New Mortgage Rules Attempt to Curb Housing Market Risk

The Rules for Getting a CMHC Backed Mortgage are Changing Yet Again.

The housing market un Canada is doing pretty well.  Although not all local markets are seeing the activity levels that are typically found in markets like Toronto and Vancouver overall house prices have been on a steady rise for quite some time now.  To help mitigate risk in the housing market, the government backs and regulates the Canadian Mortgage and Housing Corporation (CMHC), which provides insurance on mortgages in the case of a homeowner going into default.  This helps to prevent a massive devaluation in house prices like was seen in the US housing crisis.

To address potential new risks due how high home prices have risen in the housing market over the past decade with interest rates being so low CMHC has made several changes over the past few years.  In the past 24 months the  mortgage insurance premiums have been increased twice.  They've also increased downpayment requirements for both rental properties and houses over $1 million to 20% instead of the 5% required for houses not in those categories.  None of these changes seem to have cooled the market off.

Valentine's Day Gift?

The newest change being introduced by CMHC will affect any approvals granted after February 14, 2016 or any deals that close in July 2016 or later.  It attempts to balance the desire to help people to own their own home with the desire to protect existing homeowners from a potential rapid devaluation of housing if potentially rising interest rates make it difficult for people to keep paying their mortgages.  This protection would hopefully help those who base their retirement on their home.  The Finance Minister, Bill Morneau announced:

“The  Government’s role in housing is to set and maintain a framework that is equitable, stable and sustainable. The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions...  This measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term. It also protects all homeowners, including many middle class Canadians whose greatest investment is in their homes.”

When people have more skin in the game, they find ingenious ways to overcome adversity and they also benefit from lower mortgage payments.  The change that has been announced works in a graduated manner, so it only affects homes that are sold in between $500,000 and $1million.  While the 5% requirement will remain the same for houses up to $500,000, any house that costs more than this will have to pay an additional 5% downpayment for the amount of the purchase price that is between $500,000 and $1 million.  With the national average MLS house price under $500,000, this is a measure that is clearly targeted at some of the hotter marketplaces.

To see how this may affect your purchase take a look at the table below:

What do you think about this newest measure?  Leave your comments below.

Curbing Fake Bidding Wars in Ontario

In such a hot Seller's market, it seems that some Sellers' agents are encouraging Buyers to bid up the price of a property by pretending to have other offers on the property.  I haven't yet experienced the worst of the phantom offers yet, because in the case of multiple offers I always ensure to be physically present; in all bidding situations I've been involved in I have seen the other agents.  RECO plans to make it harder for agents to fabricate bids by requiring listing agents to keep copies of all offers received on file for at least a year.

In July, Ontario's regulator of real estate agents RECO (the Real Estate Council of Ontario) will be introducing new rules for how agents must handle multiple offer situations.  First, let me say that I like these rules - not that I think they're necessary, but they're a good business practice that any professional and ethical realtor should already be following.  I always keep all offers that I receive on a property because that's just a good business practice in case anything pops up later in relation to the transaction.

Some inexperinced realtors may have bought into the media hype of the super heated market and the horror stories of Buyers losing dozens of bids due to bidding wars.  In my opinion this would only happen in the case where an inexperienced agent doesn't know how to properly value a property.  If you know what a property is worth and only offer that much, plus a small premium to win the bid, the offer presentation isn't that difficult.  Otherwise the agent may have you overpay due to a lack of knowledge - or worse, just to get your deal done and collect a commission cheque.

In a hot market where mistakes can be made and easily exploited by someone who has more knowledge than you, it's best to have an experienced professional in your corner.  You may still lose some bids due to people with either deep pockets or poor representation out bidding you, but you will waste less time with counter offers and waiting around to see what happens.  You might even skip some properties that aren't worth your time.

