Scott McGillivray Sits Down With REC

Scott McGillivray of HGTV’s Income Property sat down with us to provide his words of practical wisdom. He presents tactical strategies on how to start and remain successful in real estate. Scott divulges his story so readers can pursue their own dreams in building out a constantly evolving portfolio.

 

REC: So in terms of real estate, a lot of people are curious about your history. You have shows, books, co-founded the largest real estate investment group in Canada. I picture you as a kid building homes. Where did this all start from?

Scott: I know that I’ve always been ambitious. Just perpetually looking for something to do. Growing up, to be honest, I had no idea what I wanted. I just knew I wanted to strive on my end. I was kind of like Forrest Gump, as in I wasn’t sure what I wanted to do, but I knew I was going to try a whole bunch of things until I got good at them. So I started to make lists of things I  wanted to do and when I accomplished that list I would make another list and then I would just try things that I was completely unqualified at. In university, I was studying business and I was determined to be a business person. I knew I wanted to make money and I knew I wanted to work hard and I wanted to be successful but I also went through a lot of struggles. Our family was not in a good financial position. So I was already paying my way through school which I wouldn’t say was the norm. Lots of people’s parents help them with tuition but in my scenario my family couldn’t afford to do that. And that was frustrating, and I remember thinking, “Gosh, I don’t like being the poor kid, this sucks.” Then even after I graduated, my father got very ill and passed away. So even though I got through university, when I was looking for my first job I lost my father and I was so sidetracked and so distracted and it really kind of took me. I think I found my rock bottom. I could hardly pay my rent and I’m working like a dog. And that’s when it kind of dawned on me, if I could get on the other side of this rent situation [I would be alright]. I knew that the amount of rent we were paying was more than all the expenses my landlord had. I worked at a restaurant as a waiter and one of the clients was a real estate agent. This one in particular was super nice and very helpful, and I was trying to get her to find me a place for cheap rent and she’s like you should buy a place and I thought “that’s impossible, right?” What I ended up doing in my final years was instead of paying my student loan I used it as a down payment on a property. I got a primary with four extra basements, three bedrooms upstairs and two rooms in the basement. I lived in the basement, rented out the other four rooms and I lived there for free. 

REC: Were you scared at that time? 

Scott: I’m going to spare you the details because I could go into half an hour off of you know the months and months of dead ends and “you can’t do this, you’re crazy, you’re too young, you don’t have a job, you’ve got too much debt.” But it was a struggle and I was always searching for a reason why it wouldn’t work. And that’s when I realized I had the wrong mindset. If you want to find a way that something isn’t going to work, you’re always going to find it right? So instead of using my student loan to pay rent every month I used it as a down payment, that’s 15 months of prepaid rent in a place where I never paid rent again. I was making money living there renting to my friends, renting out the bedrooms, bringing in $2000 a month. I’m like “I’m crushing it rushing right now, this is what I should be doing.”

REC: So now you bought your first property. What happens? You just got the bug now? 

Scott: Oh, that was it. I was bitten and there was no going back. If I’d just gotten in sooner. I did the same thing everyone does. If I just bought more properties when I was younger I’d make enough money off of the rentals, but I really felt like it was too late. Every 22 year old thinks the same way. They’ve already missed all the big opportunities. And it wasn’t until I went to renew my mortgage that I realized I could pull equity out of that first house and I’d have another down payment. The down payment comes from the house I already have; not from working, paying taxes, covering expenses and then trying to pay off student loans. I thought it would take me seven or eight years to build up another down payment. I had one sitting right there in this house. 

REC: Do you remember approximately what you were able to pull out?

Scott: I know exactly how much it was, $31,000 in equity. I pulled out of that first property just about a year later, and I had done a little bit of work but the market was going up and I had converted it to a student rental. Mortgages were a little easier. Financing was a little easier. This was like 2000 – 2001. I actually spread that money out and bought two properties $15,000 down each. And so I bought two more properties and and then I kind of had a formula. I started working on them, renovating them. I built tenant lists, I’d put it postings at the university. I had this one posting that crushed it for me. Everyone else would put up a sign like “Three Bedroom House Looking For A Mature Student.” I put one big sign up and it said “Are You A Student Looking For A House? I’ll Buy One For You. Call Me.” There’s so many houses, all I need is the tenants because when they pay you first and last month’s rent I can cover my closing costs. I had hundreds of tenants on this list. Houses were cheaper but the rent was still solid. And I would take my tenants shopping to a house that was for sale. I had 25 student rental properties by 25. 

