Frequently Asked Questions From Real Estate Investors

Investing in real estate always seems very high-risk high-reward, but that’s not entirely the case. It’s important that everyone who delves into it be comfortable with their purchase and have all the data they need. These are the questions that we’ve been asked the most in our culminated decades of experience, these answers will put you more at ease on your path.

When should I start?

You should start as soon as you can. When it comes to real estate, the sooner that you get in, the sooner you can take advantage of the returns. As an investor you need 20% down, you have the option to put it in increments; most investments don’t. You just need to decide when you’re ready.

How do I prepare?

Get educated when you’re thinking about starting. There are so many resources that you can take advantage of, you need to find whatever method is easiest for you to consume. Whether it be YouTube, Google, podcasts or books, there are almost innumerable sources of information on this topic. You should also surround yourself with your real estate all-star team. We advise starting with an independent mortgage broker because they can shop around for the best price and terms and set you up as an investor for potentially multiple properties down the line. Then you want to look for a realtor with expertise specific to the area you are shopping in (as there are so many micro markets in any city or town). Then you want a real estate lawyer, an insurance advisor and a contractor.

What do I need to know before I jump in?

This will not be a perfect investment, that actually does not exist. The numbers don’t always work out as they look like on paper. Be prepared to take a little risk, although it is a calculated risk with all of the data you’ve collected.

What is the best investment strategy?

The best investment strategy is different for everyone. The biggest return on investment is the buy, renovate and flip, but you’ll have to be able to handle such a big project. Many prefer a passive investment, something that’s already renovated and can be rented out as it appreciates in value. The best strategy is decided by what you want to do in the long-term, but also what your comfortable with.

How safe is the market?

I’ve seen decades of data, and within that we see the market go up and down as it trends upwards. Currently in Toronto of January 2020, we are in a secure market as properties are appreciating at 4–5% year over year. For the past 39 years we’ve seen appreciation average at 6.9% each year.

What fees and taxes do I have to pay?

You have to look at closing costs. We advise budgeting 3–3.5% of the purchase price to remain on the safe side. For Toronto, there is the Ontario Land Transfer Tax, the Municipal Land Transfer Tax, lawyers fees, closing adjustments. For pre-construction investments, you also have development charges and Tarion home warranty fees.

What if there is a problem within the market?

In the real estate market, you’re only really affected when you sell. Buy and hold is what we always preach at REC. When interest rates go up, the cost of borrowing also goes higher, which means that tenants who are thinking about buying are unable to purchase. So you have more tenants looking to rent, which is beneficial to investors. If the market goes down (and you’ve put away some money), put some joint ventures together to go on a bit of a shopping spree.

What should an investor know that’s possibly not obvious to them?

This process is actually harder than you think if you don’t get educated. There’s also a lot you can do with real estate: you can buy and rent it out, buy it and refinance it, and buy it and sell it. There are triple benefits to investing because the values go up, someone else is paying your mortgage down (so you’re building good equity), and you have cash flow covering your expenses. You don’t see these benefits in other types of investments.

Written by: Spencer Maxwell

Frequently Asked Questions From Home Sellers

Selling your home can be such an overwhelming process. There are so many minor and major details to consider in every step at either side of the real estate transaction. Through our team’s culmination of over a century in the business, these are the questions that we get asked the most frequently from sellers.

When Is The Best Time To List My Home For Sale?
As soon as your ready to move. If you want to get the best value for your property, the key is to give yourself as much time as possible to sell. More time means more potential buyers will probably see the home, likely resulting in more offers. This also gives you additional time to consider other options if the market or initial interest is slow.

Is There Any Seasonality To The Market?
Peak selling seasons vary from year to year in most market places and weather usually has a lot to do with that. Often early spring and early fall are the prime listing seasons as houses tend to “show” better in those months than they do in the heat of summer. Be aware that there are also more houses on the market during the prime seasons, resulting in more competition. While seasonality is a factor, it’s not something that should dominate your decision on when to sell.

What Makes A Home Sell?
A successful sale requires you to concentrate on five considerations: price, terms, conditions, location and market exposure. You cannot control all of them, you may have to overcompensate in one or more areas to offset a competitive disadvantage in another.

