As the cost of living soars, more couples are cohabitating, even getting married sooner. But, as Statistics Canada showed, there were 2.64 million divorced people living in Canada last year, and when you throw a family gift into the mix, things get hairy.
“Family gifts are a very complicated area of the law and there are two different ways of looking at it,” said Nathalie Boutet of Boutet Family Law & Mediation. “A gift received before marriage is treated as a pre-marriage asset. There’s a huge exception if that gift is the matrimonial home.”
In other words, pre-marital exclusions don’t apply to matrimonial homes—the reason for which is to rectify a historical transgression that saw women spend most of their time in the matrimonial home but have their name excluded from title, effectively leaving them no recourse upon divorce.
“Parents who want to give money to their child need to understand before marriage that if it goes into a matrimonial home, they end up sharing that with their spouse if there’s a separation,” said Boutet. “If the parents have a condo and they give it to their child who gets married, that becomes equal sharing with the spouse. A parent should understand that first and have a conversation with their child. Sometimes when a person owns a house, they ask the person to sign a marriage agreement as a way to get themselves out of that mess should it ever occur.”
Boutet recommends that in-laws-to-be have the dreaded conversation about signing an agreement that will protect them from relinquishing their asset in the even their child gets divorced.
“I often get called in when parents still own a home and let someone go live in it,” said Boutet. “Sometimes, for planning, have them sign a prenup, or a cohabitation agreement if they’re not going to get married. At the time they begin living together, sign the agreement in case they separate.”
Another interesting scenario divorced couples and their in-laws sometimes find themselves in pertains to cottage ownership. What happens if the couple is married for a period of time during which the cottage was renovated with contributions from the outgoing spouse?
“I have a case right now where the parents own a cottage and the family has been using it for upwards of 30 years, but their child is getting divorced and his wife wants to know what her rights are to recoup renovations,” said Boutet. “The husband’s parents had been very well-advised by their own lawyers and, because they paid for all the materials, the wife could not pinpoint any specific expense she paid out of her own pocket. It was determined that she had done a little here and there, and it offsets the cost of free accommodations she’s had over all the years—she didn’t pay for the land, heating, repairs, things of that nature. So she was entitled to nothing.”
When it comes to real estate, one of the most common questions is: when is the best time to buy? The typical response is the best time to buy was yesterday and the second best time is today. That response is a bit clichéd as many homebuyers have heard it before and it doesn’t provide any practical advice.
Buying a home will likely be the largest purchase people make in their lives which is why they want to be as informed as possible when making their decisions. It’s impossible to predict where the markets are headed, but there are some scenarios where it makes sense to get into the market.
Early in the year
Historically, real estate sales slowdown at the start of the year. This happens because many people aren’t exactly excited to go out in the winter to search for a new home. Although there’s usually less inventory available during this season, there’s an opportunity for buyers since sellers may be more motivated to negotiate on price to complete the sale.
When interest rates are low
Over the last couple of years, interest rates in Canada have been at near record lows. In 2018, when the Canadian economy was doing well, the Bank of Canada increased interest rates three times from 1% to the current rate of 1.75%. The economy has since cooled and a recent poll found that many economists expect rates to remain flat until the end of 2020.
In the first half of 2020, we’ve seen mortgage rates fluctuate both up and down. In early 2019, 30-year fixed mortgage interest rates rose to between 4.5% and 5.0%. However, right now, we’re seeing rates as low as 2.54% which can be very appealing to potential and current homeowners.
When your financial situation is optimal
Buying a home is a goal for many Canadians, but it’s easier to make that a reality if your financial situation is in good standing. Ideally, you should have a secure income, good credit score, no or limited debt, and a healthy down payment.
By having all of the above, lenders are more likely to approve you for a mortgage in the amount you’re looking for. That’s not to say that lenders will ignore potential homeowners who have debt or are on a single income, it just means that they may not be extended as much money.
When inventories are high
Real estate is cyclical and things can change fast. A seller’s market can quickly become a buyer’s market if a lot of homes are up for sale. Generally speaking, spring and summer are when listings are at their peak, but there’s also an increased amount of buyers so that doesn’t automatically mean buyers will get a deal.
The highest month for home-for-sale inventories is May, followed by April and June which lines up perfectly for potential homeowners who are looking to move in by Labour Day. If there are more homes for sale compared to buyers, then sellers will need to ensure their home is priced competitively so they can get it off the market.
When the economy is doing well
Although interest rates may rise when the economy is doing well, it may still be a good time to buy a home. Those looking to buy who have been pre-approved for a mortgage may not feel the effects of any increased rates and they may be able to take advantage of new market conditions.
With an increased economy, there may be more construction of new homes which means more inventory for potential homeowners to choose from. This scenario also helps current homeowners who are looking to move up on the property ladder since they’ll likely have an easier time selling their current home before buying a new one.
The pros and cons of buying real estate
The above factors are all good reasons to start looking for a home but note that homeownership isn’t for everyone. If you’re looking to enter the real estate market, it’s important to look at the pros and cons early so you know what you’re getting into.
As a homeowner, you can choose what to do with your home
Over time, you build equity in your home
You may be able to generate income from your home by renting it out (or a portion of it)
There are some tax benefits e.g. tax deductions on mortgage interest
As a homeowner, you’re responsible for all the maintenance and repairs
There’s limited flexibility if you need to relocate quickly
A huge part of your net worth is locked into your home which makes it difficult to diversify
There are additional expenses that renters don’t have such as property tax and repairs
As you can see, deciding on when is a good time to get into the real estate market depends on quite a few things. There’s never an ideal time, but you can look at the current market conditions as well as your own financial situation and then decide if you’re ready to become a homeowner.
Source: Equitable Bank – Joe Flor Director, National Sales
Equitable Bank is a major lender partner to the mortgage broker network and offers mortgage products to meet almost every client need. To find out more call us at 905-813-4354 or stop by our office for a chat.
