Toronto Real Estate Board 2019 Q3 Condo Report

 

Every quarter the Toronto Real Estate Board (TREB) releases their condo market statistics for the city. The committee serves the over 50,000 realtors of the Greater Toronto Area (GTA) to assist them in understanding where the market was, where it is and where it’s projected to head. The information comes from their Multiple Listing Service (MLS) which collects all the data of condominium sales. Job growth as well as an increase in population are the main factors contributing to these trends. The collection of data further evidences the continuing benefits of the Toronto market. Here is a breakdown of the third quarter condo market status report for the GTA.

 

The Greater Toronto Area consists of the City of Toronto, as well as the Peel, Durham, York and Halton regions. The City of Toronto holds the vast majority of sales with a 70% stake, demonstrated an increase of 5.6% to $628,074 from last year’s third quarter of $594,627. The second highest is in Peel (14%), while Halton (2%) falls in the smallest sales section. Condo apartment sales for this quarter reached an 11.1% increase to 6,407, while Q3 2018 was at 5,766. New listings are down by 1% from the same time last year, we had 9,538 units, while 2018 was 9,636. The average price now sits at an average of $584,564, while Q3 2018 was 5.8% lower at $552,766. 

 

For 2019, we see an increase in prices from 2018, along with positive decreases for already established investors. The active listings of the final month of the quarter were at 3,327, and last year’s was 3,845. We saw an average of 22 days on the market for these properties, while it was 24 last year. 

 

Year over year we see rising increases in prices in the condominium market. This is due to our widely increasing population and the deficit of properties being built. According to a statistics report by RBC Economics, we need an increase of an average 26,800 units built over the next few years to catch up with demand. These increasing prices make it more difficult for people to buy, while renting grows to be a more utilized option. Less condominium apartments were completed this year, which also influences the rise in prices. Employment rates are also a large factor, as employment growth in September is at 5% (it was at 1.5% at the same time last year), while the unemployment rate has improved to 5.8% (over the 6.1% of the same time last year). 

Written by: Spencer Maxwell

A Glimpse Across Canada’s Real Estate Markets

We’re constantly seeing increasing growth across the vast majority of Canada’s cities. Great potential in the Canadian real estate market is not just limited to Toronto and Vancouver. Saskatoon, Halifax, London, Winnipeg and Montreal are all so welcoming to buyers and investors. Not every market is equally as strong, but there is so much potential to be a comfortable homeowner or successful investor all across Canada.

 

Winnipeg’s population continues to rise thanks to a high-degree of immigration and positive job growth, many of this is due to the attraction of it being a capital city. The unemployment rate sits at a steady 6.6%. Transit is more positive than the majority of Canada, with more focus on easing congestion on the roads, as policies were put into place over a decade ago. Farming, manufacturing and biotechnology are the industries of focus on this university-centric city. The average price of a home in Winnipeg is currently $295,500. According to statistics at this time in 2018, the rental vacancy rate was 2.9%. There is an upswing on prices of entry-level homes due to competitive bidding, with semi-detached and detached homes also rising. Consumer confidence is strong, not having the concerns of Western Canada excessive density. “This is a great place for buyers on any end of the spectrum, whether they’re first-time home buyers or boomers, people of any generation can find something that suits their specific needs in Winnipeg,” states Jeff Stern of RE/MAX Performance Realty.

 

London continues to be a strong place for Ontario home purchasers to feel secure. The population continues to trend at a steady 1% per year. The city benefits from diverse industries including health sciences, technology, manufacturing and agriculture (with more class A agricultural land than anywhere else in Canada), with solid job growth as unemployment remains at 2.9%. Public transportation is on the weak side, but improvements are in the planning stages. The average house price currently sits at $415,000, continuing to even rise through the recession. Consumer confidence is at an all-time high thanks to affordability, especially from an investor perspective. The rental vacancy rate sits firmly at 1.9%. “What people find really appealing is the small town vibe along with great prices, people just want to live here forever, and investors see the potential,” states Justin Konikow of Prime Real Estate Brokerage.

