Building equity for multiple properties

by Haripal Pannu, real estate broker and investor

One real estate agent looks at pre-build investments for the first-time investor.

It’s always challenging to buy the first investment property because there is a lot that must be learned. There is a little bit of difference when it comes to buying real estate as your primary residence compared to buying it as your investment property.

If you are buying real estate as your primary residence you can get financing even with 5% down
(as long as you qualify) but for investment properties you typically need 20% down in some cases even 25% or more.

Some “A“ lenders (big banks) don’t finance an investment property after a certain number of properties; for investment properties there are other costs associated too if you are also buying a primary residence you get certain rebates and you can even buy under first-time home buyers plan while in case of investment property it is not possible. If you are buying a brand new investment it is very likely you are going to pay HST on top of purchase price (if you fulfil the conditions the HST you pay you will get it back one condition is that you cannot sell the property before one year period).

Let us look at where and what kind of investment property one should buy so that equity can build up fast and that equity can be used in future to buy more properties.

One thing which matters most in real estate is the location; excellent location makes all the difference where your property is located location is always the key. Do not buy a property in an area where you do not want to live. Good location must have public transit system accessible to everyone, good walk score and should be close to all amenities.

Check the vacancy rate in the area. A low vacancy rate in the area is an indicator that your property will be rented out quickly and more chances are that rent will increase in the near future.

Check employment rates in that area. Property prices are increasing at a very fast rate not only in the GTA but all over in Central and Southern Ontario and, as a result, more and more people are being forced to rent instead of owning.

Let us look at an example of a $400,000 pre-build condo property. We’ll assume it will be ready in 2-three years. By the time you take ownership of the condo you will see that property already has already appreciated by 3-4 % or approximately $50,000. If it is in a desirable location you will have no problem renting it out and in another 2-3 years you should have paid already approximately $15-20k of your mortgage and also at the same time your property is further appreciated by another approx. $30 – 40K. Now it is time to talk to your bank or your lender so that you can take money out and on your way to buy another property and in another 2-3 years next property and so on.

The more properties you own, the more cash flow you will generate. In times of inflation real estate creates hedge against inflation. One can reap the rewards of equity build up, not to forget many tax advantages of owning real estate and advantages of appreciation real estate enjoys.

Word of caution before you buy a rental property: it is very important you do your due diligence.
Make sure numbers work out for you and seek help from a real estate expert. Owning your real estate is owning your own business and you are your own boss.

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Veteran estimates foreign investment as much as 70%, argues for regulation

One Toronto brokerage owner is calling for foreign buyer regulation, despite some blowback from his own brokers.

Carl Langschmidt, president of Condos.ca, recently penned a blog entitled Foreign Investor Tax and Regulation Please! – a polite, yet assertive call to action.

In the piece, Langschmidt argues foreign ownership stats are much higher than the CMHC’s estimate of 2.3% of sales in Toronto. He went so far as to call that figure “laughable.”

“Our talks with sales reps in the trenches indicate it is much higher; some reported as high as 70% foreign ownership at developments like CityPlace,” Langschmidt wrote.

Anecdotal evidence, to be sure. But how about this other piece of sobering hearsay?

“Personally, this week alone, one of the agents in my brokerage who was meant to be listing a 50 unit condo building was just informed today the developer sold the entire building to a Chinese consortium and that we’re not getting any of the listings,” Langschmidt told Canadian Real Estate Wealth. “That’s how hot the market is.”

Vancouver had success with its own foreign real estate regulation when it implemented a 15% sales tax. That helped contribute to double-digit cooling in what was once Canada’s hottest market.

And Toronto may soon have its own measures introduced, with Ontario’s budget expected in the coming weeks. Ontario Finance Minister Charles Sousa said the budget will contain policy aimed at addressing housing affordability.

“Demand is high for a number of factors,” he said, per the Canadian Press. “Could be speculators, could be people from outside the country, it could very well be the many who are now moving into Ontario creating that demand.”

While many have argued in favour of a similar approach in Toronto, Langschmidt suggests a multipronged strategy that could also include special regulations for prebuild home sales.

“Preconstruction sales has morphed into a totally separate specialization in real estate; it’s almost as if agents who specialize in that are so different from traditional real estate where you’re showing properties,” he said. “Preconstruction sales is all about pitching investors and often agents and groups go overseas to pitch. I’ve seen their presentations. I cringe at their presentations. It induces the speculation; half of them use numbers are (off). A lot of them don’t calculate ROIs correctly. This is where I think some regulation is required.

“Anyone selling a stock or investment vehicle, there’s regulations in the securities business about what you can say. Whereas with (real estate sales) it’s the wild west.”

Many believe foreign ownership is having a major impact on Toronto home prices and will likely applaud Langschmidt’s comments. However, that may not include a portion of real estate agents, his own included.

“The reason why I’m saying it is I don’t mind saying what I think is true,” Langschmidt said. “It will upset people who deal with foreign investors; even in my own brokerage I had someone call me up and say ‘we have a lot of foreign investors and they’re not going to be happy with our opinion on us.’”

