Most financial choices boil down to simple math. Add up the gains, subtract the costs, and you should get a number that helps you draw a conclusion. Those numbers are particularly useful when trying to make a major life decision, such as whether or not to sell the family home.
Given how hot big city markets like Toronto are these days, the math would certainly make a compelling case to sell. Yet according to the April sales data from the Toronto Real Estate Board, listings are down 27% year-over-year in the GTA. Despite brisk sales and skyrocketing prices, most homeowners living in semi-detached and detached homes are choosing to stay put. (A similar lack of inventory is plaguing Vancouver, Halifax, Ottawa and nearly every large city in Canada.)
TREB’s rationale for the dearth of listings? A widespread aversion to the high cost of land transfer. Other people have surmised that the scarcity is a symptom of our fear of paying a premium on the next property. After all, while you may sell high, you’re also forced to buy high—a proposition that leaves some feeling like prisoners to the status quo. But I think there’s another reason people aren’t selling as many homes these days, and it’s buried deep inside our brains. More precisely it has to do with how we process gains and losses.
According to Nobel-prize winning professor Daniel Kahneman, we’re hardwired to overvalue a loss and undervalue a gain. “The aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount,” is how he puts it.
To appreciate what Kahneman means, consider the case of Larry and Laura. Retired for three years, the Toronto couple have a comfortable debt-free life, funded by modest pensions, savings and government income programs. Thing is, they could have more money in the bank if they sold their home—let’s say they bought it 15 years ago for $250,000. But Larry and Laura can’t wrap their heads around selling and downsizing in such a crazy market, even though they could probably sell it for $750,000 or more.
The math says they’d be ahead by as much as half a million. But that calculation isn’t entirely accurate, at least not from an economist’s point of view. To understand how they’re undervaluing their gains, you have to consider the difference between sunk costs and opportunity costs. Sunk costs are anything spent that cannot be recovered. For Larry and Laura, that would mean the money they paid into the mortgage, the time and money it took to maintain their home and the emotional and mental energy they invested in raising a family in the house.
The opportunity cost, on the other hand, is what’s incurred from not taking the next best alternative. This is a fancy way of referring to all the ways Larry and Laura could be spending their time and money if it weren’t tied up in their family home.
Pretty straightforward, right? Only Larry and Laura aren’t as rational as they think. The idea of dismissing all the money, time and energy they poured into their family home feels like the emotional equivalent of losing their investment, a perceived loss that prompts them to overvalue their sunk costs. Economists would say this is irrational. They would explain our refusal to dismiss these irretrievable expenses as a “behavioural error” or an action that doesn’t conform to rational choice theory (a principle that assumes we always make the prudent and logical decision that provides us with the greatest benefit).
If Larry and Laura were truly rational, their real gain for selling their debt-free family home would be closer to $750,000 (the sale price minus transactional costs). Even if they chose to repurchase in the same market, it would likely be something smaller and less expensive; they’d still have money left in the bank to spend on travel, explore new hobbies or give to their kids and grandkids. So does that mean Larry and Laura should sell? Yeah, maybe. Since each person values a future gain slightly differently, it’s important to ask yourself the following questions:
1. What are the intangible and tangible sunk costs so far?
2. Am I willing to accept that these sunk costs will never be returned to me?
3. If so, can I see what I may be missing if I overweight costs that are irretrievable?
4. Finally, what would I actually gain if I were to sell and move now?
It’s totally understandable if you answer these questions and still choose to pass up the opportunity for a large financial gain. Sometimes the math used to determine a home’s value ignores the intangibles—factors that can outweigh even the most compelling balance sheet surplus. But going through an exercise like this will help anyone make a more informed, more rational decision. It’s better than feeling trapped in the status quo, a prisoner in a surprisingly expensive home.
Source: MoneySense.ca – by Romana King
Real estate averages 27 per cent of the investments of the ultra wealthy.
(Sheldon Kralstein/Getty Images)
With markets roiling in 2016 and commodities lingering in low-price limbo, the holdings of high-net-worth investors can serve as indicators of where the rest of us might consider parking our nest eggs. It turns out that a good chunk of wealthy peoples’ investments is in real estate.
“Real estate is generally accepted as an alternative investment [by high-net-worth investors],” says Simon Jochlin, portfolio analytics associate at StennerZohny Investment Partners, part of Richardson GMP in Vancouver.
“It has the characteristics of an inflation hedge: yield, leverage and cap gains. It does well in upwardly trending markets, it pays you to wait during market corrections and typically it lags equities in market declines – it buys you time to assess the market.”
While the definition of high net worth can be flexible, in Canada and the United States it is generally considered to be someone who has at least $1-million in investable assets.