New York City’s reputation as one of Earth’s most expensive—and daunting—real estate markets is well-earned, thank you very much: $1.8 million studio apartments? Check. Full-cash offers everywhere you look? Check. Freakishly competitive open houses? You bet. Welcome to the big time—with the prices and killer views to match. It’s little wonder that housing is top of mind for just about all of the nearly 8.4 million folks who call the Center of the Universe home.
Everyone, it seems, is angling to hit the NYC trifecta: a decent space in a good neighborhood at an affordable price. That’s why it’s so important to get a handle of what’s going to be the next big neighborhood, before it explodes in popularity and prices get out of reach.
To find out which neighborhoods in this bellwether, nationally scrutinized market are seeing the biggest price climbs—and the biggest falls—we teamed up with real estate appraiser Jonathan Miller, co-founder of Miller Samuel. He compared the median home sale prices in all of New York City’s neighborhoods throughout the five boroughs in 2017 and 2018. We included only the neighborhoods with at least 25 sales in both years.
What we found is a city going through churn, much of it due to the flurry of luxury development in some areas that traditionally have had older—and more affordable—homes. Prices go up, an area gets saturated, the luxury stock sells out, then prices go back down. Rinse and repeat. Meanwhile, the megadevelopment causes people to search out nearby areas that might be cheaper.
It’s the NYC circle of life, and it’s accelerating.
“Developers have left no stone unturned and developed wherever they could,” says Miller. “They went everywhere there was an opportunity. And that caused a lot of price fluctuations, especially in more modestly priced neighborhoods that saw a lot of new, high-end development introduced.”
But New York City hasn’t been immune to national trends. The overall market is slowing throughout all of its five boroughs of Manhattan, Brooklyn, Queens, the Bronx, and “can’t-get-no-respect” Staten Island. The city has been particularly affected by the national tax changes that make it more expensive to own a home in pricier parts of the country, says Miller.
More fun still: This month, New York state’s new mansion tax went into effect, upping the amount of taxes on properties $2 million and up. Sales had been down earlier in the year, but the prospect of giving more to Uncle Sam resulted in a rush of higher-priced home sales. Going forward, the number of sales is expected to fall back down again. Phew … Dramamine, please.
High price tags are pushing many New Yorkers farther out into cheaper communities such as the Bronx, which doesn’t have the hipster cred or water views of Brooklyn. But dollars can stretch way further there.
“A large shift or decline [in a New York neighborhood] is generally not a reflection of weakness,” says Miller. “It’s more of a reflection of … now it’s back to business.”
So which neighborhoods are seeing the largest real estate price spikes? And which expensive communities are getting (a bit) more affordable?
Annual median price increase: 122.7% Median 2018 home price: $612,500
When folks think of the Bronx, the mix of grand Tudors, Georgian Revival estates, and midcentury modern homes and lovely winding streets in suburban Fieldston are rarely what come to mind. Homeowners in this privately owned enclave of tony Riverdale pay property taxes and fees to their property owners association, which maintains the streets and sewers and pays for its own security patrol.
Prices are surging because word has gotten out: Buyers are increasingly drawn to its seductive combo of urban and suburban living. The historically designated community is near top private schools, which include the Horace Mann School and Riverdale Country School. It’s also only steps away from the Hudson River and the 28-acre green oasis of Wave Hill Public Gardens in the northwest swath of the Bronx.
“In Fieldston, you are part of the city but you have the real suburban feeling,” says Chintan Trivedi, a licensed real estate broker with Re/Max In the City. “Here you’re getting a real home, a backyard and a private community.
“For a good house with a larger backyard, a complete renovation, and maybe a pool, you can expect to pay $1.5 million to $2.5 million,” he says. But there are six-bedroom homes listed in the $1 million range. Just tryto get that in Manhattan. (Spoiler: You can’t!)
Annual median price increase: 41.2% Median 2018 home price: $275,000
Just south of Fieldston are the middle-class communities of Kingsbridge and University Heights, where buyers can score deals for a fraction of the price. But the lack of homes for sale and little turnover are causing prices to heat up. And investors are buying up whatever lots and houses they can for new development or rehabbing.
“The Bronx is the new Queens in the sense that there’s been an expansion of demand moving out from Manhattan as consumers search for affordability,” says Miller.
The neighborhood’s become popular with 20- and 30-somethings looking for a reasonably priced community with an urban vibe. Hilly Kingsbridge is filled with century-old, single-family houses and midrise co-op and apartment buildings as well as plenty of shopping, parks, and public transit.
These buyers “are[part of] the new generation that’s learning that real estate should be part of their planning,” says Trivedi. “They want to feel like they’re in Manhattan—a place where they can still go right downstairs and get a smoothie.”
Annual median price increase: 38.7% Median 2018 home price: $1,535,000
Over the past couple of decades, lower Manhattan’s East Village has shed its image as a sketchy, open-air drug market to become a sought-after place known for lively bars, great restaurants, and a defiantly boho vibe—as well as a slew of new, high-priced developments, causing prices to jump. They’re going up everywhere you look.
Annual median price increase: 36.1% Median 2018 home price: $1,226,750
Like the East Village, Prospect Heights has been rapidly gentrifying. Professionals, families, and a few stray hipsters are drawn to its charming rows of stunningly restored early 19th-century, multistory brownstones on tree-lined streets. The neighborhood is near several main subway lines and in close proximity to the 526-acre Prospect Park and the Brooklyn Botanic Garden. It also borders Barclays Center, home to the NBA’s Brooklyn Nets (and soon the team’s new dynamic duo, superstars Kevin Durant and Kyrie Irving).
In recent years, Prospect Heights has become popular with folks priced out of neighboring Park Slope, a community long popular with upper-middle-class families. They gravitate to the brownstones as well as the new high-rises and the used bookstore, artisanal bakeries, and constant stream of new restaurants.
Not surprisingly, the Prospect Heights neighborhood has attracted a slew of developers putting up luxury condo and apartment buildings wherever they can. Those high-end housing developments are skewing the neighborhood’s median prices up to new heights.
This isn’t the kind of place where you’ll find buzzed-about restaurants—you’re more likely to stumble upon a dollar store than a bougie boutique. It’s a more down-to-earth community, populated by old-school Brooklynites, hipsters, as well as Pakistani, Orthodox and Hasidic Jew, Mexican, Chinese, and Latin American immigrant groups.
