitigate some of the risks. Minimizing risk to its smallest form creates security. You can eliminate fear by fulfilling all of the necessary requirements done by building a team of professionals to help walk you through the more intimidating parts. Having a broker might just be your best bet, as this is something you definitely don’t want to go to into blind. Don’t be afraid to ask for advice, there are always people willing to help.

It’s important to know that problems can arise. The home inspector can miss something or you can have an issue with the tenant, although these things are generally unlikely. If you deal with this immediately and have a lawyer at the ready just in case, you will be secure. Costs can arise, but they won’t be a fraction of what your investment will be worth.

There are 5 different types of properties to invest in, each with their own benefits and particulars to consider. Pre-construction is when you purchase the investment before a shovel breaks ground, it requires little work and this passive investment climbs in value as it’s being built; you are buying from a blueprint, so you don’t get the best sense of the project and your funds are tied up for approximately 4 years. An income property has 2 or more livable units which can be rented out individually, this is beneficial to gain a higher income and if a renter leaves you can offset the cost; keep in mind that it’s a more active investment and you will need to budget higher for maintenance. Lease to own is when an investor acquires a property for a tenant buyer who will eventually purchase it under pre-determined terms, this is a more passive investment that helps others purchase a home with a set exit strategy; it can be difficult to get qualified tenants and funds are tied up for about 4 years. Joint ventures are when investors partner up to purchase a property while leveraging their skills to benefit the other members of team (ie. doing repairs or financing), this allows you to purchase more and larger properties while having other people to fall back on if issues arise; it does offer less control and having the same goals is a necessity. Student housing is renting out temporary housing outside of major post-secondary institutions, this is beneficial due to the endless demand in a desirable area which generates consistent cashflow, but it does have high tenant turnover and costly repairs.

Diversification is another way to reduce risk. Let’s say that if fully detached houses in Brampton are not doing well, chances are small condos in the city core might being doing better. You want to avoid much of the same type of investment in the same location as this mitigates risk. We advise not to have too many pre-construction condos because if policy changes and the builders can no longer build, you could possibly be in a negative financial situation. Diversification creates a safety net just in case the market isn’t beneficial to certain properties in certain areas.

Keep in mind you have the option to refinance and invest again by taking the money out (a reverse mortgage) to put towards another property. This gives you the option to continuously build your portfolio. Gaining the capital required does take time, but this strategy is generally faster than simply saving your funds.

When you own a property you can win in three ways: appreciation, principal recapture and cash flow (if you have someone renting it out). Over time prices inevitably increase, meaning your property will always appreciate. In principal recapture the tenant pays off the mortgage, allowing you to leverage the equity you’re gaining. For example, if you’re $50k down, the tenant pays the mortgage, you end up with a $500,000 asset.

Investing in real estate is definitely overwhelming to jump into, but it’s something you can get comfortable with the more you do it. As you expand your portfolio it gets easier and easier. There is definitely risk involved, but if you do your research it outweighs the negatives by a substantial amount. If you’ve already done your due diligence then the best time to jump in is now.

Written by: Spencer Maxwell

A Glimpse Across Canada’s Real Estate Markets

Like any big country, Canada is exceptionally diverse in its real estate markets. We have so many large cities that offer so much of their own unique potential. Toronto is not just the only location for a positive investment. Calgary, Ottawa, Vancouver, Edmonton and Hamilton all have varied influences that factor into their continuous growth and rising potential.

Calgary’s population is trending upwards in the next decade thanks to their increasing immigration. Job growth has been on the decrease recently due to the economy being mostly reliant on the energy industry, the upcoming pipeline will result in an inevitable boost. The rental vacancy rate sits at 3.9%, while the average rent is $1,272. The average semi-detached home is $450,000 which is remaining stagnant in a buyer’s market that is trending downwards. This has created a waning level of consumer confidence, but this is beginning to rise as of late. The most popular homes are detached houses, with semi-detached coming in second. Thanks to urban sprawl there is an excessive amount of land to build upon leading to more detached homes. “The city is built around the vehicle,” states realtor Shawn Rasmussen of RE/MAX Calgary Real Estate, noting the openness and welcoming relaxed atmosphere of the city, which is a welcome change to the other dense cities.