What About Market Conditions, Price Trends, Interest Rates And The Economy In General? Should They Have Any Bearing On When I List?
If you’re considering the sale of an income property, there are only two things to consider: the cash flow and, if you do sell, where is the money being invested. If you are just moving your investment to the market to get better cash flow, any time is good. If you are taking the money out of the real estate market to invest somewhere else, don’t forget to take capital gains taxes into consideration. This is something I would advise checking along with an accountant.

How Long Should It Take To Sell?
The average listing times vary from 30–180 days, according to the market conditions in a particular neighbourhood, the type of property and the price range. Of course, price, terms, conditions, location and exposure play an even greater role. Selling in any market is easier if you keep time on your side. Most professionals will tell you that pricing, conditions and aggressive marketing will shorten this greatly. If you are selling in a seller’s market, pricing for multiple offers can help you sell in just days.

What If I Can’t Sell My Current Home Before We Move?
This situation can arise for any number of reasons. Such as, getting the job promotion you’ve been waiting for may mean having to quickly relocate. You may even finally find your “dream home” and need to put an offer in before it sells to another buyer. Whatever the reason, don’t panic. You have some viable alternatives to the potential nightmare of double mortgage payments. If you don’t have to sell in order to buy a new home, renting your existing property may be a suitable option. Consider the advantages (additional income, income security) and disadvantages (maintaining tenants, not getting the equity and funds for the home). If you’re being transferred, you may be able to obtain a short-term rental in your new location while you’re becoming familiar with the new area.

What If I Decide To Sell My Home First?
We always advise that in a buyer’s market, you should sell your property and make sure to negotiate a longer closing. This will allow you time to be able to find another home to purchase without feeling rushed. In a seller’s market, one should buy their next home first. This should be done with a longer closing of 120–150 days (if possible) to allow time to sell your home in the interim. You should arrange for the possibility of bridge financing in the event that the closing date of the sale of your property is longer than the closing date of the purchase.

What Renovations Can I Do To Increase The Value Of My Home?
Renovating your home for your own personal tastes is very different from renovating to increase its value. Installing an inground pool because your family can enjoy it for years has its own value, but when it comes to selling you may not get back your investment. If you are considering doing renovations to increase value, this list will help you focus on the necessary sections:

  1. Kitchen: This is the most important room when it comes to valuation and it can make a significant impact on the value of the property. When considering a renovation, think modern and fresh. Update your cabinetry, install under cabinet lighting and install new appliances. To save on costs, look at options like Ikea as opposed to custom cabinetry.
  2. Bathrooms: The second most important room(s) when it comes to valuation. Upgrading cabinets, counter tops and hardware for a fresh and modern look will increase your home’s marketability. If you can add an additional bathroom where there is dead space it will increase your home’s value even more. Do not sacrifice useful bedroom space for a bathroom.
  3. Flooring: You will see an immediate increase in your value by installing hardwood floors. For cheaper fixes, consider refinishing existing hardwood floor or removing carpet and adding engineered laminate flooring throughout. In the bathroom, you’ll always see higher demand for tile over laminate.
  4. Fixtures: If you can’t change the cabinets in the kitchen and bathrooms,consider updating the cabinet hardware, light fixtures, counter tops and faucets. This gives the appearance that a full renovation has been completed, this can change the look and feel of your home.
  5. Income Suite: The biggest and most effective way to add value to your home is to build an income suite within the property. Consider converting your basement into a rental and advertise your home as an investment property. Ensure that your neighbourhood has demand for this type of offering before you proceed.

Can I Sell My House Myself?
Some people have this notion that they can save a considerable amount of money by selling on their own. They look at the average commission on a house and think of friends and family who managed to get through the process with seemingly little trouble. It can be done, so why can’t I try? Approximately 1–2% of Canadian homeowners handle their own sale. But in order to join the ranks of successful salesperson, you need to realistically assess exactly what’s involved. The routine parts consist of pricing your home accurately, determining whether or not a buyer is qualified, creating and paying for your own advertising, familiarizing yourself with enough required real estate knowledge to understand (and possibly even prepare) a real estate contract, and coordinating the details of a close. The greatest downsides are the demand on your time, and the possibility that a mistake may cost you the money you’re trying to save. Listing agents know about the market trends, houses in your area, and those who are most likely to buy there. They also know how to reach the largest interested audience, trained in screening and negotiating potential buyers. They are almost always on-call and work on the weekends; being available to the whims of others.