Annual median price increase: -40.7% Median 2018 home price: $915,500
Once grim downtown Brooklyn has been booming in recent years. It’s become home to a slew of glassy, luxury high-rises. So why are prices in such a vibrant area plummeting?
Well, now there’s a glut of new construction, giving buyers more negotiating power as buildings compete against one another to lure residents. Plus, builders are putting up towers with some smaller, less expensive units. But in NYC, less expensive is relative. Buyers might save themselves a couple hundred thousand on a million-plus-dollar condo.
But many of the condos here, some designed by famous architects, come with just about every amenity imaginable, including sun decks, hot tubs, dog runs, saltwater pools, and even music studios. This two-bedroom, 1.5-bathroom abode in a 57-floor building is going for $2,040,000.
Some believe developers overshot their market.
“Developers there created a mountain of homogenous product,” says agent Blumstein with the Corcoran Group. Buildings in the area “were built on the thought that people are demanding amenities. But the old-school, prewar neighborhood vibe is what’s in.”
Annual median price increase: -39.3% Median 2018 home price: $3,200,000
Even many lifelong New Yorkers have never heard of the Civic Center neighborhood in lower Manhattan. The tiny community encompasses City Hall and courthouses as well as some high-rise co-op, condo, and apartment buildings. It’s just west of ultradesirable Tribeca, where prices are sky-high, and just below Chinatown, guaranteeing plenty of good Asian eats.
Prices are down because the wave of development has pretty much played itself out, says Miller. Many of the older brick and limestone, midrise office buildings had been gut-rehabbed and turned into pricey condos. That led to a spike in prices. Now that those units have been bought, the real estate for sale is a mix of lower- and higher-end properties.
It’s “run its course,” says Miller of the wave of development in Civic Center.
Annual median price increase: -30.2% Median 2018 home price: $450,000
Like Civic Center, Javits Center as a neighborhood isn’t very well-known—but that’s likely to change. Named for the sprawling convention center on the west side of Manhattan where the community is located, it’s wedged between trendy Hell’s Kitchen and Chelsea and abuts Hudson Yards.
Even nonlocals have probably heard of Hudson Yards, Manhattan’s newest neighborhood, built on a formerly desolate stretch of disused train tracks. It’s a glam (and critics say overly generic) development of ultrahigh-priced condo and rental towers overlooking the Hudson River, complete with its own weird tourist attraction, the beehive-like Vessel. The Javits Center’s proximity to this buzzy development will likely have an impact on sales with prices shooting up.
But in the meantime, prices fell because there simply isn’t much of the first wave of luxury real estate left on the market. Now what’s selling is less expensive, older condos.
That’s likely to change as sales heat up in Hudson Yards.
“Sales [in Hudson Yards] will help to increase values in the surrounding area,” says New York real estate agent Matt Crouteau. The place “was designed so people don’t have to leave.” Ever.
Annual median price increase: -30% Median 2018 home price: $997,500
Just south of the Civic Center is the Financial District, home to Wall Street and the World Trade Center on the tip of Manhattan. Like all of the other neighborhoods on this list, FiDi (as it’s called) experienced a spike in development, then a market saturation.
“It’s not that prices are collapsing,” says Miller. “The early wave of high-end new development drove prices higher. … After that activity cooled, the prices for the neighborhood are less than what they were.”
But there are still plenty of new units to choose from, including this three-bedroom, four-bathroom condo going for $5,300,000. The unit features granite countertops, a waterfall island, high ceilings, and floor-to-ceiling windows. On the lower side of the spectrum, buyers can snag this studio with plenty of closet space for $480,000.
The neighborhood is home to a few cobblestone streets, giving it an old-world charm, as well as the South Street Seaport, a tourist fave.
Annual median price increase: -29.6% Median 2018 home price: $1,550,000
Thank the long-awaited Second Avenue Subway line for prices falling in the upper portion of the Upper East Side, from about 96th to 110th streets. Developers flooded the neighborhood putting up buildings near the new train extension, which opened in 2017 after being discussed, planned, and replanned for nearly a century. They believed—rightly so—that this least fashionable part of the Upper East Side would become far more desirable thanks to its close proximity to the new train line.
“That’s essentially East Harlem, which has benefited from a significant amount of new development,” says Miller. Now development is mostly over and there’s fewer sales.
“You’re not seeing the same amount of high-end [sales], because there’s not as much new housing being introduced,” he explains.
The Upper East Side/East Harlem now has a mix of sleek towers, brownstones, low-rise brick buildings and townhomes, and apartment and public housing developments. This new one-bedroom, one-bath condo clocking in at just 609 square feet, which is near the new subway line, is on the market for $786,161.
Jamie Golombek: The CRA’s ability to hunt you down over your real estate transactions is better than ever; this tax case looks at what constitutes a flip
If you plan on selling a home or condo that you bought fairly recently, especially if you never actually moved into it, be wary as the tax man will be carefully watching how you report any gain on your tax return, lest it be seen as a “flip” and be fully taxable as income, rather than a half-taxable capital gain.
The Canada Revenue Agency’s ability to hunt you down over your real estate transactions has improved thanks to the recent $50-million boost in funding over five years announced in the 2019 federal budget to help “address tax non-compliance in real estate transactions.” The CRA uses advanced risk assessment tools, analytics and third-party data to detect and “take action” whenever it finds real estate transactions where the parties have failed to pay the required taxes. Specifically, the CRA is focusing on ensuring that taxpayers report all sales of their principal residence on their tax returns, properly report any capital gain derived from a real estate sale where the principal residence tax exemption does not apply, and report money made on real estate “flipping” as 100 per cent taxable income.
But what, exactly, constitutes a real estate flip? That was the subject of a recent Tax Court of Canada decision, released this week.