REC: What will bring the highest return for someone who is thinking about doing something similar?

Scott: There’s a way I can get more. You need to see start doubling, tripling, quadrupling up on your income streams. Real estate is probably one of the best assets that does that. The first way I like to make money in real estate is on the purchase, I make my money right upfront. I put in lots of offers, I’m not usually offering list price, I’m offering something that’s below, what I know it will be appraised for. And I’m trying to find a motivated seller, you know and it doesn’t always work this way but I’d say more than one out of ten times I will get a property where someone is ready to sell it to me based on my conditions, not my price. I might start with a conventional offer. The house is listed for $400,000 and usually the scenario is that it’s probably only worth $380,000. And after 100 days on the market I might put in an offer for $315,000. At first people think I’m a jerk. I’m not putting the offer in because I’m expecting to get that offer, I’m putting that in because list price is just a suggestion. List price is irrelevant. [I’m hoping] I can make this place have cash flow as a rental at $360,000. Anything less than that is making money on the purchase. So I might negotiate a little bit, they might say “Oh no, we don’t like the price and we don’t like the closing and all these conditions.” So I might move up to $325,000, drop the closing to 30 days, waive my condition of financing and then start from there. Then I might go up to $330,000 and I might move my closing to 10 days. That’s if these people need to get out of this house quickly. I will help them do that. But it’s going to be at a discounted rate as it should be but most people in that situation find it’s a win/win. They’re okay with that. 

REC: What are the multiple streams of income you benefit from in real estate?

Scott: I like to make my money on the purchase. That way I know if I have to get it reappraised or I have to sell it even as is, there’s room for me to make some money. So you make your money on the front. Second way I make money is forced appreciation, which is doing a renovation that adds value and the value of that renovation is worth more than the price of it. So you put $50k in, it’s worth another $75k when you’re done. So now I’ve made money on the purchase. I’ve made money on the renovation and then I like to make money on rental income. So positive cash flow is the third way I’m making money. Fourth way I’m making money is principal recapture. So ideally your financing principle is being paid back. Fifth way I’m making money is market appreciation over time. I finance both in Canada and the United States and I can make money on the currency as well because as the currency changes I can just move my debt back and forth to different lines of credit. So I make money a sixth way. Six ways to make money when investing in North America. The seventh is in your tax benefits, I make money through companies, I make them through capital gains which is a savings compared to income tax.

REC: Talk a little bit about what the average Joe can do in terms of rentals. What’s two to three things that Scott would do right away? 

Scott: I don’t usually talk about this, but I think it’s important for every investor to know if you want to make fast money in real estate and you want to do it in a way that’s not going to put you in a risky situation, it’s sometimes the smallest fixes that will have the best returns. You see us on TV ripping all these places apart. I mean we’re going gangbusters and don’t get me wrong there’s money to be made there. And it’s well-earned and it’s hard work but some of my best flips have been super simple. It’s about securing the right property in the right market, cleaning it up. Honestly, you won’t see this on my shows. You won’t see me buy a property, throw all the furniture in the garbage, paint it, mop the floor, replace the appliances and put it back on the market because there’s not enough content there for a TV show. But you can make $20 – 40 grand on a property doing that and there’s nothing wrong with it. And so realistically, take on something that’s within your comfort zone. You don’t need massive renovations in order to make good returns. So you’re either going to do the bare bones, which is the buy, clean it up, stage it and sell it. That’s sort of the simpler way or you’re gonna go full on you’re going to rip it apart restructure it. That’s where you have to make your decision. And a lot of the times they say try simple things first, don’t go gangbusters on one small change. Maybe you’re painting the whole house, ripping out the carpets, sanding the hardwood. Pick something that’s not going to put you in a precarious situation where you’re running out of time, where you’re running out of money. Get this thing back on the market as soon as possible or clean it up and get a tenant into it. You know there’s fast money to be made, but the big money is all long term. 

