When it comes to buying real estate, it's important to be objective especially if you're considering it for an investment.
There are many key drivers that influence the phases of the real estate cycle. Employment is one of the demographic drivers. Other key demographic drivers include:
-Net migration;
-Vacancy rates;
-Housing Constructions; and,
-First-time homebuyers.
Today Stats Canada released unemployment rates for Canada, and Guelph as usual, has one of the lowest rates on unemployment in the country.
What does this mean for the local real estate market? When people have jobs, they buy homes. That's one of the reason's why home sales are up year-over-year in Guelph. Furthermore, when unemployment is low, people migrate to these cities for employment. Guelph's vacancy rates are also at record lows.
GuelphMercury - Guelph’s unemployment rate dips once more
Friday, July 6, 2012
Wednesday, July 4, 2012
Buying a rental property for the wrong reasons...
One of my specialities is helping people build their their real-estate-investment portfolio. Because I'm in the business of owning and managing rental properties myself, most of my clients appreciate the fact that I have first-hand experience of what to do (and what not to do). I've made several mistakes over the last ten years where I've lost money, but I have also had several success. I'm proud to say that I'm finally making a decent profit.
I love Don Campbell's quote from the Real Estate Investment Network (REIN), "Real estate is not a get-rich-quick-scheme, it's a get-rich-slow-and-steady strategy".
Here are some typical reasons people give for buying a rental property, that may be the wrong reason for purchasing (I'd love your feedback):
1. I want to supplement my income now. If you purchase a rental property and need to put a mortgage on the property to 80 per cent of it's value, you're likely not making more than $500/month on it. I'm referring to the marketplace which I know best KW, Cambridge, Guelph, Brantford, and Niagara.
2. You want passive income. Owning a rental property is not a passive business. There's allot of work that goes into managing a property and making money. Depending on the property, it should take you an hour each week BUT you need to do some work each week per property.
3. You're retiring in a year. If you're retiring shortly and you're looking for something fun to do, then a rental property may be the way to go. I've also helped retires buy properties to leave a legacy for their children. If you have money to invest and want to make a "dividend" or supplement your monthly income, investing in a private mortgage is a good alternative.
I love Don Campbell's quote from the Real Estate Investment Network (REIN), "Real estate is not a get-rich-quick-scheme, it's a get-rich-slow-and-steady strategy".
Here are some typical reasons people give for buying a rental property, that may be the wrong reason for purchasing (I'd love your feedback):
1. I want to supplement my income now. If you purchase a rental property and need to put a mortgage on the property to 80 per cent of it's value, you're likely not making more than $500/month on it. I'm referring to the marketplace which I know best KW, Cambridge, Guelph, Brantford, and Niagara.
2. You want passive income. Owning a rental property is not a passive business. There's allot of work that goes into managing a property and making money. Depending on the property, it should take you an hour each week BUT you need to do some work each week per property.
3. You're retiring in a year. If you're retiring shortly and you're looking for something fun to do, then a rental property may be the way to go. I've also helped retires buy properties to leave a legacy for their children. If you have money to invest and want to make a "dividend" or supplement your monthly income, investing in a private mortgage is a good alternative.
Thursday, June 21, 2012
Implications of new mortgage-lending guidelines...
With little surprise in Canada, the Minister of Finance has finally made a formal announcement that there will be significant changes to mortgage lending. The main changes are a decrease in maximum amortizations from 30 to 25 years and a maximum loan-to-value refinance amount for your primary residence to 80% of the home's value (down from 85%).
What are some of the practical implications?
1. For first-time home buyers (especially in Guelph or the surrounding area), it's difficult to find a detached, suitable home for under $260,000. The shorter amortizations will decrease a person's borrowing capacity and purchase price by approximately $40,000. The exact date of the changes is unknown yet; however, if someone has been pre-approved for a mortgage 4 months ago, be sure they call their mortgage broker and speak to them about their maximum purchase price.
2. Qualifying to purchase a rental property has tightened in the last 6 months. We have seen most lenders go to sticker uses of how rental income is used in qualifying someone for a new mortgage loan. The shorter amortizations will also limit one's ability to purchase rental homes. In Guelph, we've seen a surge in prices for rental properties. The change in shorter amortizations may cool rental property prices.