The case involved a transit operator for the Toronto Transit Commission who, along with his brother, bought and moved into a two-story, three-bedroom townhouse in Vaughan, Ontario, in 1999. His brother contributed toward the initial down payment, lived with him and together they equally shared all household expenses, including the mortgage payments. In 2003, the taxpayer’s brother met the woman who would become his future wife, whom he married in April 2007. She moved into the townhouse and they had a child together in February 2008.
Sometime prior to this, the taxpayer and his brother began discussing going their separate ways. The taxpayer testified that he wanted to sell the townhouse and move to a place that was smaller and closer to work. Indeed, in 2006 he found a smaller place, a two-bedroom condo, which was in the pre-construction phase. The tentative occupancy date of the condo was April 2008, but that date was pushed back several times, ultimately to 2010.
Prior to taking possession of the condo, however, circumstances changed. In December 2008, the brothers’ father passed away while in Jamaica, where he lived together with their mother for about six months each year. Following their father’s death, their mother did not feel safe living alone in Jamaica and in March 2009 she moved into her sons’ townhouse. The taxpayer testified that his brother and his family shared the master bedroom, while the taxpayer and their mother each occupied one of the remaining two bedrooms. This living situation didn’t last long and the taxpayer refinanced the mortgage on the townhouse in order to buy out his brother’s share of the property, enabling him and his family to move out.
In August 2010, the taxpayer took possession of the condo and immediately arranged to list it for sale, realizing that it would be too small for both he and his mother. No one lived in the condo in the interim. He sold it in October 2010 resulting in a net gain of $13,412, which the taxpayer reported as a capital gain, taxable at 50 per cent, on his 2010 tax return. The CRA reassessed him, finding that the $13,412 should have been reported as fully taxable income and slapped him with gross negligence penalties.
The common question of whether a gain from the sale of real estate is on account of income or on account of capital always comes down to the underlying facts. The courts will look to the surrounding circumstances and, perhaps most importantly, the taxpayer’s intention.
The judge reviewed the facts in light of the four factors previously enumerated by the Supreme Court of Canada by which these types of cases are decided: the taxpayer’s intention, whether the taxpayer was engaged in any way in the real estate industry, the nature and use of the property sold and the extent to which the property was financed.
The taxpayer testified that he purchased the condo with the full intention of living in it after his brother moved out of their shared townhouse; however, when his father died and his mother wished to return to Canada to live full-time, the taxpayer “changed his plans to move so that his mother could live with him at (the townhouse), which was a larger space.” He testified that since he could not afford to own both homes, he listed and sold the condo shortly after assuming title. As he testified, if not for his father’s death and his mother’s return to Canada, he would have carried out his plan to sell the townhouse and live in the condo as his primary residence.
The judge concluded that the taxpayer’s intention with respect to the condo was indeed to live in it as his primary residence. He had no secondary intention of putting the condo up for resale at the time of purchase.
The judge therefore concluded that the sale of the condo was properly reported as a capital gain and ordered the CRA to reassess on that basis and cancel the gross negligence penalties.
One final note is warranted: while justice was ultimately done and the taxpayer prevailed, it actually took him nine years and three separate visits to court to get relief. The CRA originally reassessed his 2010 capital gain as income back in 2014. The taxpayer filed a Notice of Objection to oppose the reassessment, which was reconfirmed by the CRA in January 2016. The taxpayer then had 90 days to appeal the CRA’s reassessment to the Tax Court. For a variety of reasons, he missed that deadline and ended up in Tax Court seeking an extension of the deadline to file an appeal. The Tax Court denied his request for an extension. He then went to the Federal Court of Appeal which, in June 2017, reversed the lower court’s decision and allowed an extension of time to appeal to Tax Court, which heard the case in March 2019 and released its decision this week.
Deciding on whether or not to invest in fix-and-flip properties can be tricky, as significant benefits and challenges can influence an investor’s decision. The determinants of a good investment in fix-and-flips include the price you pay for the purchase of the property and the cost of the renovation. An investor must also be aware of the general health of the economy and the location of the property, according to a blog post by Allen Shayanfekr at Sharestates.
Understanding how the current economic environment impacts the market can help you get the most out of your investments. If the economy is bad, people resist purchasing homes, often opting for rentals instead. If the economy is too good, the competition for fix-and-flip increases, diminishing profits. If a property is in a bad neighborhood, it will be hard to sell while the cost to renovate could outweigh the investment in the property, risking the loss of some or all of the profits.
To better recognize the potential of a fix-and-flip, Shayanfekr establishes three metrics for ideal conditions when deciding whether or not to move forward on this type of investment property.
The availability and changes in housing inventory can significantly influence decision-making. Low housing inventory is perfect for house flippers, as home buyers have fewer good options, especially with new homes, creating a higher demand for rehabilitated properties. While some have seen higher housing inventory levels in 2019, others see inventory still in decline. It depends on the location. Either way, keep an eye on inventory levels in 2019.
Changes in the rate of home purchases also have a strong impact on investment decisions. The market is seeing an influx in homebuying, specifically with first-time home buyers. Though millennials have waited longer than any previous generation to buy homes, we are seeing millennials now buying or planning to buy homes. This upward trend is a good sign that the market will remain steady.
Fluctuation in the cost of homebuying puts additional pressure on the outcome for investors. Home prices rose 5.6% from January 2018 to January 2019, according to the Federal Housing Finance Agency. The increase in the cost of purchasing homes creates a challenge for many families, often displacing families with few options in future home buying.
While these metrics may not look great, Shayanfekr recognizes the value of the location as a key to finding a good investment property. CNBC Home Hacks writer Shawn M. Carter establishes the following markets as the top 10 states to invest in:
These states have an average ROI of 83-155% and an average flip of 180 days, making them ideal markets for fix-and-flip investments.
With the market in constant flux, it’s important to keep in mind that just because one market goes south, it doesn’t mean that another location or market can’t offer good opportunities. If fix-and-flip isn’t looking like a sound investment, rental properties are another area that is growing. Whichever direction you choose, remember to asset class diversification is key to building a profitable investment portfolio.
Source: Mortgage Professionals America – Ryan Rose 04 Jun 2019
Everybody likes to save a little money. So when Rossana was ready to sell her condo a few years ago, she figured she could save some cash by selling it herself — without using a real estate agent. After all, her property was in a hot real estate market and she thought: “How hard could this be?”