REC: I’d love that you said the long term because the team always stresses that the most important strategy is the buy and hold. That’s really where the money is to be made. Why do you think a lot of people don’t see it? They want to get rich quick?

Scott: It’s because we’ve evolved for instant gratification. We’re always looking for the fastest way to be happy. And I don’t want to just go ahead and say the cliche: real estate is not get rich quick, there are ways to make a lot of money quickly and real estate is very risky. So it’s get rich or get broke, and you better have the stomach for it. You better have the stomach and you better have you better have deep pockets. You have to be able to weather some pretty heavy damage in the short term game. 

REC: I can’t tell you the amount of people that sit at this table in client meetings with us, and the first thing they want to do is take on a huge flip right away. They’re going to tear down a wall, it’s a bungalow and going to add a second story because they’ve seen it happen on TV. 

Scott: People see the results. Don’t forget about all the process that went into that. I’ve been a real estate investor for 19 years. People don’t look at the 19 years, they look at the 21 minutes. They’re like “Look at what happened in 21 minutes.” Actually there was 19 years ahead of that 21 minutes. 

REC: You guys didn’t just shoot content for 21 minutes.

Scott: There’s a lot more going on. 

REC: Why do income properties work in both hot or cold markets?

Scott: Because people need somewhere to live. When a real estate crisis hits like it did in 2008 in the United States, people couldn’t get mortgages. People couldn’t afford mortgages and anyone who could was scared to get one. They still need to live somewhere, they all became renters. If you look at rental rates during any real estate crisis they don’t go down. And I tell people this is the biggest secret in real estate success: long term is not to look at the real estate cycle that goes up and down because that scares people; the real estate market is going to go up and down all the way up. Rental rates are a straight line. It doesn’t go down. It doesn’t go crazy. It’s just a straight line that goes up slowly. It’s the consistency that allows real estate investing to be a safe bet. If you’re investing only for the value of the property it’s going to go up. It could go down. Your speculating, but if you look at rental rates those are your most secure returns. So if you invest based on rental income and cash flow you’ve basically mitigated a lot of the risk in real estate and that’s why I like to do it. 

REC: Are you always looking around transit lines near universities, like student housing? Do these still excite you? 

Scott: Of course they excite me. Anything with cash flow, I don’t discriminate. I’ve bought $100,000 houses in Cleveland that I rent for $4 – 5,000 dollars a month. They make positive cash flow. They rent and they cash flow so I don’t discriminate. Do I like student rentals? Absolutely. They’re like the highest cash flowing properties that are out there. I would always advise somebody that you know student rentals are a license to print money. Very recession proof. People are not going to all of a sudden say, “You know what. No more education.” The enrollment is up, the amount of international students is way above their projections. There’s a crisis in student housing right now which for real estate investors is a huge opportunity. Everybody’s worried about the next big thing. The only people who are gonna make money on that are the people who are already in the thing. Get into the thing before it’s crazy out of control. Even like student housing for the last seven or eight years people have been like, “Wow student housing hasn’t been great.” It’s still cash flowing. I’ve been in it now for so long and then all of a sudden the last two or three years, the number of international students applying to Canadian institutions is exploding. They’re years ahead of their projections and all of a sudden my student housing rental rates are skyrocketing. I’m going from $520 a room up to $750. I’m just enjoying the places I’ve rented. The mortgages are being paid down, you have cash flow. Nothing’s really leaving your pocket. I’m like I guess I won’t sell any. I just keep them now. Buy and hold and hold and hold and hold.

REC: In terms of those that already have 5, 7, 8 or 12 income properties, what’s a passive investment that Scott likes to invest in? Some advice. 