3. Refinancing to only 80% of the value of your primary residence will limit one's ability to take equity out of their home to pay-off debt, or to purchase other properties. For example if a home is worth $350,000, under the new guidelines, the individual will have access to $17,500 less equity.
What are some of the practical implications?
1. For first-time home buyers (especially in Guelph or the surrounding area), it's difficult to find a detached, suitable home for under $260,000. The shorter amortizations will decrease a person's borrowing capacity and purchase price by approximately $40,000. The exact date of the changes is unknown yet; however, if someone has been pre-approved for a mortgage 4 months ago, be sure they call their mortgage broker and speak to them about their maximum purchase price.
2. Qualifying to purchase a rental property has tightened in the last 6 months. We have seen most lenders go to sticker uses of how rental income is used in qualifying someone for a new mortgage loan. The shorter amortizations will also limit one's ability to purchase rental homes. In Guelph, we've seen a surge in prices for rental properties. The change in shorter amortizations may cool rental property prices.
3. Refinancing to only 80% of the value of your primary residence will limit one's ability to take equity out of their home to pay-off debt, or to purchase other properties. For example if a home is worth $350,000, under the new guidelines, the individual will have access to $17,500 less equity.
Thursday, June 14, 2012
Kelly and Jan almost didn't get their home...
Kelly and Jan (like most people) rely and trust their bank. They've owned a home before, had a mortgage with their bank (TD) and all went well. They only had a $60,000 mortgage left on their main house, and with a growing family, where ready to move into a bigger home. They wanted to keep their main house as a rental because it was close to the university and offered great rental potential. So they went back to their bank to get pre-approved for a mortgage before looking to buy their next house. Their bank said yes to the financing and away they went!
After spending hours with their realtor, they finally found a great home, put an offer on the home, and went back to their bank to finalize the mortgage. Here's where the story gets bad...
The bank came back and rejected their mortgage approval. Kelly and Jan where stunned...how could this be possible? What I've learned through my clients' experiences, are that banks don't pre-approve people for mortgages they only pre-qualify. The missing piece in Kelly and Jan's original pre-approval was a credit check that their bank didn't do. Kelly's credit history was weak because of a job loss she experienced a year ago. Although she was now back to work, a few missed bill payments from the previous year appeared on her credit history.
Here's where the story gets better...
Their realtor referred them to The Mortgage Centre, and with the skill of a trained, mortgage agent where still able to get a decent mortgage and they where still able to buy their dream house. The great part of this story is that the mortgage payments where in-line with their monthly budget.
The lesson from this story is to ensure that whomever helps you with your mortgage financing, ensure they do a thorough job for you so that there are no surprises once you find a home.
After spending hours with their realtor, they finally found a great home, put an offer on the home, and went back to their bank to finalize the mortgage. Here's where the story gets bad...
The bank came back and rejected their mortgage approval. Kelly and Jan where stunned...how could this be possible? What I've learned through my clients' experiences, are that banks don't pre-approve people for mortgages they only pre-qualify. The missing piece in Kelly and Jan's original pre-approval was a credit check that their bank didn't do. Kelly's credit history was weak because of a job loss she experienced a year ago. Although she was now back to work, a few missed bill payments from the previous year appeared on her credit history.
Here's where the story gets better...
Their realtor referred them to The Mortgage Centre, and with the skill of a trained, mortgage agent where still able to get a decent mortgage and they where still able to buy their dream house. The great part of this story is that the mortgage payments where in-line with their monthly budget.
The lesson from this story is to ensure that whomever helps you with your mortgage financing, ensure they do a thorough job for you so that there are no surprises once you find a home.
Wednesday, May 16, 2012
It takes a 12-year old to help adults understand debt - great video by local celebrity
Monday, May 7, 2012
Private mortgages...here's an interesting investment...
If you’ve owned real estate in the past, you know what a good investment it is. The key to investing in private mortgages successfully is to work with a mortgage professional that can review the application and make a balanced recommendation.
If you’re interest in putting your money into an investment with good returns and relative low risk, than a private mortgage is a good option. I have a private lender who boasts that in three years we converted his money from one million to $1.5 million.
I get questions regularly from individuals interested in lending money to high-risk borrowers. Here’s a summary of the things you need to consider when putting your money into a private mortgage:
1. Does the mortgage professional have a good understanding of the applicant?
I normally collect as much information as possible on the borrowers. If I have a good understanding of the applicant and their current financial situation, I believe I can advise the private lender accordingly. We pull a credit history to get a picture of the applicant’s credit repayment. Most borrowers’ who need private mortgage loans have had credit issues in the past. We also collect relevant income and tax information that we provide to the private lender.