Rossana, a busy mother of one, had become overwhelmed juggling her daily responsibilities in addition to managing her rental condo. She had grown tired of being a landlord and dealing with a revolving door of tenants — so when the family currently renting it was moving out, she decided that it was time to sell.
In hopes of saving some money, Rossana chose to sell her condo herself instead of working with a real estate agent. She thought: How hard could it be? She figured it would be easy to just hire a company that charges a flat fee to photograph the condo for her and advertising the property online. After all, she could handle the rest of the details herself. Right?
What she quickly discovered was that this approach didn’t work.
“I found the service I used was not the best,” Rossana says. First, she says the service might have turned off potential buyers with unprofessional photos, “Honestly, I could have done a better job if I had done it myself.”
Second, when it came to marketing her property, Rossana says the marketing plan wasn’t aggressive enough to expose her condo listing to a large population of potential buyers. “My condo just didn’t get the same visibility if it would have had on MLS.”
Her condo was not widely promoted, and the service she used was not authorized to advertise on Realtor.ca (also known as MLS), which is many Canadians’ first stop when starting their home search.
Low Buyer Confidence
Rossana found buyers who had real estate agents wouldn’t come to view her property since she was selling it herself. “I think they lacked confidence that the sale would go through, or that it would be a complicated process because I didn’t have an agent.”
While she wasn’t getting a great deal of interest, Rossana still had to be on-site for open houses over the weekends. “I was living at the other end of the city at the time, so the commute was terrible. It was so much work, but I wasn’t getting much traction.”
Less-than Attractive Offers
When offers did get presented, they were far below the listing price. Plus, agents came in very confident with their clients’ offers, and Rossana didn’t feel she had the experience to handle these types of negotiations.
“I felt people were trying to take advantage of me, because I was trying to sell on my own. And I didn’t have the full picture of the market. I didn’t have the background to stand up to those low offers.”
Making the Decision to Hire an Agent
After more than five weeks of trying to sell the property on her own, Rossana decided to list her home with a professional real estate agent, after getting a referral from a friend.
“I immediately saw the difference in having a real estate professional in my corner,” Rossana recalls. “She offered staging, took really nice photos, and her level of professionalism was so impressive. And when there was an offer coming in, she was able to negotiate on my behalf.”
In the end, Rossana sold her condo — about two weeks after hiring an agent — and for a price she was very happy with.
“I really underestimated the amount of time an effort needed to sell a home myself. For anyone looking to sell their home, I highly recommend working with a real estate professional.”
Reasons to Use a Real Estate Professional
Rossana’s experience is a valuable tale for those thinking of taking a DIY approach to selling a home. While there is a cost to selling with a real state agent in the form of commission, the cost to sell without one may be greater.
Here are five benefits to working with a real estate agent:
Market Knowledge. Rossana’s real estate agent knew what comparable condos in her neighbourhood had sold for, and the inventory on the market at the time. This enabled her to have an informed perspective on a reasonable listing price and acceptable end selling price.
Visibility and Presentation. From professional staging to high quality photos, Rossana’s real estate agent presented her home in a highly attractive manner that was appealing to potential buyers. And because she could list the property on Realtor.ca, those looking for properties online could browse the photos and features of Rossana’s condo 24/7.
Administration and Coordination. One of the things that Rossana underestimated was the time commitment required to sell a home privately. Her real estate agent took care of all the showings and open houses, allowing Rossana to be completely hands off until it came time to review an offer.
Professional Real Estate Networks. As an established agent, Rossana’s real estate agent could connect with others working with buyers in the neighbourhood, and present the property to those in her network, further widening the net of potential purchasers.
Negotiation Skills. Rossana’s real estate agent had significant experience negotiating deals and was in a great position to get Rossana the best possible price for her condo — Rossana didn’t have to do any of the negotiating herself.
Thinking about selling your home? Let Rossana’s story be a reminder of the benefits to working with a real estate professional.
Seven years after the U.S. housing market bottomed in February 2012, the market has staged a dramatic recovery. U.S. housing prices are now about 11 percent higher than their 2006 peak, according to the latest S&P/Case-Shiller U.S. National Home Price Index data.
While that surge in home prices is great for homeowners, it’s made it difficult for homebuyers, particularly younger buyers in large cities where the real estate market is hottest.
To make matters worse, rising interest rates have pushed mortgage rates higher than they’ve been in years, creating yet another obstacle for buyers. HSH.com recently compiled a list of the most- and least-affordable U.S. metro housing markets. The list incorporates median housing prices, interest, taxes and insurance payments and is ranked by the salary a homebuyer would need to afford the average home in each market.
On a national level, the salary needed to comfortably afford a home is $61,453, according to HSH.com. That estimate is based on an average mortgage rate of 4.9 percent on a median home price of $257,600. That average home price is up 3.95 percent from a year ago. The average monthly mortgage payment is around $1,433.
Least Affordable Markets
Of course, some markets are much pricier than the national average. The following are the top five most expensive housing markets:
San Jose, California
Median home price: $1.25 million
Year-over-year change: -1.5 percent
Monthly payment: $5,946
Salary required: $254,835
San Francisco, California
Median home price: $952,200
Year-over-year change: +3.5 percent
Monthly payment: $4,642
Salary required: $198,978
San Diego, California
Median home price: $626,000
Year-over-year change: +2.6 percent
Monthly payment: $3,071
Salary required: $131,640
Los Angeles, California
Median home price: $576,100
Year-over-year change: +4.1 percent
Monthly payment: $2,873
Salary required: $123,156
Median home price: $460,300
Year-over-year change: +2.6 percent
Monthly payment: $2,491
Salary required: $106,789
Most Affordable Markets
If these numbers are enough to make the average American earner dizzy, there are also plenty of metro housing markets around the country that are much more affordable. The following are the five most affordable cities to buy a house, according to HSH.com:
Median home price: $141,625
Year-over-year change: +4.9 percent
Monthly payment: $878
Salary required: $36,659
Median home price: $150,100
Year-over-year change: +6.9 percent
Monthly payment: $943
Salary required: $40,437
Oklahoma City, Oklahoma
Median home price: $161,000
Year-over-year change: +5.3 percent
Monthly payment: $964
Salary required: $41,335
Median home price: $174,000
Year-over-year change: +4.3 percent
Monthly payment: $966
Salary required: $41,400
Median home price: $185,200
Year-over-year change: +7.4 percent
Monthly payment: $986
Salary required: $42,288
Millennials Getting Burned
In addition to paying higher prices for homes, a recent survey by Bankrate suggests that millennials are being too hasty about jumping into the market. One in three millennials under the age of 35 own a home, but 63 percent of those young homeowners admitted to having regrets about the home they purchased.