The new rules won't really change much in my opinion, because the good agents are already following the mandated practices to some degree at least and unscrupulous agents who fabricate offers could still get a third party to tender offers that they have no intention of following through on.  However, I do think that the new rules are good to have, because it brings awareness to the situation and now people will have to go one step further if they really want to exploit the system unfairly - meaning that there's a better chance that unscrupulous agents will get caught.

Moving Up without Trading Up and Making Money in a Down Market

You don't need to trade up in order to move up.  Over the years I've dealt with many clients who have wanted to move for various reasons.  The two most common reasons that I hear for moving are: wanting to own instead of continuing to rent or the desire for more/less space.  The second thought that I find many homeowners planning a move have is, "How much will I get for my house when I sell it?"  Here I want to discuss why this might not be the best question to ask.  To understand why this isn't the best question, one must consider the “whys” and the “where” for the anticipated move.

 "What are your motivations for making the move...?"

 As with any significant life decision, one should step back and carefully examine why the decision must be made.  What are your motivations for making the move in the first place?  If you are moving towards home ownership and you currently rent then there isn't much else to consider with regards to trading up.  Although your budget may require you to downsize spatially, the desire for home ownership is a great reason to move because any short-term trade-offs will work out in your favour in the long run.
 If you are moving because you would like to upsize or downsize from your currently owned property then there are some things that you should consider.  The one consideration that I'd like to bring up here has to do with your future and wealth creation, especially if you are thinking of selling your house to move when the market is down and are concerned that you may get less for your home.  Now that you have a house that you've invested a bit of time and money, you should be able to reduce your carrying costs so that a monthly rent payment could cover them all.

 "I'd like to bring up... your future wealth creation"

For a minute, pretend that you are not a homeowner, but rather a renter looking to buy a first home: If you were a renter looking to buy, you would likely find a way to make it happen right?  But as a homeowner who has already invested significant time and money into the home while living in it, you may be surprised to discover that finding a renter who will be able to cover all of the remaining costs on that property when you move to your new one can be easier than you think.  It’s like having two houses for the price of one.
Now another consideration when trying this is where you plan to move to.  For example, being the landlord of your old home might be a hassle if your planned move is more than 30 minutes to an hour away from where you currently live (depending on your tolerance for traffic).  If you are moving not too far away caring for your previous home can be easier since you have been living in the home for a while and are familiar with the upkeep required.  This should reduce the chance of surprise maintenance issues arising.

 "It's like having two houses for the price of one."

If you rent your old house and move into a new one you will be benefiting not only from the price appreciation of two houses, but also the principle pay down on two houses as well.  Furthermore, the principle of one of the two houses will be getting paid down by someone else, while you get to benefit from the value of the house.  This technique is a relatively easy forced-saving program that has the added benefit of having someone else helping you to create wealth so that you don't have to do it all on your own.
So whether your desire is to downsize or upsize your home, if you are not planning on moving too far away you may want to consider becoming a landlord.  By opting to become a landlord you can take advantage of purchasing a new home when the market prices are down without worrying about how much you'll get for your old one. Becoming a landlord in this manner can be a great way to accelerate your goal of financial independence … maybe even allowing you to retire a few years earlier than planned!

Seven Things to Consider When You're Going to be a Landlord

Once you invest your money in a property, you are the owner and whether you hire a property manager or not, your are now a landlord. Here I'd like to share some property management tips for owners who will be managing their property directly.

Invest some more money:

 Give that property an attractive look which can impress any potential tenants.  Think about how you would like a similar property type to look if you were to live there.  I'm assuming that you'd make a great tenant so to attract a great tenant you have to present them with a place that they'd like to live.  The amount of rent you can collect depends on how attractive the property is.

Make sure to market it:

  As soon as the property is vacated, you should clean the premises and post the requirement for new tenant. Online classifieds like kijiji are a great place to start and should provide plenty of leads.  Since you've already made the property presentable, take plenty of pictures to pique potential tenants' interest.  A lawn sign is also a great way to reach potential clients as they may be staking out a neighbourhood that they like looking for vacancies.  As always, some of the best advertising is word of mouth.