Scott: So I mean there’s a session that I call advanced strategies for real estate investors, when you’re starting off getting one property or two properties. It’s like you can hold the entire model together with some bubble gum and duct tape and you’re gonna be okay. I got a mortgage here. Get a line of credit. I put a renovation on my credit card. You’re gonna survive that. It’s not super effective though. When you’re getting into half a dozen properties or more you’re talking the million dollar mark. It’s time to get more strategic. And this is where you need advance strategies. You need proper tax planning. You need to know how to re-leverage your money three to four times over. For every $500,000 you have, you should be able to invest in about $2 million worth of assets at least. And there’s ways to use that $500,000 earning you interest and then still being able to tap into it. I like to train folks who are what I call amateur investors, people who think “Oh I have to go out and get a mortgage to buy a rental property.” People come to me all the time and say “I can’t be a real estate investor anymore, I can’t get a mortgage.” I’m like “Oh, so you’re an amateur. Only amateurs run out and try to get mortgages on rental properties.” That’s the last thing you get on a rental property.

REC: Do you mind if I ask what are you telling these people?

Scott: What I usually tell them is if you’re having trouble getting financing you’re doing it all wrong. If you have a reasonable portfolio of properties or you’ve got equity in properties, it’s about understanding how to do high net worth, like total equity plans in terms of being able to leverage your full value through favourable lines of credit. So if you want to buy a $500,000 property you should be able to go get $500,000 today, you don’t have to qualify for it. You gain $500,000, you buy the property. And if you need to put $50,000 or the work into it, I pull another $50,000 over here and it’s in the form of a line of credit. So my original investment is still earning income. I’m basically leveraging against an asset that’s still earning. So I’m making money on my money while I take more money to make money. This is the idea of multiple streams of income, layer that on top of the seven ways to make money in real estate. You’re now making money an eighth way as well. A lot of people will take equity out of their house, take $500,000 out and they’ll use that to buy a property, which is not an effective way to buy rentals. You could have your $500,000 in securities or equities. So you’re earning hopefully 5 – 8% on that. And then you can get a $400,000 other line of credit which is 80% loan to value against the $500,000. Use that as a down payment on two to three properties, 80% loan to value and get mortgages on the back end of all of them, so you get the mortgages last if needed. And now you’ve turned $500,000 of equity into a $500,000 investment and you’ve got $400,000 to secure, let’s say, a $2 million property. You’re now controlling $2.5 million worth of assets. 

REC: Now that’s quite advanced. 

Scott: It’s very advanced because of the unit. A financial advisor who understands this model is thinking: “Don’t forget about the cost of financing. You need to make sure that every time you move your money into something that it’s earning more than the cost of the leverage you’re putting against it you’re still going to have to debt finance along the way.” So it’s an advanced strategy. I don’t like to start with this because this is where people get caught up, they think it sounds too complicated

REC: Now they think real estate investing is too complicated. This is not for someone who’s just thinking about just getting into investing.

Scott: Yes, if you’ve got a million dollars in real estate or more, we need to have a conversation about advanced strategies or you’re throwing money away. And you’re probably having troubles with financing which you shouldn’t be having troubles with.

Written by: Spencer Maxwell

First-Time Home Buyer Incentive

HOW IT ALL WORKS…

The First-Time Home Buyer Incentive helps qualified first-time homebuyers reduce their monthly mortgage carrying costs without adding to their financial burdens.

1. Learn About the Program

2. Determine Your Eligibility

  • Contact a lender/mortgage professional
  • Review program requirements and ensure that this is for you.
  • Try the self-assessment tool.

3. Choose Your Incentive and Apply

  • Review the details and select the incentive that is right for you.
  • Read, print and sign the application documents in the resources section and take them to your lender.
  • Application submissions will be completed by your lender.
  • Notify your solicitor.
  • Call the 1-800 number to activate.

4. Repayment

  • Early payout options in full are available at any point in the duration of the 25 years.
  • Learn more about fair market value and how this will help you calculate repayment.
  • Calculate the fair market value of your home and multiply it by the percentage of the Incentive you received.