The biggest source of buyer’s remorse for millennial homeowners is underestimating the amount of hidden costs associated with owning a home. Insurance costs, property taxes and closing costs can add up to between 2 and 5 percent of the total value of the home, but many buyers don’t consider these fees when shopping for homes.
Homeowners should also set aside at least 1 percent of the value of the home each year for repairs and maintenance, according to HGTV.
In addition to paying too much, nearly 1-in-5 (18 percent) of millennial homeowners regret not buying a larger house.
Economic researcher Will Dunning has a problem with the mortgage stress test the federal government imposed about a year ago.
Actually, he has four.
Last January, the Canadian government expanded its standard stress testing, which requires borrowers to qualify at a higher mortgage rate than they are signing on for. Before that, it only applied to insured mortgages. Mortgage insurance is needed if a homebuyer can’t muster a downpayment of 20 percent or more, so previously, those who could managed to sidestep stress testing.
Dunning, who describes himself online as an “iconoclastic economist” outlines what he says are four significantly harmful shortcomings of the stress testing.
1. The stress test ignores potential income growth
“The tests fail to consider the income growth that will occur by the time mortgages are renewed” — that’s Dunning’s first issue, as outlined in his latest study.
The point of the stress test is to makes sure borrowers are up to the task of making higher mortgage payments upon renewal, typically five years from signing on. So federally regulated lenders now need to make sure all borrowers can afford to pay the higher of the Bank of Canada’s qualifying rate or the contract rate plus two percentage points.
Problem is, this method ignores rising incomes. Borrowers’ ability to make interest payments in five years is based on incomes today. Dunning notes that over the past five years, incomes have grown a cumulative 11.6 percent on average.
2. It’s also bad for the economy
“They have negative consequences for the broader economy,” Dunning says, summing up his second issue.
Dunning estimates that Canada will lose 90,000 to 100,000 jobs when the labour market fully adjusts to the slowdown in starts.
3. Ditto for long-term best interests of Canadians
“They prevent Canadians from pursuing their long-term best interests,” says Dunning as his third strike against the current test. After all, a mortgage is really “forced savings,” he says. Sure, in the short term a roughly 60-percent portion of mortgage payments are going towards interest, and initially renting is usually the cheaper option.
But that changes over time. “Rents increase; for home ownership, the largest element of costs (the mortgage payment) is fixed (usually for the first five years). The total monthly cost of renting will rise more quickly than the cost of owning.”
4. Housing supply problems are going to intensify
Back to that slowdown in housing construction. Job losses aren’t the only negative consequence of less home construction taking place. “Suppressed production of new housing will worsen the shortages that have developed,” Dunning warns.
Dunning says construction needs to speed up, not slow down, to meet demand. The country’s population has been increasing at a rate of 1.25 percent annually for the past three years, above the long-run average of 1.1 percent.
“Long-term, the stress tests will add to the pressures that Canadians are already experiencing in the housing market.”
So many young people want to build home equity and get out from under their landlord’s thumb.
But they can’t. They don’t have the down payment to qualify for a mortgage.
For many modest-income Canadians, saving up the 5 percent minimum down payment (or 20 percent if you want to avoid CMHC insurance) can take years—many, many years.
While some are able to rely on gifts from parents/family (39% of first-time buyers according to a 2018 Mortgage Professionals Canada study) or loans from family (25%), or RRSP withdrawals (38%) to make their down payment, those options aren’t available to everyone.
That’s where government down payment programs come in. Scattered across Canada, these little-publicized municipal and provincial programs are helping first-time home buyers fund their down payments and make the transition from renter to owner.
Since most people don’t know about them, their uptake is typically low. When the B.C. government launched its program in 2017, for example, it thought 42,000 residents would participate in the first three years. After nine months, only 1,400 had done so.
To some onlookers, giving buyers government money to buy a house may seem a bit too socialist, but municipalities have an interest in transitioning financially stable renters from apartments to houses. Among other reasons, it frees up rental units and grows their property tax base.
To help homebuyers find such assistance, the Spy has rounded up some of the more popular programs. What follows are grant or loan programs that provide a portion of the down payment to qualified borrowers. Note that this list isn’t exhaustive and that the status of these programs change regularly. Moreover, once quotas are reached many such programs end, so contact the source for the latest info.
Program: PEAK Housing Initiatives (formerly PEAK Program) Provider: Joint initiative between Trico Residential, the Government of Alberta Municipal Affairs, CMHC and Habitat for Humanity Details: PEAK housing units are priced at market value and recipients must be able to qualify for and hold a mortgage. Once approved for the program, PEAK provides a second mortgage for either a partial or full down payment up to a maximum of 5 percent of the purchase price. PEAK has so far helped 111 individuals and families purchase a home of their own. How to apply:http://www.peakinitiative.ca/
Program: Attainable Homes (specific to Calgary only) Provider: The City of Calgary Details: This program has been in place since 2009 and is geared towards moderate-income Calgarians. Successful applicants must be able to contribute $2,000 towards the downpayment of their home, and the Attainable Homes program contributes the rest. If and when the homeowner sells the home, the growth in the home’s value is split between the homeowner and the program, with that money reinvested to assist other homebuyers. The longer the homeowner remains in the house, the more their share of the appreciation increases. How to apply:https://attainyourhome.com/
The province of B.C. ended its Home Owner Mortgage and Equity Partnership on March 31, 2018. It has no widely available down payment assistance programs at this time.
