Tag Archives: flipping real estate

What share of GTA condos are flipped? New report offers insight

gta-condos

Soaring price appreciation in the Greater Toronto Area’s high-rise segment is encouraging condo investors to flip their units more rapidly.

So suggests the latest quarterly report from Urbanation, a Toronto-based real estate consulting firm.

This burgeoning trend is reflected in the 9,932 condo units that changed hands in the first quarter, a 73 per cent increase over activity in the first three months last year as well as a quarterly high.

Looking only at units in condo developments that were completed by builders and registered in the last two years, a total of 1,059 transactions were recorded in the first quarter.

In the first quarter of 2016, condo owners sold a total of 625 units in buildings completed throughout the preceding two-year window.

“The shortening of holding periods for some condo buyers is an outcome of the rapidly accelerating market,” says Shaun Hildebrand, senior VP of Urbanation, in a statement.

The average sale price of a resale condo unit in Q1 this year was $510,000, representing a 24 per cent increase over that period last year, according to Urbanation.

“Following the recent strength in condo price appreciation, Urbanation noted an increase in resale activity within newly completed buildings as well as more units transacting twice within shorter timeframes,” the consultancy’s report reads.

In fact, according to past Toronto Real Estate Board numbers, resale condo prices were increasing annually by a far more restrained 9.3 per cent as recently as September 2016.

With year-over-year appreciation well above 20 per cent now, a relatively recent development, it’s easy to see why some recent homebuyers would be compelled to sell sooner.

However, Urbanation’s Hildebrand notes flipping is not widespread — for now.

“Although the share of short-term condo market participants still appears relatively low, it will be important to monitor the situation closely going forward as market conditions evolve,” he adds.

Source: BuzzBuzzHome.com – 

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Reporting the sale of a rental property

Q:  I bought a house in 2010 for $600,000 and lived in that house as my principal residence until 2013.  Then I bought and moved into another property. I rented out the first house and reported all income on my tax returns. In 2016, I sold the rental property for $900,000. When I file my tax return for 2016, how much capital gains am I supposed to declare and report to the CRA?  Is it $900K minus $600K, minus the cost of disposition; or $900K minus whatever the deemed fair market value of the property at the time when I moved out in 2013, minus the cost of disposition?      

— Wallace, Toronto


Ayana Forward is a Certified Financial Planner with Ryan Lamontagne Inc. in Ottawa: 

You are entitled to a principal residence exemption for the time you lived in the residence—between 2010 and 2013. The formula for calculating your principal residence exemption also includes an extra year so you will have four years of exemption according to the formula.

The formula is as follows:
((# of years home is principal residence + 1)/# of years home is owned) x capital gain

Your capital gain before factoring in the principal residence exemption is your proceeds of disposition ($900,000) minus your purchase price ($600,000), which works out to $300,000.

Using the above formula, your principal residence exemption is:

((3 + 1)/6)  x $300,000 = $200,000

Your capital gain after factoring in the principle residence exemption is $100,000 (as $300,000 minus $200,000 = $100,000). Because it’s a capital gain, the CRA will only charge you tax on 50% of that gain, resulting in a taxable capital gain of $50,000.

The amount of tax you pay on that $50,000 will depend on your marginal tax rate.

To report the sale and tax owed, you must complete form Form T2091(IND) Designation of a property as a Principal Residence by an Individual (Other Than a Personal Trust) and file it with your income tax return.

Source MoneySense.ca –  Ayana Forward  is a real estate investor who also holds the Certified Financial Planner (CFP®) designation. Ayana is fee-based Financial Planner with Ryan Lamontagne Inc in Ottawa, ON.

 

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Real Estate Investing, It Isn’t Just for the Boys Anymore

When 51 year old stay-at-home mom and part time piano teacher Gena H. from Washington State woke her husband up at 1:15 AM and said “I want to be a real estate investor,” he patted her on the shoulder and said, “that’s nice dear.” In the morning he shared all the reasons he believed it could not work for her. Fast-forward a few years and Gena, who obviously didn’t listen to the husband she adores, is a successful and very profitable investor. She has in her words “dramatically changed the financial course for me and my entire family.”

Stories like these are coming to my attention at a rate like I’ve never seen in my well over 20 years of investing. I’ve been fortunate to watch countless people go from real estate observer to successful real estate investor. But never before has there been such a massive wave of women taking ownership of the household finances using real estate.

In watching this transition, I believe it’s due to a couple of primary factors. First, we all know that the real estate market peaked like never before around 2006, and then the bubble burst and the market crashed. It reminded me of flying down Space Mountain in Disneyland. However, after the bottom comes the inevitable shift in the market, when it begins trending back up as we are seeing now. This is truly a magical time for investors.