Like the rest of Alberta, Edmonton is on the rise in growth as its province has the highest increasing population for the first quarter of 2019. People are seeing the rising opportunity thanks to positive housing prices and the scenic atmosphere creating a strong quality of life. Their economy is mostly reliant on the oil industry and government jobs, having only two factors to support the province can lead to wavering stability. The average house price sits comfortably at $315,700. As their inventory decreases it creates a strong buyer’s market and a softening seller’s market, resulting in strong consumer confidence. Single family homes with a detached garage are generally the most popular in the city. The rental vacancy rate is 5.3% with the average monthly rent being $1,246. “What’s interesting about Edmonton are the prices fluctuating a great deal due to supply and demand,” notes David Demian of Re/Max Real Estate.

Vancouver receives the majority of British Columbia’s immigration, which averages 50,000 annually. The currently moderately soft economy mainly relies on tourism, mining and forestry as their main industries. The average house price is $1.4 million, while out in the mainland it averages around $3.3 – 3.5 million. As prices are going down in this buyer’s market, consumer confidence is very tentative due to a lot of concern and hesitation because of the stress test and foreign buyer tax; which also harmed Toronto. Condos are the most popular type of homes, while houses with basement suites for supplementary incomes are second. The rental vacancy rate is below 1%, the average rent sits at $1,649 monthly. Taxes are the main driving force impacting sales and values in the Vancouver market, though real estate still remains a liquid investment after years of continuous growth. “In tougher times people still want to live here, many people want to retire here, you can go to the mountains and play tennis on the same day,” states Kelly Fry of the Kelly Fry Team.

The Hamilton population continues to rise, especially thanks to wide increase of Millennials. This is due to the affordability of housing in comparison to Toronto area, creating a spill over effect. Job growth remains consist in large part due to McMaster University and Hamilton Health Science leading medical research internationally, which also brings in a larger degree of students year over year. The average house price in Hamilton is $587,300, which is outperforming most of the country. Consumer confidence continues to increase, which was even bigger than the spike of 2015; they are now in a seller’s market which is a general trend in the summer. The rental vacancy rate has increased to 3.1%, while the average monthly rent is $1,077. “An excess of white-collar jobs and migration from the Greater Toronto Area have really aided to our affordability,” notes Mike Heddle of The Heddle Group

Ottawa’s population is nearly 1,000,000 as it continues to healthily increase year over year. This is in large part to an excess of jobs in hospitality, a blossoming tech sector, tourism, post-secondary institutes, the nearly complete first phase of the Light Rail Train increasing job growth while also improving accessibility, but the federal government is what employs the most people. Prices are trending up in their seller’s market, the average house price being $440,400. Consumer confidence is strong, but dwindled a little in the past few months due to concerns of security in the federal job market creeping in. Condominiums are the most purchased type of property due to their affordability and recent stricter mortgage rules creating more difficulty to own a single family home. The rental vacancy rate is below 1%, with the average rent being $1,300. Tony Miller of EXIT Realty Matrix notes that so many people are keen to move in and invest simply because of the federal government and it being Canada’s capital.

The main factors that influence housing prices in Canada are immigration, the job market and the available quantity of land. A common trend across the country is our rather poor transit, every major city is taking the initiative to improve this which would help values in the near future. Statistics show that we have years of growth to look forward to all across the country.

To see how Toronto compares, click here.

Written by: Spencer Maxwell

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How Home Buyers Can Tactically Negotiate

So, you’ve looked everywhere, and you’ve found the home you want to live in. You’re happy with the location, the asking price is within your budget and you feel ready to take the next step. Now it’s time to make an offer to purchase the home. As the buyer, negotiating how much you’re going to spend is such an important part of the process. You want to find the appropriate deal not just for yourself, but for the seller as well. Everything in the transaction is detailed in the Agreement of Purchase and Sale which lists the full legal names of the buyer and seller, the brokers, a full legal description of the property and the purchase price including the deposit (the payment that demonstrates serious intent to buy the property, this amount is then credited to the purchase price). When you make the offer, it’s accepted by the seller, and any conditions are met (if there are any), it becomes legally binding. Both you and the seller are obligated to hold up your ends of the agreement and complete the transaction. For that reason, you must be sure you understand what’s in your offer before you sign.

Every offer is unique, and therefore, every offer will have different conditions protecting the buyer or the seller. Keep in mind that if a seller receives two offers, one with conditions, and one without, the seller will generally be more inclined to accept the unconditional (firm) offer. Always consult your lawyer concerning the use and wording of conditional clauses, as if it’s not legal it can’t be put in place. If you are going to arrange a mortgage to buy the property, it is customary to make the offer conditional upon financing for a specified period of time. In the event that you are unable to arrange adequate financing within the time period, the offer is null and void, the deposit is then returned to the attempted buyer, and neither party is under any further obligation to proceed.