Program: Rural Homeownership Program Provider: Manitoba Housing Details: This program is limited to those renting a home owned by Manitoba Housing in selected rural communities or those who would like to purchase a vacant home owned by Manitoba Housing. Applicants must have a maximum household income of $53,441 if they don’t have children, and $71,255 if there are children or dependents. The program has two components, a loan worth 10 percent of the purchase price, which is forgivable on a pro-rata basis over five years. Another 15 percent loan is forgivable after 15 years of continuous ownership and occupancy of the property. How to apply:http://www.gov.mb.ca/housing/progs/homeownership.html
Program: 3% Down Payment Assistance Program Provider: National Affordable Housing Corporation Details: Provides Saskatchewan homebuyers with a 3 percent non-repayable down payment assistance grant towards the purchase of a home from one of the NAHC’s partner housing providers. Saskatchewan households with incomes less than $90,000 per year are eligible for financial support under this program.
How to apply: http://nahcorp.ca/assistance/nahc-3-down-payment-assistance-program/
Program: Mortgage Flexibilities Support Program Provider: City of Saskatoon, CMHC and the Saskatchewan Housing Corporation Details: This program is for designated projects in the city of Saskatoon and provides qualifying homebuyers with a 5 percent down payment grant for the purchase of a home. The household income limit must be less than $69,975 for one person and $74,640 for two people. Their maximum net worth must also be less than $25,000.
How to apply: https://www.saskatoon.ca/services-residents/housing-property/incentives-homebuyers
Program: Home Ownership Program Provider: Government of New Brunswick Details: This program offers assistance in the form of a repayable loan worth up to 40 percent of the purchase price of an existing home, or a maximum of $75,000 for new builds. It’s available to those with household incomes below $40,000. Applicants must be first-time homebuyers or be living in a sub-standard housing unit; have been living in New Brunswick for at least one year prior to application; and have a good credit rating and meet all financial institution lending requirements for obtaining a first mortgage. How to apply:http://www2.gnb.ca/content/gnb/en/services/services_renderer.8315.Home_Ownership_Program.html
Newfoundland & Labrador
Program: Home Purchase Program (HPP) Provider: Government of Newfoundland and Labrador Details: This program will remain open over 2018/19 until funding has been fully committed to up to 330 homebuyers. Grants of $3,000 are available to qualifying individuals and families to assist with the down payment of a new home valued up to $400,000 (including HST). How to apply:http://www.nlhc.nf.ca/programs/programsHpp.html
Program: Down Payment Assistance Program
Provider: Housing Nova Scotia (Government of Nova Scotia) Details: This is a pilot program to assist Nova Scotians with a household income of $75k or less. The program offers an interest-free loan of up to 5 percent, to a maximum purchase price of $280,000 in the Halifax Regional Municipality and $150,000 elsewhere in the province. The loans will range from $7,500-$14,000 and must be repaid in 10 years. More than 150 first-time buyers benefitted from the program in its first year, and it will remain open until March 31, 2019. How to apply:https://housing.novascotia.ca/downpayment
Housing programs in Ontario are administered by municipalities based on the premise that they know their community’s needs best. Below is a selection of just several first-time homeowner assistance programs from some key municipalities.
Barrie (Simcoe County)
Program: Homeownership Program
Details: This program offers 10 percent down payment assistance in the form of a forgivable loan.
There is presently a waiting list, but applicants are still encouraged to apply. A percentage of available funding is designated for applicants currently living in Social Housing or those who self-identify as Aboriginal households.
More details: http://www.simcoe.ca/dpt/sh/apply-for-the-homeownership-program
Program: Affordable Home Ownership program
Details: This program provides individuals and families with a loan of up to five percent of the purchase price of a home (up to a value of $386,000). Applicants must currently renting in the Region of Waterloo, be able to qualify for a mortgage, and have a maximum household income of $90,500.
More details: https://www.regionofwaterloo.ca/en/living-here/funding-to-help-buy-a-home.aspx
Prince Edward Island
Program: Down Payment Assistance Program Provider: Government of Prince Edward Island Details: This program assists Prince Edward Islander’s with modest incomes by providing a repayable loan of up to five percent of the purchase price of a new or existing home to a maximum price of $11,250. The loan amount must go towards the down payment and not towards financing or other closing costs. The loan bears a fixed interest rate of 5% per annum. The purchase price of the home must be no more than $225,000. How to apply:https://www.princeedwardisland.ca/en/information/finance-pei/down-payment-assistance-program
Program: Accès Condos
Provider: Société d’habitation et de développement de Montréal (SHDM) Details: Launched in 2005 by the SHDM, Accès Condos has provided more than 3,600 affordable units that promote home ownership throughout Montreal. Qualifying buyers must make a minimum $1,000 deposit and receive a 10% purchase credit, which is used for the down payment on the house in an approved development. How to apply:https://accescondos.org/en/
National Non-Loan Programs
First-Time Home Buyers’ (FTHB) Tax Credit
Provider: Government of Canada Details: The FTHB Tax Credit offers a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief. Link:http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html
Home Buyers’ Plan (HBP)
Provider: Government of Canada Details: The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. Link:http://www.cra-arc.gc.ca/hbp/
GST/HST New Housing Rebate
Provider: Government of Canada Details: You may qualify for a rebate of part of the GST or HST that you paid on the purchase price or cost of building your new house, on the cost of substantially renovating or building a major addition onto your existing house, or on converting a non-residential property into a house. Link:http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-e.html
Source: RateSpy.com – By SteveH on November 26, 2018
Billionaire investor and Shark Tank star Mark Cuban said that the safest investment you can make right now is to pay off your debt, according to an interview with Kitco News earlier this year.
“The reason for that is whatever interest you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent,” said Cuban. “And so that’s your immediate return, which is a lot safer than trying to pick a stock, or trying to pick real estate or whatever it may be.”