Thane Stenner, StennerZohny’s director of wealth management and portfolio manager, says a good way for determining what the wealthy do with their investments is to look at reports from Tiger 21, an ultra-high-net-worth peer-to-peer network for North American investors who have a minimum of $10-million to invest and want to manage their capital carefully.
Every quarter the network surveys its members, who number about 400 members across Canada and the United States. Some of the participants are billionaires, and most have a keen eye for business, Mr. Stenner says.
Though the Tiger 21’s Asset Allocation Report for the fourth quarter of 2015 found that its members were becoming cautious about Canadian real estate, they still on average put 27 per cent of their investment into real estate, the largest portion of their allocations. The next largest were public equities (23 per cent) and private equity (22 per cent) with smaller percentages going to hedge funds, fixed income, commodities, foreign currencies, cash and miscellaneous investments.
The real estate portion declined by 1 percentage point from the previous quarter. “While this is the lowest we have seen this year, it is at the same level observed in the fourth quarter of last year, which consequently was the high of 2014,” the report said.
“Real estate is very popular and one of the reasons, in my opinion, is that investors can actually see and touch their investment,” says Darren Coleman, senior vice-president and portfolio manager at Raymond James Ltd. in Toronto.
In his experience, real-estate investors, wealthy or otherwise, seem to behave with more logic than those who focus on markets. “For example, if you own a rental condo, and the one across the hall goes on sale for 30 per cent less than you think it’s worth, you wouldn’t automatically put yours on the market and sell, too, because you think there is a problem. Indeed, you may actually buy the other condo,” he says.
“And yet when a stock drops on the market, instead of thinking of buying more, most people automatically become fearful and think they should sell.”
Real estate also allows for considerable leverage, Mr. Coleman adds: “Banks love to lend against it. Over time, this lets you own a property with a much smaller investment than if you had to buy all of it at once.”
At the same time, Mr. Jochlin says there are disadvantages to real estate that investors should beware of. Property is not particularly liquid, so if you need to sell you could be stuck for a while.
“It’s also sensitive to interest rates and risks from project development,” he says. There are administrative and maintenance costs, and an investor who buys commercial rental property will be exposed to the ups and downs of the entire economy – look at Calgary’s glut of unleased office space, for example.
“Timing is key. You do not want to chase the performance of a hot real estate market,” Mr. Jochlin says.
“Buying at highs will significantly reduce your overall return on investment. You want to buy in very depressed markets at a discount. In other words, look toward relative multiples, as you would an equity.”
As to how one goes about investing in real estate, Mr. Jochlin says it depends. The factors to consider include determining whether your investment objective is short- or longer-term, your liquidity requirements, your targeted return and whether you have any experience as a real estate manager.
“Sophisticated high-net-worth investors have a family office, and thus a specialist to manage their real estate assets,” he says.
How the rich buy real estate
The wealthy don’t necessarily buy and sell real estate the same way ordinary investors do, says Mr. Stenner. Ordinary people buy something and hope that when they sell it they’ll get a better price. Meanwhile, they like to do things like live on the property or rent it out, whether it is residential or commercial. If it is vacant land they might build something. Not always so for high-net-worth (HNW) investors, Mr. Stenner says. While everyone who invests hopes their investment will rise, Mr. Stenner says that in real estate, HNW people tend to fall into four categories:
“The real estate developer is looking for substantial returns from individual/basket real estate projects, typically 30-50 per cent IRRs [internal rates of return],” Mr. Stenner says. Developers are highly experienced investors who often take big risks, looking at a raw, undeveloped property and envisioning what it could look like with, say, a shopping mall or office tower. This requires lots of access to capital and a strong stomach, as there can be huge delays and setbacks.
“These HNW investors typically look for a stable, secure yield, tax-preferred in nature and structure if possible, with modest capital growth potential,” Mr. Stenner says. They take the same businesslike approach to property as the developer-types, but they’re more conservative, focusing on cash flow and long-term profit as opposed to getting money out after a development is complete. Often they’re building a legacy that they hope to pass down through generations. Mr. Stenner says lower net worth people can emulate income investors, for example, through REITs that are based on apartment buildings.
These HNW investors tend to look for more short-term higher risk, higher return “asymmetric” payoffs. Income from the investment or project is secondary — they’re in it for the quick buck. Often they see real estate in contrarian terms – investments to look at when the market is low and to sell on the way up, rather than hold. After 2008, many HNW investors bought up depressed-price housing in the U.S. Sunbelt. The sizzling Vancouver and Toronto markets might be the opposite of what they’re looking for right now; commercial property in the stagnant Canadian economy that can be purchased for low-trading loonies right now might be more interesting.