The irrevocable date and time is the period in which the potential purchaser has made an offer which they are legally bound to keep, and the seller decides whether they want to accept the offer or not. Our preferred time frame is typically 72 hours, although we sometimes see it spread out for a few more days. Creating a smaller window is a useful tactic to put pressure on the seller to compel them to make a quicker decision on your offer.

When you close you need to know what is included in the purchase price. Fixtures are permanent improvements to a property that remain within it at the end of the finalized sale. Chattels are moveable pieces which are not physically attached to the property. The distinction is generally, but not always, clear. Fixtures can be exceptions in the offer, if there’s a chandelier that’s a family heirloom the seller can claim that as part of the agreement. Legally that object is a fixture, so it must be mentioned in the paperwork. As a buyer, you can negotiate to keep chattels within the property. With such a large purchase, the homeowner will likely be more accommodating in the offer to help further the process.

It’s a must to research the property and the area before you make an offer. You want to understand the true market value, which is done through understanding how much similar homes in the area have sold for. You can utilize this information to negotiate for a more fair price on your behalf if you back up your claims with the proper evidence. The list price is irrelevant, it’s up to you to determine if it’s a good value.

We strongly advise that you have your lawyer review the document before you submit it to the seller as you are legally liable to stick to those conditions that are spelled out within. If timing is critical, you can insert a clause making the offer conditional upon your lawyer reviewing the offer, this is usually over the course of a few days. Be aware that the lawyer’s job is to review the paperwork and ensure that you are protected, it’s not their job to comment on the value of the property.

After the offer is signed, a meeting is arranged with the seller and the listing agent. The seller can accept the offer, reject it or make a counter-offer, but only during the irrevocable period. If the offer is rejected, it may be because your opening bid was too low for their liking or that the terms were not acceptable. At this point you may want to raise your offer and try again. In the event the seller makes a counter-offer, they have indicated an interest with proceeding, and have begun negotiating. This may result in a back-and-forth until both parties are happy.

If you are happy with the property but have minor issues with elements of it, you can utilize that to your advantage. If it has an odd smell, if it needs a fresh paint job or new tiling you can use this in your negotiations. These are things that you can resolve yourself with minimal costs and some effort. These are definite factors to consider in the home buying process as it’s customary for the property to look like a model home. The seller will likely be receptive if you have an interest along with founded issues with the state of the house.

If they are dead set on the price you can negotiate for other things in the purchase. If you want to keep the furniture or appliances, the seller may comply as it is convenient for you and low cost in comparison to the property. If you have your eye on something they may use that to persuade you to purchase, which works for your benefit. In any negotiation, it never hurts to ask. They may say no which doesn’t influence the deal, but you have the potential to walk away with more than expected. Be open to what you want, the aim of both parties is to make the other satisfied with the transaction.

Expect to compromise with the seller. It’s not uncommon to have a back-and-forth for each other to fight for their own best interests. Unless the seller is in a hurry to get rid of the property, they will be looking to benefit as well. Again, the ideal goal is to find a middle ground that makes both the buyer and seller happy. Be firm in what you want but don’t expect to get everything.

During the negotiation process be the one that speaks less. This gives you more control over the conversation, as any information they provide can be useful. The more knowledge you have, the better command you will have of the situation. Ensure the few statements you make are probing questions. Get them talking about the property to understand every detail possible to see what it has to offer and if there are any hidden defects you can be clued into. What has changed in the property since the seller took ownership? What should I know about the neighborhood? What repairs have you done to the property? This process is about finding the finer details that an inspection and spending a few hours in the area may not provide.

You want to find the motivation of the seller as this could potentially benefit you. If there is any issue with the property you could leverage that into getting a deal, or it could give you a reason to not want to own the property. If they are in a hurry to sell the property, you may be able to negotiate for a higher offer or better conditions.

With this information and utilizing your due diligence, this process can help save you a substantial amount of money and help you discover if this is the right property for you. Negotiation is just part of the home buying process. This can be quite a challenge for first timers, if you have the option ask a real estate agent to help you practice, utilize them.

Written by: Spencer Maxwell

How To Screen Tenants

If you are renting out your property, screening tenants is an absolute necessity to ensure that you and the home remain secure. Through our collective decades of experience we’ve found that these are the best methods to keep both parties comfortable. You don’t need a realtor to accomplish this, but it will definitely take some time as well as due diligence.