 

Halifax, Nova Scotia is poised for steady growth with an increase of 120,000 more residents in the next ten years. The city is mostly reliant on the government, but also has an emphasis on education, military and a highly utilized port. Like the majority of Canada, the transit situation is a work in progress. The average house price sits now at $310,000, the highest it’s been in a decade in a very competitive market. Consumer confidence is extremely high with so many people purchasing, the barrier for entry is not a challenge for first-time buyers. The rental vacancy rate is at 1.6%, with plans for additional units in order to keep up with demand. “Thanks to multiple demographics including more young retirees, further increases in immigration and millenials looking for more affordable housing, Halifax continues to be in high demand,” states Chris Musial of Royal LePage Atlantic.

 

Saskatoon has a population of 272,000, which continues to grow with many focusing on moving towards the suburbs. Job growth is holding steady, although not as strong as it was in the last few years. The main industries are oil, gas, minerals (mostly potash) and farming. Saskatoon is fortunate enough to have one of the best transit systems in the country, which is still always improving. The average house price is $350,000, although this current buyer’s market is looking into a decline after a boom in 2015 – 2016 with an abundance in inventory. Consumer confidence wavers, as it is a positive time for purchasers, but won’t improve for sellers in the next few years. The rental vacancy rate is at 9% due to so many leaving the province, there is such an excess that it’s too easy to find a rental property. “Now is a good time to invest if you plan to focus on the long-term game,” explains Michelle Butler of Royal LePage Vidorra.

 

The city of Montreal’s population sits now at 1,705,500, with a foreseen slow down in the coming years. Many find it appealing due to post-secondary institutes, the increasing job growth and real estate investment opportunities. The unemployment rate has improved over last year as it now sits at 5.5%. Transit is rather favourable with improvements along the way, including a light rail train which is now in progress. The city is reliant on technology (IT and software development), education, transportation, wholesale trade as well as the film and arts industries. The average house in the Metropolitan area price sits at around $411,000, which is up 5% over the same time last year. Consumer confidence continues to rise even higher, with more and more feeling that now is a good time to purchase. The rental vacancy rate for the city sits at a solid 1.9%. “Montreal is such a safe and exciting place to live, a stable economy along with a lively arts and entertainment sector, it’s unique in its opportunity,” emphasizes Angela Langtry of Century 21 Immo-Plus.

Written by: Spencer Maxwell

Toronto Q3 Rental Market Report

Every quarter (as well as every month) the Toronto Real Estate Board (TREB) releases their condo and rental market statistics for the city. The committee serves the over 50,000 realtors of the Greater Toronto Area (GTA) to assist them in understanding where the market was, where it is and where it’s projected to head. The information comes from their Multiple Listing Service (MLS) which collects all the data on all properties purchased, rented and leased. Job growth as well as an increase in population are the main factors contributing to these trends. The collection of data further evidences the continuing benefits of the Toronto market. Here is a breakdown of the third quarter rental market status report for the GTA.

 

From July to August of this year, we saw a supply of condo apartment rentals at 10,800, which is a 17.3% increase (9,205) from the same time last year. Rents have increased all over the GTA in all types of rental units. Bachelors went up by 2.7% from $1,854 to $1,903, one-bedrooms went up 4.5% from $2,163 to $2,262, two-bedrooms went up 4.2% from $2,822 to $2,941 and three-bedrooms went up 13.5% from $3,304 to $3,749. The rise in just a year is very dramatic in our increasingly populating city. Although, the elevation in prices is not as high as last year from the year before that. 

 

Rentals for townhouses have also greatly increased in volume and price. As of this quarter, we have 1,260 leased, an increase of 25.6% to last year’s 1,003. The average rent of a bachelor went up 61% from $1,025 to $1,650, one-bedrooms went up 10.5% from $1,858 to $2,052, two-bedrooms went up 10.3% from $2,316 to $2,554 and three-bedrooms went up 10% from $2,585 to $2,842. 

 

All rental transactions and leases for apartments and townhouses within the city remain higher and have increased more than any of the surrounding areas, which include the Peel, Durham and York regions. Throughout these areas we also see a booming increase in rentals and leases, which also dictates a rise in prices. The government agency Canadian Mortgage and Housing Corporation (CMHC) statistics show that of the GTA, Toronto has the largest share of rental apartments, at 35.3%, even though it has dipped by 0.1% from last quarter. Currently, the rental vacancy rate is 0.7%, which remains the same from last year; second to the Halton regions now 0.6%. 