Written by: Spencer Maxwell

An Update On Toronto’s AirBnB Rules

The rules for short-term rentals will be updated once again in the Spring of 2020. AirBnB is the most utilized platform that allows people to live in their residence as they would a hotel for no more than 27 days, with a maximum total of 180 days each year. Now owners will be required to register with the city and pay a Municipal Accommodation Tax (MAT) of 4%. There will also be a $50 annual registration fee added on. All properties will be issued a registration number which must be presented on all advertisements.

Initially, any homeowner could rent out any number of their properties for as long as they desired. The number of days has decreased and only a primary residence is allowed to be temporarily lived in. This was developed in an effort to create more affordable housing for citizens of the city through having more permanently rentable properties available, resulting in a slower climb of prices.

An exact date is not set yet, in the following days the City of Toronto will update it’s website: https://www.toronto.ca/community-people/housing-shelter/rental-housing-standards/short-term-rentals/. Investors should be prepared when this does arrive to avoid any potential charges. If your property is available on a short-term rental platform, it’s best to keep your eyes on the policy to see if there any additional changes.

Even with the new, stricter rules this is still a strong investment for people who want to gain additional income on their principal residence. We are already starting to see many owners of multiple properties move to having more permanent tenants. This has resulted in more legwork users, we’ll see in the coming weeks how this influences those who profit from short-term rentals.

Written by: Spencer Maxwell

Frequently Asked Questions From Home Buyers

Diving into real estate is definitely an intimidating process due to the knowledge and cost required. It’s understandable to be cautious, the more questions you ask, the better. In our collective centuries of experience, these are the concerns we hear most from first-time home buyers.

When Is The Best Time To Buy?

It seems everyone has an opinion about the “right time” to buy real estate. And the decision becomes especially challenging in a constantly altering market. If housing prices are falling, people tell you to wait until the market “bottoms out” before buying. If prices are going up, you feel inclined to buy now to avoid being left behind. Even the self-proclaimed experts can’t accurately predict when a market will reach a peak or drop. Buying a home isn’t just about finding a comfortable place to live for several years or longer, but to also build some equity along the way. Think of a home purchase as a long-term investment. No matter when you buy into the cycle, you will always do well over the long term. Rather than trying to “outguess the market,” your decision on timing should focus on current market conditions, and most importantly, your current financial situation.

Am I Ready To Buy A Home?

Have you demonstrated the ability to save money? Are you pleased with what you have saved so far? Are you ready to change your spending habits to enable you to deal with the additional costs of maintaining a home? Are you prepared to enter into a long-term commitment for your security? Is pride of ownership important to you? Would you enjoy taking care of your home? If you answered yes to the majority of these questions, you’re probably ready to own a home. It is a big step, but if you’ve spent time budgeting and doing the preliminary research then you are ready to start.

What About My “Dream Home?”

Most first-time buyers want their idea of a dream home immediately. But, as we search for available homes online, the reality of price eventually sets in. Our dream home probably sells for a lot more than we had hoped and the down payment alone is potentially more than we earn in a year. The best way to deal with this reality is to match your financial capabilities with a home that meets as many of your needs as possible. Because of this, many first-time buyers purchase what is commonly known as a “starter home.” There’s nothing wrong with this approach. In fact, it’s good sense to start with a home that won’t stretch your budget too thin. This way, any excess savings can be put toward reducing the principal amount of your mortgage, helping you to build equity that much faster and perhaps eventually allowing you to purchase your dream home.

Should I Buy Or Sell First?

There is no easy answer to this question. If you purchase a new home before you sell your home, you may find yourself owning two homes at the same time.