2. Who conducted the appraisal? What comparable properties did they use?
Understanding who did the appraisal and what comparable properties they used is key. Most private lenders will lend to 85 or 90 per cent of the value of the property. The appraisal will give you an unbiased value of the property, which may be different than the value a real estate agent would have. Most private lenders will drive by the property and inspect the property themselves.
3. What is the long-term potential of the borrower paying-out the private mortgage?
I believe private mortgages are a short-term, band-aid for the individual borrowing the money. Ask the mortgage professional you are working with, if they’ve discussed a plan with the borrower to pay out the private mortgage. In most cases, if the borrower’s credit history improves in a year than the private mortgage can be paid out. Other times the borrower’s financial situation requires a long-term plan.
As with anything else, ensure you do your “homework” when working with a mortgage professional and lending money as a private mortgage.
If you’re interest in putting your money into an investment with good returns and relative low risk, than a private mortgage is a good option. I have a private lender who boasts that in three years we converted his money from one million to $1.5 million.
I get questions regularly from individuals interested in lending money to high-risk borrowers. Here’s a summary of the things you need to consider when putting your money into a private mortgage:
1. Does the mortgage professional have a good understanding of the applicant?
I normally collect as much information as possible on the borrowers. If I have a good understanding of the applicant and their current financial situation, I believe I can advise the private lender accordingly. We pull a credit history to get a picture of the applicant’s credit repayment. Most borrowers’ who need private mortgage loans have had credit issues in the past. We also collect relevant income and tax information that we provide to the private lender.
2. Who conducted the appraisal? What comparable properties did they use?
Understanding who did the appraisal and what comparable properties they used is key. Most private lenders will lend to 85 or 90 per cent of the value of the property. The appraisal will give you an unbiased value of the property, which may be different than the value a real estate agent would have. Most private lenders will drive by the property and inspect the property themselves.
3. What is the long-term potential of the borrower paying-out the private mortgage?
I believe private mortgages are a short-term, band-aid for the individual borrowing the money. Ask the mortgage professional you are working with, if they’ve discussed a plan with the borrower to pay out the private mortgage. In most cases, if the borrower’s credit history improves in a year than the private mortgage can be paid out. Other times the borrower’s financial situation requires a long-term plan.
As with anything else, ensure you do your “homework” when working with a mortgage professional and lending money as a private mortgage.
Friday, May 4, 2012
How Kevin bought his first home, even after his bank said no to a mortgage
Kevin went to his bank to get pre-approved to buy his first home. I find most first-time buyers are well-informed on the process. Kevin was working with a good, experienced realtor, who didn't want to get involved in the mortgage pre-approval process. However, after Kevin put an offer on a home, he couldn't get the financing approved.
Buyers hirer Realtors not only to help them find a house, but also for their professional advice. Although it's not a Realtors job to figure-out the mortgage details for their clients, they should have a list of mortgage professionals that they know and trust whom they can refer their clients to. This is especially true for first time buyers, who are often well-informed but aren't aware of the subtleties of a pre-approval versus a pre-qualification on mortgage.
Kevin in fact was only pre-qualified. At the last minute, the realtor gave me a call and I was able to get a mortgage for Kevin, but it caused Kevin distress. As a first-time buyer I would encourage you to take the advice from your realtor on whom they would recommend for mortgage financing. As a realtor, my advice is to be more pro-active with your clients when it comes to financing.
Buyers hirer Realtors not only to help them find a house, but also for their professional advice. Although it's not a Realtors job to figure-out the mortgage details for their clients, they should have a list of mortgage professionals that they know and trust whom they can refer their clients to. This is especially true for first time buyers, who are often well-informed but aren't aware of the subtleties of a pre-approval versus a pre-qualification on mortgage.
Kevin in fact was only pre-qualified. At the last minute, the realtor gave me a call and I was able to get a mortgage for Kevin, but it caused Kevin distress. As a first-time buyer I would encourage you to take the advice from your realtor on whom they would recommend for mortgage financing. As a realtor, my advice is to be more pro-active with your clients when it comes to financing.
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