This refers to HNW investors who lend capital to developers or opportunistic investors, for a fixed return, plus as much asset coverage from the property as possible. They fund mortgages, invest in real estate financing pools or put money into companies involved in this type of investment. “Because wealthier investors tend to have more liquidity, this also creates more optionality to deploy capital in various ways, while using the real estate as collateral or protection,” Mr. Stenner says.
Being a lender is a way to diversify. In addition, money lent in this way puts the lender high up in the creditor line if something goes wrong. If things go right, it generates income as the mortgage is paid back to the HNW investors or the funds they buy into.
Source: DAVID ISRAELSON Special to The Globe and Mail Published Thursday, Feb. 18, 2016
Selling a property in Jamaica, can be a scary process, if you do not have the right Real Estate Professional by your side. Thank God, I am here to assist you!
When selling real estate, every owner wants the same thing – the best possible price with the least amount of hassle and aggravation. Doing business in today’s real estate world requires experience and training in such fields as: real estate marketing, financing, negotiation and closing – all of which I possess.
HOW DOES THE SALE PROCESS WORK?
HOW LONG DOES IT TAKE TO SELL A PROPERTY?
WHAT ARE THE COSTS ASSOCIATED WITH SELLING A PROPERTY?
I hope you found this information useful/helpful. If you have any follow-up questions or concerns, please feel free to contact me. I can be reached via the comments section below, LinkedIn direct message, email at firstname.lastname@example.org or whatsapp at 1-876-862-5848. Please feel free to send me a LinkedIn Invitation to connect & join my network.
Source: Paula Roper Bacchas is a Realtor Associate at Century 21 Heave-Ho Properties. Located at 31 Upper Waterloo Road, Suite 10, Kingston 10, Jamaica West Indies . You can contact me at 1-876-862-5848, Send me an Invitation to Connect on LinkedIn, Like my Facebook Page: https://www.facebook.com/PaulaSellsRealEstate/?ref=hl or visit my website at www.paulasellsjamaica.com or email at email@example.com
Yes, it’s possible to move to the Caribbean, whether you want to add a second home or turn your Caribbean beach dream into a reality. Now, moving to the Caribbean means different things for different people and different price points — and that’s why we write our How to Move series, answering common questions about making the move. To help you think about it, we talked to Jason Applewhite, Operations Manager for Barbados’ One Caribbean Estates real estate brokerage to learn more.
Why should I move to Barbados?
Apart from the obvious appeal of the beautiful beaches, high average of 300+ days of sunshine a year and the natural appeal of the destination, Barbados enjoys a positive image in the global marketplace as a sound International Business Centre and has been effectively attracting Foreign Direct Investment for decades. Some of the main factors which have contributed to investors choosing this destination are:
¬ Attractive Fiscal environment/social stability
¬ Ease of access to housing market (no entry taxes and landholding license requirements)
¬ High Quality Construction
¬ Well developed and established amenities and amenitized world-class developments including Golf, Polo & Marina (Yachting/Sailing)
¬ Persons who invest in excess of US$2 Million automatically qualify to apply for a SERP (Special Entry and Residency Permit) towards obtaining residency status in Barbados
Companies looking to thrive in a highly competitive global marketplace invest in Barbados to capitalize on the business-friendly environment, strong human capital, high-quality infrastructure, tax advantages, investment protection, and overall good quality of life.
And can I live there? What are the residency laws, etc.?
As mentioned before, Barbados is a highly hospitable destination with strong human capital, high-quality infrastructure and an overall good quality of life. Persons who wish to take up permanent residence in Barbados must provide tangible evidence that they are not likely to become a charge on the nation. Applications should be made to the Immigration Department.
What are the advantages of living permanently vs. part time?
This is a rather broad question…and the specifics are varied. The United Nations Human Development Index ranks Barbados 57th and apart from the hospitality of the people the overall standard of living is high. To reiterate… the island has an excellent education system, a good healthcare system, affordable housing, sound telecommunications and all utilities available island-wide. So ultimately I’d have to say that there is less of an opportunity for one to benefit from these ‘perks’ if they are domiciled here rather than to miss out on them.
How much does the average home cost?
This is a very broad question but across the different sectors of the real estate market the following are price ranges which outline/distinguish the distinctions between your ‘average home’ and a ‘luxury home’. The average home as we would perhaps define it falls into the Middle Income bracket as it relates to pricing. The pricing is set out according to the different sectors/sub-sectors:
Low – Middle Income (Modest Housing) US$75,000 – $275,000
Middle – High Income (Up-Market Housing) US$300,000 – $750,000
High-End – Luxury Market (Luxury Housing) US$800,000 – $1,000,000+
How much does a beachfront condo cost?
The ‘average’ cost is relative to the following factors or characteristics which include: configuration and size, and for the ‘typical’ beachfront condo this would be a 2-3 bedroom unit and relative to what the current available inventory on the market is and the size and price are as follows:
Size: 1,600 – 2,200 sq. ft.