Common Mistakes Real Estate Investors Make

Throughout our culminated decades of experience at REC we’ve seen investors make a multitude of miscalculations, many of them being the same errors. It’s easy to get lost in this daunting experience, especially if you’re new to it. The 4 most common mistakes we see are people getting too emotional about the property, not running the numbers properly, not having an exit strategy and not taking action. Like everything else in this business, you are capable of just about anything as long as you proceed with your due diligence.

People get too emotional about the property. When it comes to the home you need to see it as an investment, it’s a transaction. The curb appeal isn’t what matters here. You have to look at the potential of the property. The wallpaper or the furnishings don’t matter, it’s what you can turn the property into. We’ve also seen people get too enveloped with emotion in negotiations to the point where objectivity is lost, sometimes where the numbers don’t even work out anymore. Any sense of pride or ego just creates a bigger hurdle to overcome. With any issue that arises with the property, maintenance can solve it. Whatever that costs will be a drop in the bucket compared to what the investment will climb to. Any problem that arises surrounding the property is not worth the stress, just think in the long-term.

A consistent problem we see is people not running the numbers correctly. So many underestimate their expenses, which include money for repairs, vacancies, land fees, etc. On the other side, we see many people overestimate their rents. To remain safe, we recommend that you overestimate expenses and underestimate rents as monetary issues won’t be at the forefront of your mind. Always air on the side of caution when it comes to large investments.

Planning your exit strategy is an absolute necessity when you’re deciding on the property you wish to purchase. You need to ask yourself when and how am I going to get my return? Will it be through refinancing or selling? If it’s pre-construction, will you be selling it when it’s built or renting it out? Make sure you know what you want out of the investment, this way you know when to expand your portfolio or when to comfortably get out. Educate yourself on current market conditions, financing rates, property values, but also reflect on personal factors (ie. an upcoming retirement or if you have child going to a post-secondary institution). We advise re-evaluating your plans every 5 years to make an estimated decision of what you want, as your goals might’ve changed.

The final necessary issue we see is not taking action. Yes, this can be an intimidating process, but if you’ve done all of the necessary steps you are ready to go. We’ve seen “paralysis through analysis” so many times, where people keep on hesitating as market prices rise. As soon as you’ve done your research and your expenses are in order, the best time is always now.

Written by: Spencer Maxwell

Why A Home Inspector Is A Necessity In Buying Or Selling Real Estate

Whether you’re buying or selling a home on your own or utilizing an agent, we absolutely recommend having a home inspector. It’s their job to go through the entire property to look for any flaws or anything that would need to be updated. Their role is defining minor and major deficiencies, the buyer generally determines the degree of the issue as many times it comes down to preference. Inspectors go beyond just the cosmetic to ensure that everything is up to the necessary standards of a general property. They are part of the necessary team to understanding the proper value of a home to make an informed decision.

As a home buyer, this is beneficial to gain an in-depth understanding of the property. The inspector will take you through every minor detail which may or must need attention. They will help determine if the home is worth the value the seller has put forth. It’s advisable to be with them through the entire process to understand what you need to know to maintain the maximum quality of the property and intimately understand the small nuances.

As a seller, we also recommend you utilize them as they will inform you if anything needs to be fixed or updated on the property so that it remains at the desired value. If you fix the issues before the home goes on the market there is the potential to increase the value of the property. It’s advisable to have a copy of the documentation as any interested party can see that you took the time to ensure the home was up to code and that the property is worth your asking price (we do advise that the buyer get their own inspection regardless).

The inspector has special tools that can discover things which cannot be caught with the naked eye. They do radon testing (which is actually something you can do yourself), ensuring that that the property is secure of the natural radioactive gas. The inspector has a thermal imaging camera which looks for abnormalities in heating, vermin or structural issues which cannot be seen without. A moisture meter is utilized to look for issues of dampness in the structure which can mount into much bigger issues if left unchecked.

The inspector thoroughly combs the property, even looking at all of the utilities big and small. If the furnace or the water heater needs to be fixed it can be costly and definitely influence the purchase price. The foundation is one of the keys to maintaining the strength of the property as that’s what the property rests upon. The roof is also vital as issues with it can be astronomical to the home. Water damage is one the most crucial factors they look for as it can slowly cause devastating damage if it’s not dealt with. They also look for any stains, asbestos, rot and mold. Any little issues can evolve into something bigger down the line, resulting in great expenses.