Second, I think we are heading into the years of more empowerment of women. I could be criticized for saying this, but I think it’s less about women’s liberation, as that was yesterday’s news. I see it as more that women are just losing any hesitation at all to do anything they want. I think it’s a very positive trend for our country. I watched my single Mom struggle to support my sister and me growing up, so I’m always cheering for the ladies. I think we are entering a whole new era of advancing equality. But that’s for another story.

Jen G., a single Mom, was working in an accounting office with no windows and too little pay each month to support her and her son. Frustrated, stressed and wanting a new path in life, she decided to reinvent herself through real estate investing. Friends and family told her real estate investing was for people with money and experience. Some even expressed resentment and actively discouraged her. Recently, Jen called to tell me: “Just six months after starting, I got to walk into my office and tell my boss I no longer needed her services!” Jen quit her job and has done more than 185 real estate transactions so far and feels she is being the Mom she always wanted to be.

Tammy R. lives in a crazy fast moving market in CA. This is a market where even seasoned investors are afraid to take the plunge. However, this determined Mom of four, who was homeschooling her children when she started investing, refused to yield to her fears. She didn’t listen to her husband who said “it won’t work for you.” Like Jen, she didn’t have a ton of money to start, but researched a method called “wholesaling.” Wholesaling is matching up monied investors with good deals, and making money in the middle. On one transaction alone she made more then she did the prior two years, and she is currently working on her 23rd deal. “You just can’t let the naysayers spoil your dreams” she said when asked about the secret of her success.

Whether you’re in a strongly rebounding large urban market like Tammy, a more rural and smaller city in Alabama that’s coming back at a slower pace like Jen, or somewhere in the middle like Gena in Washington State, it doesn’t matter. The current state of all of these markets is opening up endless opportunities for investors to gain the knowledge to profit and who aren’t afraid to go for it.

Real estate is my life, and with over 20 years of non-stop investing I’ve personally experienced that there is always a profitable strategy that fits the current market cycle. However, the massive spike in real estate, followed by the inevitable and dramatic crash, is setting up a solid rebound. I truly believe this is the greatest time for everyone who would like to secure a better future to get educated, learn from those who are doing it, and jump into real estate investing.

I’m currently doing 30 to 50 deals every month all around the country, in 9 states actually. I’m working with women like Gena, Jen and Tammy, as well as a slew of others who are crushing todays shifting real estate market rather then complaining about it.

Maybe real estate investing is cooler and more possible then you think. All I can say is that the boys better step up.

Source: The Huffington Post 07/12/2013 –   Dean Graziosi

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Learn from a flipping pro

A former teacher turned full time investor is dishing all the secrets needed to make a go as a professional real estate investor.

“I tried different ways of investing and I found real estate was the best and quickest way to build wealth,” Quentin D’Souza, a professional investor with over a decade of experience, told Canadian Real Estate Wealth.

D’Souza left a successful career as a teacher – one that he could have easily held down until retirement age – to take a crack at investing.

“When I first left my position as a public school teacher, I had done quite well for myself in teaching,” he said. “The first month that I did my first flip after making the transition, I made the same amount of money in a month that you made the previous year teaching.”

The veteran, who has invested in over 40 homes, is sharing his tips with fellow investors at the upcoming Investor Forum in Toronto.

D’Souza’s favourite investment strategy is to buy, fix, refinance and rent.

“Some people call it the long flip. It gives you the power of a flip, where you’re getting an instant lift in value and it hypercharges your ROI,” he said. “It allows you to get a return quickly and if you do it with cash flowing properties, you get ongoing cash with very low or no money into the deal.”

He will host a session entitled “Real estate flipping: Pitfalls and lessons learned.”

In this session, D’Souza will show you the flipping methodology and process from A to Z by using real-life examples and scenarios. You will walk away with concrete strategies and practical steps, including dos and don’ts of flipping. Through this session, you will learn how to avoid making future mistakes, including:

  • Five mistakes that make house flipping a flop
  • How to flip homes and make real estate profit the right way
  • Tax consequences of flipping
  • What is shadow flipping, and how does it work?
  • Long flip versus quick flip
  • Over a decade

“The best time to invest in real estate was 15 years ago,” D’Souza said. “The second best time is today.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

Source: Canadian Real Estate Wealth – 15 Feb 2017

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Mike Holmes: Asbestos is like a sleeping monster best left undisturbed lest danger ensues

Many building materials, including some drywall compounds, can contain asbestos, which is why it's important for all crews working on older homes to wear protective safety gear, including respirators.

Mike Holmes: Asbestos is like a sleeping monster best left undisturbed lest danger ensues | National Post

The National Day of Mourning is on April 28 — that’s a time to remember those people who have been affected by workplace injuries or death. It serves as a reminder for all of us to make sure we have the right processes and systems in our workplace to prevent illnesses, injuries and even deaths.