The first thing you have to do is to market it for rent. We would strongly advise utilizing online resources such as Viewit.ca, PadMapper.ca, Kijiji, FaceBook Marketplace or Craigslist. The nicer it shows in photos and video, the better pool of tenants you will get. A coat of paint can go a long way, ensure that the colour is neutral with preferably modern and light tones. Remove all of the clutter to make it appear similar to a model home so the potential renters can envision themselves inside. This all helps to cast the widest net possible.

Try not to show the place whenever a prospective tenant calls, set boundaries for yourself. It creates a sense of urgency if you have more people in at specific times, as you can fill the location so they can see there are many interested parties. The more in-demand your place looks, the sooner it will be unavailable.

If you want to ensure security of your asset, you have to have tenant standards and requirements. Peace of mind is very important as they will be occupying what is likely your biggest investment. They need to show financial prowess so that they can keep up with payments and be capable of maintaining the property. This is proven through their bank statements, credit check, employer information and personal references. Ensure they fill out the rental application, which should highlight all of the necessary information. Ensure that you get a credit report (which you will need their consent for), if they decline, that is a big red flag. This typically costs $20, which is miniscule compared to the cost it could save you down the line.

Don’t be afraid to interview them over the phone to save you and them time, this will help you get a better sense of who they are, along with more peace of mind. Ask them if they’ve ever been evicted or broken a lease agreement. You want someone who can comfortably afford the rent on time, ensure you ask how much of their money is being tied up in rent. How many people will be living in the residence? You don’t want an abundance of people living in a place that’s too small as that generally comes with more repairs after the fact. It’s wise to have personal references to see if what they’re telling you is accurate. Call references to get a better sense of the applicant. Contact the HR person at their work to find out their income range to see if the applicant is fudging the numbers. You can ask a realtor to check the title owner of property to find out if they provided you with the actual previous landlord’s information and it isn’t just a friend of theirs. Pull their credit report, ensure you get their consent, don’t get it from them as they can utilize Photoshop to inflate their numbers. Having no credit can be just as bad as having poor credit as you don’t know the history.

When they arrive have rental applications ready, so they can fill them out right away. Have a one page feature sheet which briefly describes the place along with pictures to make it stand out. Follow up with them to get feedback on if it showed well and if they feel it was priced right. This feedback could greatly help you in the future. Find out what other properties are renting for in your area to get the true value of comparable rents.

We would advise not shying away from student housing as it is a strong source of revenue. They will likely not have a credit score but you can pull information from the parents and guarantor to know that if they are a wise occupant. If they don’t have any employment information, you can get it from their guardians to ensure that the liability is not on you.

We insist that you look into the prospective tenant’s online presence, as people generally document their entire lives, whether it be on Twitter, Instagram or LinkedIn. If they don’t have anything, it would be wise to look at other candidates.

A concern that many people have are pets. We’ve found that animals generally aren’t that big of a deal in terms of the mess they create. It’s the renters that are by far the most damaging aspect.

Ensure that you get first and last month’s rent before you hand the keys over. You want to make sure that you are as protected as possible before anything is finalized. Renters generally don’t create any issue in terms of payment, but you need to be cautious as this is a possibility.

We advise leasing the property rather rent as this denotes a set and generally longer amount of time. At least a year would be preferable, longer if possible. Draft a lease agreement which states the property, rent, security deposit and utilities provided. The template for your province’s form is available online. After the standard form is filled in, speak with a lawyer about adding clauses so you can add any stipulations legally.

We prefer to collect rent rather receive post dated cheques to ensure that the tenant is happy while also having the opportunity to check on the property without being intrusive. If the property is bare bones after months of tenancy, it’s possible that it could be utilized for illegal activity. You are allowed to give 48 hours notice of a home inspection as the landlord, if you see anything that is breaking the law it’s then time to contact the police. If you’ve done your due diligence, it’s very unlikely that this will occur.

Have a coffee with your tenant, get to know them. Give them a thank you and a bottle of wine after everything is finalized, it is a business after all. If they get to know you, they will be more inclined to treat your property with care. Give them your contact information just in case they need anything. Little things go a long way, they will be more inclined to stay which will save you time and money.

This whole process is about mitigating risk. Verify everything before you finalize the agreement. If you have any hesitation towards the tenant move on to the next one, especially in Toronto the tenant pool is massive. You will be secure if you do your due diligence.

Written by: Spencer Maxwell