You want to ensure that the professional is licensed by the Association of Home Inspectors of your province so that you actually get a complete and certified inspection. The cost of a home inspector is roughly $400 – 500. If you’re purchasing a property that’s worth $500,000, it’s a minor drop in the bucket compared to the amount that it can save you immediately and into the future. It is in no way a frivolous expense and it’s something every member of the REC team couldn’t recommend enough.

Written by: Spencer Maxwell

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

How the Toronto Real Estate Market has Evolved in a Decade

Values in real estate will either slowly or rapidly trend upwards over time. You can look back anywhere from 5 to 50 years and see a steady rise throughout the decades. Regardless of what transpires nationally or globally, Toronto has and will remain secure. Prices of condominiums, townhouses and detached homes have all increased substantially in the past 10 years. This is due in large part to the ever increasing demand created through significant population growth from immigration and the echo of the baby boomer generation. Our job sector is also what appeals to so many, as we are heavily service based and entertainment industry driven, with corporate offices of the world’s largest brands, including FaceBook and Coca-Cola. Our technology industry continues to boom, rivaling that of Silicon Valley. The fact that we have several of the best schools in the country is also what aids to the ever increasing demand.

The biggest change since 2009 was a vast increase in population, which the market undoubtedly reacted to. We have an average of 150,000 people coming in year over year from outside the country and other provinces. The Greenbelt Legislation maintains that we keep a certain ratio of natural landscape which has hindered are ability to build out. This has resulted in a Manhattanization effect, as we become more dense, we become more similar to New York. High-rise condos are continuously dominating our skyline as we have moved so far away from the principal residences being detached houses.

Property values specific to the GTA market double approximately every 10 years. In the city of Toronto, we have seen a drastic increase in gain on all forms of properties. The average price as of 2019 is $826,034, which is an additional $470,000 from 2009. Even with slight dips in the market, the values have raised. Condominiums, town houses and detached homes are all following this trend as demand each year is surpassing supply.

Buyer attitude has also evolved as the market changed. As population has continued to increase, people became more inclined to live in smaller spaces. There was essentially no choice but to become more comfortable with it. In this more business-focused world there is more emphasis on convenience and proximity to work. There is also an increased desire to experience the community. The biggest trend we saw in accommodations was people purchasing more condos than detached houses than they were in 2009. It all comes down to affordability.

The United States suffered from the Great Recession in 2008 due in large part to the housing crisis, this also impacted us as well due to our deep ties. This created a large dip in values for us the following year, but it became a significantly less issue in 2010. The Canadian economy is secure enough that it will ride back up. In order protect yourself in real estate from significant financial loss, ride out the recession until the market improves if you have the option.

The main thing influencing purchasing other than availability is government policy. The mortgage stress test was introduced in 2017 to protect buyers from mortgages they might not be able to afford by requiring a higher income than necessary to attain it. This diminished housing sales in 2018 as not only did it make it more difficult for people to buy, but many were hesitant as they didn’t know how this policy would affect them. The same year, the Toronto Fair Housing Plan was also implemented to create more affordable housing and to add an additional tax to non-resident purchasers. This resulted in it being more difficult for outside investors, thus creating an additional challenge for developers to create more projects. The process was made all of the more difficult with extended project approvals which were intended to create more affordable residences. The added increase of development charges put more restraint on builders giving them less opportunities to build.

Chris Slightham, President of Royal LePage Signature Realty, with his assembly of 1,100 realtors has a strong pulse on the current and future trends. When asked about what he predicts for the next 10 years in the GTA, he sees the trend of density and population only increasing. “The growth trends that we see happening now will only continue to increase as the data suggests this in the decades to come.” The main struggle that purchasers will have to deal with is more affordable housing. To combat this, we need government policies in place that directly aid home owners and increase the speed of approvals so that we can catch up with demand.