No. of Bedrooms: 2-3
Price: US$850,000 – $1,600,000
How much does it cost to build a home?
Building cost for the ‘average’ home with basic finishes can be low as US$75 per sq. ft. going up to US$150. Anything above this price range ventures into the higher-end & luxury segment of the market.
What are the real estate taxes like?
Real Estate taxes are calculated on a tiered basis and this responsibility overseen by the Barbados Revenue Authority. The land tax year runs from April to March. Rates vary between nil and 0.75 percent of the value of the property, depending on the value, with a maximum land tax payable of BDS $60,000. The seller will have prepaid the land taxes before completion and a buyer will be responsible for the months between completion and March of the following year.
What are income taxes like?
Income Tax is levied on: The profits of a trade or business earned by an individual in a fiscal year; and the income earned by any other individual in a calendar year. Income Tax is levied on the income of persons resident or non-resident in Barbados. There is no tax on capital. The system of taxation is based on self-assessment
Liability for Income Tax
A Resident is a corporation managed and controlled in Barbados; or a non-national individual who is present in Barbados for more than 182 days in a calendar year. A resident corporation is subject to tax on its world income. A resident and domicile individual is subject to tax on his world income. The resident but not domiciled individual is subject to tax on his income derived in Barbados and on his income from foreign sources remitted to Barbados, or from which a benefit is derived in Barbados.
A Non-resident is a corporation whose place of management and control is outside Barbados; or a non-national individual who is present in Barbados for less than 183 days in a calendar year. A non-resident is subject to tax only on income derived in Barbados.
Can I work in Barbados?
All non-nationals desirous of working in Barbados are required to register with immigration prior to commencing employment. The employer or ‘sponsor’ has the responsibility to make the application on behalf of the employee. The application fee is $300.00 BDS but the final fee will vary dependent on the category of work and the length of time requested and in accordance with the international standard code fee regulations.
What’s health care like?
Compared to most developing and developed countries around the world and particularly in the Caribbean, it is good.
Can I bring my car? What’s the duty?
Yes you can, the costs vary depending on where you are coming from and the value of the vehicle.
Source: CaribbeanJournal.com – February 19th, 2016 | 11:09 am
Robert De Niro’s major planned resort on the island of Barbuda is “very much on track,” according to Antigua and Barbuda Tourism Minister Asot Michael.
The project, which was announced at the end of 2014, is the brainchild of developers De Niro and James Packer, both of whom are frequent travelers to Antigua and Barbuda (De Niro is a frequent guest at the Jumby Bay private island resort).
The $250 million resort project is at the site of the former K-Club resort, and will be branded as the Paradise Found Hotel.
“Since these developers have announced their project in Barbuda, it has generated huge amount of free publicity for our destination,” Michael said. “It has also attracted other high net-worth investors such as former New York Mayor Michael Bloomberg who recently visited Antigua and Barbuda and later had his own private seaplane join him here in exploring both our islands.”
When the project was first announced, De Niro was named a special economic envoy for the country, and has helped pitch investment for the country in the United States.
It’s not the first hotel project for the Hollywood legend, who has developed several hotels under the Nobu brand with restaurateur Nobu Matsuhisa.
“Both developers Robert DeNiro and James Packer stayed here for Christmas in a demonstration of their love for our country and their wholehearted committed to this project,” Michael said.
Indeed, Packer stayed in Antigua recently with his fiancee, Mariah Carey.
“In spite of the delays and roadblocks, presented by the naysayers, the project continues,” Michael said.
Source: Caribbean Journal
The small real estate market in Grenada is booming, according to a new report from Century 21 Grenada Grenadines.
The country’s real estate sector saw a 71 percent increase in sales volume last year compared to 2014.
Overall real estate sales in Grenada totaled $40.753 million last year, up from $23.8 million in 2014, with the average transaction value in 2015 at $84,772 — itself an increase of 64 percent over 2014. The company cautioned, however, that individual large sales can skew the average, meaning the transaction value increase wass “not due to an increase in the values of the individual properties.”
That came from an average of about 40 real estate sales every month.
That was driven in large part by buyers from the United Kingdom, who represented 81 percentage of the total value of foreign-buyer-purchased real estate last year.
Grenada also saw strong growth in Grenada’s commercial sector.
Indeed, there was a concomitant 46 percent increase in approvals for new construction of commercial units and increased occupancy in a number of commercial complexes.
Both residential and commercial have been buoyed by Grenada’s citizenship by investment program, which has generated “increased recognition of Grenada as a luxury destination,” the company said.
“We are projecting continued year-over-year increases of sales volumes in 2016,” the company said.
Source: Caribbean Journal – February 3rd, 2016 | 11:14 am