 

There was also a 30.1% increase in the properties listed for rental from the third quarter of last year. TREB president Michael Collins has witnessed more confidence in investors realizing the potential of real estate over the past few years, as well as an increase in available properties, due to the large increase of those leasing out. The entire Greater Toronto area remains a strong place to invest, and the data suggests that it will continue for the foreseeable future. Our rapid increase demonstrates that the sooner you purchase the more advantageous it will be from an investor perspective. You can see by the numbers why REC consistently advocate the buy and hold strategy.

Written by: Spencer Maxwell

Laneway Homes: Toronto’s Newest Housing Trend

Laneway homes are small detached properties on a lot, generally behind another house opening up onto a back lane. These are beginning to grow in popularity across Toronto due to our ever increasing population. This is another of our creative methods of dealing with excessive density, which (as of now) is mostly a Canadian development. Its origin began in North Vancouver, followed by an increase in popularity in Ottawa and then adopted in Toronto. They were developed as early as 1930, beginning as carriage homes (detached properties that began as a horse stable and converted into a home). Heavily populated cities across the country are beginning to develop these homes more and more.

Getting this type of property was traditionally very difficult, policy changes as of 2018 had simplified the process by giving quick access to permits for those who qualify. Gregg Lintern, Chief Planner & Executive Director for the City of Toronto, in an interview with REC stated: “Simplifying the once difficult process of getting permits for laneway suites was to comfortably add gradual density to the city. This is the modern interpretation of Missing Middle Housing.” Which was utilized in the 30’s in the States to curb issues of developing population.

Architect Rohan Walters of Spaces By Rohan Inc. is excited about the appeal and benefits of these tight-fit properties for Torontonians. “They curtail urban sprawl due to adding a property on already utilized land. The landowner saves on taxation, increases the equity of the property and saves an annual average of $4,000 by staying within the same lot. Generally, family members are the ones utilizing these properties to retain a strong sense of familial stability.” The suites add a significant value to the lot, especially if one is renting out to tenants. They also effectively make the area safer by animating the street better through generating more informal surveillance in an urban environment.

The negatives of laneway homes are extremely limited. The majority of this focus is the perception, as they threaten the traditional white-picket fence ideal that some still maintain. It has no negative influence on property values or on zoning within the area. There’s been a noted concern of privacy and overlook in regards to neighbouring properties, but this is not an issue as laws of construction are extremely strict in order to avoid this.

Specific to Ontario, the new property cannot exceed more than 30% of the entire lot. There needs to be a minimum difference of 3.5 meters between the property and the street, as this will allow enough space for EMS services to travel through. The minimum distance from both properties requires at least 1.8 meters. Laneway homes cannot exceed more than 2 storeys, anything that will encroach on the initial property cannot be developed. There is some leeway with these properties, but this can only be accomplished by going through the Local Planning Appeal Tribunal (LPAT). The house must meet accessible building standards, manage water, the Ontario Building Code, Tier 2 of the Toronto Green Standards, the initial land has to accommodate a suite within an existing ancillary building and avoid the removal or damage of a protected tree. The zoning is more permissive in the older parts of the city due to more availability of space, while it is more of an issue in newer suburban sections as the evolving density leaves less area to expand with the focus already on detached dwelling.

The average square footage of a lane home is between 1,000 -1,500, but they can be up to 2,000. The average price of construction within Ontario is $400,000 – 500,000, although they can reach up to $900,000 on the premium end. The architecture style of these properties can be any type the owner and architect see fit; as long as everything is zoned correctly there are no restrictions. Laneway suites are a good mix of modern and traditional. It’s best that anyone building work with an established architect to ensure safety and quality.

Real Estate Budgeting Guide

Buying a home is probably the largest purchase you will ever make. Whether it’s for an investment property or you plan on living in the home for the foreseeable future, you’re going to need to budget. Affording your dream property or close to it seems like such an overwhelming feat but the sooner you start the less stressful it becomes. 

It’s very beneficial to track everything, all those minor and major expenses will impact you more than you think. All of the pointless things that you think you need become so costly over the years. A shirt you don’t need, an extra round of drinks or your daily coffee add up to more than you would care to know. All of those needless expenses can go into something productive. Think of it this way: you buy a coffee before work 5 days a week, that costs around $3.00, in 52 weeks that comes to $780. That’s money you could’ve saved and invested, that is probably a fraction of your needless spending. 