Regardless of a recession and policy intervention, over time housing values will not stop rising in the Greater Toronto Area. There is no indication that our population will stop increasing due to the continuously increasing potential of what Toronto has to offer. In real estate, all the data suggests success comes with patience.

Written by: Spencer Maxwell

Attention First-Time Home Buyers!

Being a first time home buyer can be a very stressful process, but there is a right way which we see accomplished thousands of times a year. If you do your due diligence it can be rather comfortable. Before you begin to look at specific homes you need a game plan. You need to hone in on your area to determine the general price point. Figure out the specific factors that reach your goals for location and the property itself. How much space do you need? Do you need a large backyard? Do you have kids? Are you thinking about kids? Is having a school nearby important? How is transportation or transit in your area? What are the area amenities? Are you close to work? How is traffic in the area? Is there good shopping nearby? Once you’ve determined every factor about sizing and location, you can proceed to choosing your preferred area.

The next step we highly recommend is getting an independent mortgage advisor. They essentially do all of the research for you, and you don’t need to pay them as their fee is paid by the lender they get the mortgage from. This is more advisable than going to the bank in most cases, as they might not offer the best plan for you because the blue bank won’t tell you if there is a better rate and terms at the red bank across the street. Independent mortgage advisors have access to hundreds of lenders across the country. They will let you know how much financing you can be approved for and inform you of what you’re monthly obligation will be which includes the property tax and condo fees (if applicable). They will also tell you about all of the upfront costs, including the Toronto and Ontario land transfer tax; both of which you can get a rebate on if you spend $400,000 or more as a first-time home buyer.

Utilizing a certified home inspector is something we strongly advise. They test the entirety of property with specialized tools to ensure that everything is structurally sound. A home inspector will tell you if anything from the windows to the furnace needs to be updated and when. If something doesn’t meet your criteria you have the option to negotiate for a better deal or back out of the sale if the offer is conditional. The cost of their services is about $500.

The next person we advise for your team is a buyer agent specific to the area you’re looking in. The Greater Toronto Area is approximately 75 km, so you want someone who knows the subtleties of the micro markets you’re after, which there is approximately 250 of. Any large city has their own different pockets which you must be aware of, a specified realtor for that area will have the necessary information to understand the actual property value. Ask them for a list of the types of homes you are interested in that have sold in the last 90 – 120 days. Comparing prices is the best way to determine true market value. You can then get a list of everything that is available for sale in your area. We would advise looking at homes 9 – 5 on Monday through Friday as that’s when your team is most available, the sellers aren’t home so you get more privacy while going through all of the fine details of the property and you get to avoid the real estate “rush hour” of buyers at peak busy times.

The fourth person we highly recommend is a lawyer specific to real estate rather than a general practitioner. Ensure they operate within the province, preferably within the area you are looking to purchase as they will be better informed to assist you. Getting your real estate lawyer early on is important as they may want to make changes to the Agreement of Purchase and Sale which can be done ahead of time rather than last minute. They charge a one-time fee rather than by the hour. Their fees and disbursements are typically $1800.

After the team is in place you are ready to go shopping. You need to look at your location, as that effects pricing and that’s where you will be residing. The layout is also important as it can’t be moved around, look at the size of the principal rooms, this also determines the price of the property. Don’t get caught up in the cosmetic things like the wallpaper or the smell, those are things that can easily be changed and are rather inexpensive. Those are actually things you can utilize to negotiate a better deal as it’s not up to par with the neighbouring homes. Some sellers use the strategy of pricing it low to attract more offers. Asking price is truly irrelevant, it always comes down to what comparable homes have sold for. After you’ve found a home you’re interested in your buying agent will draft an Agreement of Purchase and Sale, which we advise be conditional upon mortgage financing, home inspection and lawyer’s review of the condo status report (if applicable).

Once the financing, legal and inspection process are all complete then you send a waiver of fulfillment of conditions to the seller. This states that you are pleased with everything and you can proceed with the final sale. Being conditional gives you the opportunity to back out obligation free if you aren’t pleased with something. After you’ve gone firm on the deal, you can move in on the specified date and you now own your very own home.

Congratulations!

Written by: Spencer Maxwell