On the other hand, if you sell your home first, and don’t find a new suitable home before you move out, you could be living in a hotel while paying storage costs for your furniture. On top of those expenses, you would also factor the cost of moving your belongings twice. The ideal situation is to time the sale and purchase to happen on the same closing date and with a little planning, this is possible, and very common. Firstly, you want to determine the market conditions in not only your neighbourhood, but that of the area you’re hoping to move to. If it’s a seller’s market, it would be advantageous to go find a new property first. Once that is locked in, you will then likely have an easier time selling your home and having the closing dates match as negotiations are in your best interests. If the market conditions favour buyers, you would be best to sell your home first and negotiate a longer closing date when possible. This allows you time to then find a new property and negotiate your closings to coincide with one another. Another common approach to use in a buyer’s market or in a balanced market, is to make your offer to purchase “conditional” upon the sale of your present home. This means that if your current home doesn’t sell, you are not obligated to complete your next purchase. In most markets, it remains difficult to convince the seller to accept an offer of this type as they have taken their home off the market, and if you are unable to sell your home, they are back at square one.

What Is Bridge Financing?

Let’s pretend your current home is for sale and during your search for new houses, you’ve actually managed to find your “dream home”, but the seller is not willing to accept a conditional offer on the sale of your existing home. In this scenario you may be forced to commit to your purchase or risk watching your dream home slip away. One way around this, is to arrange bridge financing through a financial institution. If your lender is confident that your current home will sell in a reasonable time frame, they may consider advancing you the money to purchase your new home, using the equity in your current home as security. You would in effect own both homes for a short period, and the added costs are usually negligible. For example, bridge financing on a $400,000 home for 30 days at 2% is only $800. The added benefit of this method is that you aren’t forced to move everything on one day, oftentimes resulting in a much less daunting experience. You definitely want to arrange this with your lender ahead of time before signing any agreements to purchase.

What type of programs and rebates are there for first time home buyers? 

Home Buyer’s Plan: This exists only for first time home buyers. You can borrow up to $25,000 from your RSP for each purchaser who qualifies. If you haven’t put your allotted annual amount into your RSP but instead have money in your GIC, mutual funds or in cash, you can usually top up your RSP based on your unused contribution limit.

Land Transfer Tax Rates for Ontario:

New home buyers in Ontario may qualify for a rebate of all or part of the land transfer tax. The specifications for this refund are:

  • Purchaser must be at least 18 years of age
  • You can not have owned a home or interest in a home anywhere in the world
  • Your spouse can not have owned a home or interest in a home anywhere in the world while he or she was your spouse

Some important items to note:

  • The method of acquiring the home (eg. purchase gift or through inheritance) is not relevant to qualifying for a rebate
  • You cannot re-qualify as a first-time home buyer
  • If you claim an immediate refund at the time of registering your home, this may offset any tax that would have been payable
  • If you do not claim the refund at registration and do so afterward, the tax must be paid at registration and you must submit your refund request to the Ministry of Finance

Here’s how to calculate your potential rebate:

  • Effective January 1, 2017, the tax rates for land transfer tax will depend on the date of the agreement of purchase and sale
  • As of now, the tax rates on the value of the consideration are as follows:
    purchase price of home marginal tax rate for $55,000 and under is 0.5%, $55,000.01 to $250,000.00 is 1.0%, $250,000.01 to $400,000.00 is 1.5%, $400,000.01 to $2,000,000.00 2.0%, over $2,000,0000 is 2.5%
  • Land transfer tax rebates for Toronto: As of March 1, 2017, first time home buyers in the City of Toronto may qualify for a tax rebate up to $4,475

The purchaser must:

  • Be 18 years of age or older
  • Occupy the home as their principal residence no later than 9 months after the date of conveyance (transferring property to another owner) or disposition (how the exchange is arranged)
  • Not have previously owned a home or had any ownership interest in a home, anywhere in the world, at any time
  • Be a Canadian citizen or permanent resident of Canada or have become so within 18 months of conveyance or disposition
  • Not have a spouse who has owned a home or had ownership in a home, anywhere in the world, while they were the purchaser’s spouse
  • Have submitted the claim for a rebate within 18 months of the purchase
Written by: Spencer Maxwell