Related stories:
Ontario hints at measures to cool real estate market in the budget
Don’t tax foreign buyers says real estate board

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Budget options for Canadian millennials in the age of soaring prices

With Canadian housing price growth having set new records this year, more and more millennials are branching out to other viable options aside from home ownership.

Among these alternatives, especially popular in red-hot Toronto, is cooperative purchases of homes between friends or relatives, The Canadian Press reported.

In its recent survey, RBC noted that co-ownership is a top choice among 24 per cent of millennials. HomeLife/Realty One Ltd. (Toronto) sales representative Alan Aronson said that a leading reason is that each of the buyers in a co-purchase can qualify for a larger mortgage, while sharing the remaining costs (such as land transfer taxes and insurance) among themselves.

However, Aronson warned that this route has its own share of risks, especially considering that relationships can and do become strained when it comes to money. For instance, if one party neglects their fiscal responsibilities, all the co-owners might be forced to sell the property early or might even lose it to the lenders.

Another option would be to rent, probably in perpetuity. Jason Heath of Objective Financial Partners said that this might indeed be the better choice in the most expensive markets, if one is willing to “ignore the practical and psychological benefits of home ownership.”

Instead of using one’s funds for down payment, one can instead invest it—and in the process avoid other, not initially obvious, expenses such as taxes and closing fees.

Earlier this month, Statistics Canada warned in its report that young workers nationwide are facing far worse conditions compared to professionals from older generations, with the youth unemployment rate over a period of 4 decades (from 1976 to 2015) being around 2.3 times higher than the rate among workers older than 25 years old.

This trend accompanied a severe decline in the take-home pay and the purchasing power of this demographic by the early 1980s, with young Canadian males (17 to 24 years old) experiencing a 15 per cent reduction in their real hourly wages, and young females suffering a 10 per cent drop.

Related Stories:

Young workers’ wage and job situation placing market at risk

Low down payments are ultimately detrimental to first-time buyers – CMHC head

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Investment Hot Spots:
Alma, Chippawa, Dromore, Havre-Saint-Pierre, Chepstow

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Toronto area housing prices, sales volume soar in September: real estate board

By David Paddon

TORONTO _ Housing sales in the Toronto area continued to soar last month, with the average price rising 20.4 per cent from September last year to $755,755, the Toronto Real Estate Board reported Wednesday.

The price increases came as the number of transactions in the Greater Toronto Area rose 21.5 per cent, a stark contrast to a big drop in the number of transactions last month in Vancouver’s residential real estate market.

The real estate board said Wednesday there was strong growth in sales transactions for all major home types in the area but a lack of supply limited growth in the City of Toronto itself.

By comparison, figures released Tuesday by Vancouver’s real estate board showed a 32.6 per cent drop in sales transactions compared with September 2015 _ prior to a new 15 per cent provincial tax on foreign buyers that came into effect in August.

Vancouver prices continued to rise but some analysts expect a prolonged decline in demand will lower the sky-high cost of housing in Canada’s most expensive real estate market.

There’s also been anecdotal evidence that some foreign buyers have shifted their focus from Vancouver to other cities, including Toronto. On Monday, the federal government unveiled measures to tighten rules for prospective buyers and lenders.

“The Toronto Real Estate Board will be closely monitoring how the recent changes to federal mortgage lending guidelines and capital gains tax exemption rules impact the housing market in the Greater Toronto Area,” Jason Mercer, the board’s director of market analysis, said in a statement Wednesday.

“While these changes are pointed at the demand for ownership housing, it is important to note that much of the upward pressure on home prices in the GTA has been based on the declining inventory of homes available for sale.”

The real estate board’s benchmark price index was up 18 per cent from September 2015, after adjusting to various types of housing..

The average sale price for detached houses in Toronto proper rose to $1.29 million, up 23 per cent from a year earlier. The comparable price for detached houses in surrounding areas was $928,414, up 26.6 per cent.

By contrast, prices for condos in Toronto proper grew only 6.5 per cent to $446,729. Condo prices in other parts of the Greater Toronto Area were up 19.4 per cent to $367,260.

THE CANADIAN PRESS

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Investment Hot Spots:
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PETA: Turn ‘Silence of the Lambs’ house into animal museum

An animal rights group wants to convert the western Pennsylvania house used in the film “The Silence of the Lambs” into an empathy museum, where visitors could wear the skins of slain and abused animals.

The group People for the Ethical Treatment of Animals says in a release that it has written to the real estate agent handling the sale and wants to create a museum. The building was home to psychotic killer Buffalo Bill in the 1991 film.

PETA says by wearing animal skins, people would be reminded that animals also are “made of flesh, blood and bone.”

Scott and Barbara Lloyd listed the Layton home for sale last summer. It’s located about 28 miles southeast of Pittsburgh. The asking price dropped from $300,000 to $250,000 earlier this month.

The Associated Press

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