Cuban is mostly right: More often than not, paying down debt as fast as possible is going to provide the most value in the long run. And perhaps more importantly, it will do so without any real risk that comes with most investing. That said, each person’s financial situation is different, so it is worth a closer look at when it’s better to pay off debt or invest.
Debt is like investing but in reverse.
One important thing to note is that the same principals that make investing so important also make paying off your debt similarly crucial. As Cuban points out, the interest rate on your loan is essentially like the rate of return on your investments but backward. In fact, many investments are simply ways you’re letting your money get loaned out to others in exchange for them paying interest.
Although debt chips away at your net worth through interest, it’s important to note that different types of borrowing do so in very different ways. Every loan is different, with some offering terms that are actually quite favorable and others that can be excessively costly.
An overdue payday loan can lay waste to your financial health in no time, but a 30-year fixed-rate mortgage with a competitive rate can be relatively easy to manage with good planning. Borrowers should be sure they understand what kind of debt they have and how it’s affecting their finances.
Focus on the interest rate.
The key factor to take note of when considering how to allocate funds is the interest rate — usually expressed as your APR. Debt with a high APR is almost always going to be better to pay down before you focus on any other financial priorities beyond the most basic necessities.
The average APR on credit cards as of August 2018 was 14.38 percent. That’s well in excess of what anyone can reasonably expect to sustain as a return on most investments, so it shouldn’t be hard to see that investing instead of paying down your credit card is almost always going to cost you money in the long run.
Does your interest compound?
Another crucial factor in understanding how your debts and your investments differ is whether or not your interest is compounding. Compounding interest — like that on most credit cards — means that the money you pay in interest is added to the amount due and you’ll then have to pay interest on it in the future. That can lead to debt snowballing and growing exponentially. So, not only do credit cards have high interest rates, but they also make for debt that’s growing faster and faster unless you take action to pay it down.
However, that same principle can work in reverse. Gains on something like stocks will also compound over time, so there’s a similar dynamic at work when comparing your investment returns to fixed interest costs.
Know your risk tolerance.
Another factor that plays a big part in the conversation is your level of risk tolerance. Note that the question Cuban was responding to earlier was about what the “safest” investment was. For most people, erring well on the side of caution when it comes to something like personal finance just makes sense, and in that case, focusing on paying off debt is pretty crucial.
However, others might decide that the long-term payoffs that are possible make it worth rolling the dice on their future. Borrowing money for investments is common despite the risks associated, with everyone from massive investment banks to investors with margin accounts opting to take a calculated risk that their returns will ultimately outpace the cost of borrowing.
Costs of debt are set, investment returns often are not.
One important aspect of understanding the risks involved is that the cost of your debt is usually set and predictable, but the returns on your investments are not. It might be easy to look at the historical returns of the S&P 500 at just under 10 percent a year and assume that it’s worth it to put off paying down debt for an S&P 500 ETF or index fund as long as your APR is under 10 percent.
However, that long-term average does not reflect just how chaotic the markets really are. Sure, it might average out to about 10 percent, but some years will be in the negative — sometimes over 30 percent into the red. Even with bonds — where your rate of return is fixed — there is always a chance that the borrower will default and leave you with nothing.
If you have a variable rate loan
Of course, if your loan has variable interest rates, the equation changes yet again. You could see your interest rate rise or fall depending on what the Federal Reserve does, adding another layer of uncertainty to the decision — especially when it’s impossible to say with certainty which direction interest rates are headed in for the long run.
So, although debt will typically have more certainty associated with its costs than investing, that’s not always the case and variable rate loans could change things for some borrowers.
Don’t forget taxes.
You should also remember that the tax code includes a number of provisions that promote investment, and those can boost the value of investing. In particular, contributions to a 401(k) or traditional IRA are made with before-tax income, meaning that you can invest much more of that money than you would have with your after-tax income that would be used to pay down debt.
That’s especially true when you have an employer who matches your 401(k) contributions. If your employer matches, you’re essentially getting a chance to not just avoid paying taxes on that income, but you’re doubling its value the moment you invest — before it’s even started to accrue returns.
Some opportunities are unique.
Another important factor to consider is what type of investments you can make. In some very specific cases, you might have access to an investment opportunity that brings with it huge potential returns that could tip the scale. Maybe a specific local real estate investment you’re particularly familiar with or a startup company run by a family member where you can get in on the ground floor.
Opportunities like this usually come with enormous risks, but they can also create transformational shifts in wealth when they pay off. Obviously, you have to gauge each opportunity very carefully and make some hard choices, but if you do feel like it’s a truly unique chance to get the sort of returns that just don’t exist with publicly-traded stocks or bonds, it might be worth putting off paying down debt — especially if those debts have fixed rates and a reasonable APR.
What really matters with debt and investments
At the end of the day, you certainly shouldn’t opt to invest money that could be used to pay down debt unless the expectation for your returns is greater than the interest rate on your debt. If your personal loan has an APR of 15 percent, investing in stocks is probably not going to return enough to make it worthwhile. If that rate is 5 percent, though, you could very well do better with certain investments, especially if that’s a fixed rate that doesn’t compound.
But, even in circumstances where you might have reasonable expectations for returns higher than your APR, you might still want to take the definite benefits of paying down debt instead of the uncertain benefits associated with investments. When a wrong move might mean having to delay retirement or delay buying a home, opting for the sure thing is hard to argue with.
Which decision is right for you?
Unfortunately, there’s no magic bullet for knowing whether your specific circumstances call for you to prioritize paying down debt over everything else. Although paying down debt is typically going to be the smartest use for your money, that doesn’t mean you should do so blindly.
Putting off paying down your credit card balance to try your hand at picking some winning stocks is a (really) bad idea, but failing to make regular 401(k) contributions in an effort to pay off your fixed-rate mortgage a couple of years early is probably going to cost you in the long run — especially if you’re missing out on matching funds from your employer by doing so.
So, in a certain sense, Mark Cuban is right: Paying down debt is very rarely going to be a bad idea, and it’s almost always the safest choice. But that said, it’s still worth taking the time to examine the circumstances of your specific situation to be sure you’re not the exception that proves the rule.