Make it fully functional:

  If you handover an ill maintained property to the new tenant, then every day you have to face their complaints against the property and frustrations will build. So it is better if you manage the property in advance in order to avoid building any animosity. When you want top dollar, it is your responsibility to maintain the structure, clean the area, repair any leaks and maintain the HVAC system. It should be the owner’s headache to groom the property and make it work for the tenants.  Do not promise any specific date move-in date until the property is ready.

Only rent to good tenants:

It is easy to get a tenant, but can be difficult to get a good one if you don't have a proper process in place. Make sure to have a rental agreement in place, as well as rules and regulations and an application with references for screening. Verify the references before making any decision.  Also, don't neglect to do an initial walk through with the tenant, taking pictures of the premises for your records.  Always take a deposit as allowed by law and if the tenant will be responsible for the utilities, don't hand over any keys without proof that the utilities have been put into their name.

Maintain the property:

  After you've acquired tenants, you must take all complaints seriously and at least investigate them in a timely manner; ideally within 24hrs.  Make any repairs at the earliest stage possible.  Look at the tenants as being your clients, it is necessary to provide them with a good customer service experience. They are paying for the product they are using after all. Having good lighting around the property will help to make the tenants feel safer at night.  For any emergency needs, the owner should assist them with the emergency services or provide them the help line number for any such service.

Know the law:

Learn about any laws concerning landlord and tenant issues in your jurisdiction.  It's a good idea to peruse any relevant legislation or to at least visit the website of any landlord and tenant governing body for any helpful information.  If any problems arise, don't wait for them to become more significant; first see if you can resolve the issue directly with the tenant ASAP.  If working it out isn't possible, immediately consult a paralegal for an opinion; in my experience you can get some pretty good free advice, but it's still best to hire one to work for you on your first incident so that you can learn the ropes.

Keep it profitable:

  If you're running a tight ship, your tenants will appreciate your attentiveness because they'll enjoy living at your property and consider it to be their home.  With this in mind, you have to keep making a good profit to continue to provide good services so make sure that you know the local rent increase guidelines and follow them.  Expenses get higher every year so make sure that you keep your rents in line as best as you can.

Although managing your property yourself will save you some money, if you don't keep it well maintained you can run into a number of unpleasant surprises, so always focus on maintenance.  Also, when going away on vacation, be sure that there is an additional emergency contact that you can trust to handle any issues that arise and require immediate attention.  Of course, proper maintenance will reduce the chances of any such emergencies arising.

10 Steps to Getting Financially Prepared for Home Ownership

To get home, you might need some directions.

For most people real estate is their largest financial holding and for many who don't own any real estate it can seem like a daunting game to get into.  Many people who don't own their home think that they aren't able to afford one right now.  I've heard a lot of people say "I'm going to save up for a couple of years and improve my credit, before I get a house."  While that's not an altogether bad idea, most people with this mindset are always "a few years away" from making that purchase.

A question that I get asked a lot is "when do you think will is a good time to buy?"  The fact of the matter is that now is always the best time.  However, I do understand the reservations of some, so I thought that I'd outline a few steps that one could take to help turn "I'll be ready in a few years" into "I'm ready now", sooner than you think.

 

"Now is always the best time [to buy]"

 

1. Watch the small stuff:  Keep track of recurring costs and look at your monthly statements.  Make sure to avoid late payments, those fees can add up.

2. Spend less than you make: Once you've accounted for your regular expenses, make sure that they don't add up to more than you make.  Also try reducing your basic expenses for long term savings.

3. Give yourself a pay cut: If you have debt, you're already living off of less than you make due to interest payments.  Imagine that you earn anywhere from 10% - 50% less than you actually do and see if you can build a budget around that amount.