There are various money tracking apps that will help you see where all your spent funds are being utilized. It’s a very simple process and can assist you in budgeting better. Breaking down where your funds are being allocated helps with understanding where to focus your spending and presents a more concrete picture of where your money on unimportant things is going.

There are a large amount of fees that go into any real estate purchase, in order to help you control your spending it’s best to know all of the required fees. Break down each cost into your monthly and annual payments. These payments can be mortgage costs, moving, condo fees, renovations, furniture, property taxes and internet fees; among many others. Ask your real estate lawyer for all the legal expenses that can arise from the property, also be aware that some lawyers do have cheaper fees but that may not include photocopy and courier fees. A home inspector can inform you of unforeseen expenses. If they see any issues with the property, you can renegotiate for a better price. As an investor, they can aid you in improving the value of the property for when you sell after you’re happy with the appreciation of your buy-and-hold strategy. 

There are a number of costs associated with the purchasing process of the home, the breakdown of costs in Toronto are as follows:

Lawyers fees and disbursements are roughly $2000, but at no cost to the buyer agents as they are paid by the seller (sometimes by the developer if it’s a new construction). Independent mortgage brokers are generally free as they are paid by the lender you get the mortgage from. A home inspection fee is generally $500, while moving costs from a quality company are approximately $2000. Closing adjustments are required if the seller of the home has already prepaid property taxes past the date of title transferral, you would have to pay them a rebate of remaining fees to them, which is a prorated amount.

Something we advise at REC is for our clients to prepare for an emergency. Issues with real estate can arise, it’s not that foreign of a concept but that shouldn’t scare you away as you have the potential to make so much more. A suggestion we prescribe is putting $150 a month towards a security fund, as this grows you will feel more secure and be prepared if a problem does occur.

Don’t just see your home as a property, see it for the investment that it actually is. Think of the return you will make as it appreciates. You’re not losing money on all of these additional costs, you are slowly building equity. Track where your money is going to get a better understanding of where your value is heading. This all can seem very intimidating, but if you budget appropriately you will be at your most comfortable.

Written by: Spencer Maxwell

Why Do You Need A Real Estate Lawyer At The Beginning Of The Process?

As soon as you decide on the home you wish to purchase, getting a real estate lawyer is one of the first calls you should make. They handle a wide array of concerns and are very helpful throughout the entire process. The reason so many people hold off on getting a real estate lawyer right away is because they are afraid of paying constant fees, but in actuality a single charge covers all of their services. Ensure that the professional solely focuses on the real estate field, as their expertise will be greater and there are certain documents only they are able to process. Whether you are buying or selling, they are an absolute necessity right away.

 

Only a real estate lawyer can register the deed for the property to the registry office. Probably the most notable thing they do is look over the Agreement of Purchase and Sale before it’s signed, they review the document to ensure that everything in its contents is legal with the goal of benefitting you. They dive deep into your mortgage documents, buyer agreement reviewal and listing agreement in order to clarify any language that may seem too complex or overwhelming. They can also create a neutral termination if neither party is pleased with the eventual arrangement. On the buyer’s side, they handle the title search, registration fee on the deed, assist in registering the mortgage, as well as send out cheques and couriers. For the seller, they generally only focus on the legal fees, which include disbursements and HST. They can also aid in title insurance, which protects the property owner and their lender(s) against loss to the property’s title or ownership.

 

What should a buyer expect a week from closing? The lawyer will get the agreement from the client or agent, along with a conversation on high-level requirements (which include mortgage instructions, moving and setting up utilities). They will handle the title search and discharge any remaining old mortgages a few days before closing. On closing, the client will have a cheque with the balance of funds (which include the land transfer tax and the down payment), there is an excessive amount of paperwork to be signed before the property is legally handed over. They will inform you of any remaining fees, which could include development charges which can increase but also capped. They will provide you a condo status report (if applicable) to keep you up to date on payments and inform you of the reserve fund which keeps the building in its prime state, as well as the declaration which denotes what you can and cannot do in the residence (ie. pets or short-term rentals).

 

No matter whether you are buying or selling, a real estate lawyer is required in the transaction. The sooner you get them, the safer you will be and the simpler the process will be. The price is generally around a $1000 in Ontario for the entirety of their legal services.

Written by: Spencer Maxwell

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