4. Kill your debts:  Remember, paying interest means that you're already living off of less than you make.  Pay off your highest interest debts first to free up more cash.  Also, stop using credit unless you can clear it the same month.

 

"If you have debt, you're already living off of less than you make..."

 

5. Ask for Help: See if you can get better interest rates on your debts or even have late fees or overbalance fees forgiven.  Talk to a mortgage broker to find out what you can do to put yourself in the best possible position for buying a home.

6. Save:  Any bonus cash you get should immediately go into debt reduction and then savings once you've managed to kill your unsecured, open ended debts.  This will be where you put the money that you'll use for your down payment.

7. Think long term: Have a financial goal in mind.  Sit down and think of a financial goal that you'd like to achieve in the next 10 years, beyond just buying a house.

8. Break it down:  A long term goal is nice, but somewhat abstract for most, so break it down into steps that you'd like to achieve for each year.  Whenever you feel the impulse to spend (or maybe eat out too often), consider whether or not that purchase will help or hinder your long term goal.

9. Spend what you like:  It might be a good idea to establish a weekly allowance account for your personal spending.  Set up an automatic transfer of the same amount from your savings account into this account each week and when the account is empty you're out of money for the week.

 

"Spend on [life] experiences..."

 

10. Enrich your life: When given a choice, I'd say it's always better to spend on experiences rather than stuff.  You'll feel more fulfilled and it'll be easier to avoid the temptation of that doodad that'll be gathering dust by next year.  Even a few dinner parties can be more affordable than a night out with friends.

If you follow these steps, you should be able to accurately determine when you'll be ready to make the move and change someday into today.  Once you get that house, you can really accelerate your journey to financial freedom.

Bonus tip: Revisit your expenses, savings and goals at least every year (and up to 4 times a year), to make adjustments and make sure that you stay on track.

Want to Learn About Real Estate? Just Ask!

It's 2015, a new year and new possibilities await our choosing.  In my 10 plus years of working as a Realtor® and even longer tenure as a property manager I've had many experiences that have brought me to where I am today.  I've had many good experiences and some bad ones as well; however, I'm still here in the same industry because all of them have been positive experiences.  Positive because although some may have been stressful, you can always learn something from a bad experience so that you don't make the same mistake again and you improve your processes for the future.  When everything goes well, you rarely have an opportunity to learn.

"You can always learn something from a bad experience..."

 

I've had many learning opportunities over the years and I use this knowledge that I've acquired to help my clients so that they can have the best experience possible when buying or selling their home.  Of course I've learned from my mistakes, but an even more valuable resource that I've been able to learn from has been my father, Guy Steer, who has been in the business for over 40 years.  He's helped many different people in difficult situations to  become homeowners and amass wealth over the years.  I've been able to ask him for guidance when dealing with new situations and uncharted territory and he has always guided me straight.

I've had many questions asked of me when people find out that I've been working in real estate for so long.  Of course when working with a client they often have a number of questions that I have to be prepared to answer so that I can help them to make the best decision for themselves.  As a Realtor® I don't make choices for my client, I empower them with information so that they can make the best decision for themselves.  After all who knows better what one wants and needs than oneself?

"I'm... not asked certain questions often... whose answers would hold [better] information"

 

Over the years I have found that oftentimes I do get asked the same question.  More interestingly though, I also find that during conversations I'm also not asked certain questions often either.  Questions whose answers would hold information that would better serve the inquiry.  So, in light of this I've decided that now, in 2015 I'm going to share my knowledge with a wider audience.  I'm going to start sharing information here on my blog so that if I don't have the privilege to work with you, you can still become more educated when making your real estate decisions.

Hopefully you'll find something in these pages that will open your eyes to seeing real estate in a new light; if not just ask and I'll be glad to help!  Here's to achieving your goals and achieving your potential in real estate!  Feel free to drop me a line and ask any questions that you may have.

Happy New Year!

Tyrone