Some of the biggest threats on the job site are the ones you can’t see, such as asbestos.

What makes asbestos so dangerous is its fibres.

Asbestos is a generic term that refers to a number of different mineral fibres. Because of their strength, durability and resistance to fire, these fibres were used widely in building materials and added to residential construction products.

It wasn’t until the late 1970s when it became known that asbestos posed a serious health risk, and since then it has been banned from building materials. It was used in vermiculite insulation, insulation around pipes and water tanks, roofing compounds, shingles, sealants, caulking, adhesives, vinyl tiles, drywall compounds, even some electrical parts.

When asbestos fibres are disturbed, they are released into the air, and if they’re inhaled they can get trapped in the lungs and cause serious health issues, including cancer.

Canada has one of the highest rates of mesothelioma, which is a type of cancer caused by asbestos.

Although asbestos isn’t currently used in construction materials, there are many older homes that still contain it. Any home built before 1980 should be professionally checked for asbestos, especially if a renovation or home improvement is planned. (Getting these materials properly removed by a professional company through remediation can drive up the cost of your reno.)

Canada has one of the highest rates of mesothelioma, which is a type of cancer caused by asbestos.

Professionals can take samples from suspect materials, such as walls, ceilings, vinyl floor tiles, siding, insulation and roofing materials. These samples are then sent to a laboratory for analysis. If the presence of asbestos is confirmed in any of the samples, don’t disturb the materials —­ whether by sanding, cutting, sawing or removing it; leave it to the professionals.

Some people might panic and start ripping out the material and products themselves, but that is not at all advisable. Disturbing asbestos and materials that contain asbestos is what makes it dangerous. That’s why contractors and their crews should always wear protective clothing and gear, especially during demolition. You never know what might be found, and what might be a hazard.

If a material that contains asbestos is in good condition, it might not need to be removed; however, it’s important to monitor it for signs of deterioration, because as soon as any fibres get loose, issues can start to arise.

There are some temporary fixes to prevent asbestos-containing materials from getting damaged and fibres getting loose, but they should only be done a professional contractor. Dealing with asbestos-containing material is never DIY.

Whenever hiring a pro to work on your home, always make sure they’re qualified to do the job right, which includes taking the proper safety precautions and knowing how to deal with potentially hazardous materials, like asbestos, the right way.

Ask what type of safety gear they normally use during demolitions, and the course of action they would take if they suspect any material contains asbestos. A contractor who doesn’t make the health and safety of their own crew a priority will likely not care about yours either, so do your homework. Ask if they have a professional asbestos abatement company that they normally work with. Who are they and what are their credentials? What’s their track record? Your contractor should be able to talk to you, not just about doing the job right but also about proper cleanup and safe disposal of materials.

Asbestos in homes and on the job site is a health risk. Too many contractors have years taken off their lives because they didn’t protect themselves with the right safety gear, such as gloves, safety glasses and of course respirators. Doing a job right means doing it safe. It protects homeowners and pros, too.

Source: National Post. Watch Mike Holmes in his series, Holmes Makes It Right, on HGTV. For more information, visit makeitright.ca.

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Syndicated mortgage a high-risk investment bet – analyst

Syndicated mortgage a high-risk investment bet – analyst

The emerging trend of syndicated mortgages for Canadian condominium units might appear to be convenient for would-be investors, but Maclean’s senior business and finance writer Chris Sorensen argued that the arrangement is a high-risk choice that might even upend the market in the long run.

A syndicated mortgage involves hundreds of individuals lending money—in some cases even as little as $25,000—to a developer “in exchange for a fixed annual interest rate of between eight and 12 per cent over a term of two to five years.”

The popularity of the set-up is such that in Ontario, it has garnered nearly $4 billion in sales in 2014 alone, the latest year with available numbers.

However, Sorensen noted that much of the money in a syndicated mortgage goes to expenses for the development and pre-sale of enough units to convince banks to provide financing. The analyst said that this presents the risk of buyers not getting their funds back should the deal go south.

“Even in a hot market like Canada’s, there are no guarantees a given condo project will get off the ground, regardless of how quickly buyers snap up the units,” Sorensen wrote in an April 4 piece published on the Maclean’s website.

“If something goes wrong with a project, syndicated mortgage investors are subordinate to banks and other primary lenders, meaning they’re further back in line for repayment—assuming there’s enough money left over after other lenders have received their share,” he added.

The analyst cited the observations of Toronto-based mortgage broker John Bargis in proving why the present wave of syndicated mortgages isn’t sustainable in the long run.

“I’ve been exposed to multi-million-dollar projects where things have gone bad really fast. It’s not because it’s not a viable project, but there’s just so many moving parts. You’ve got construction managers, contractors, builders—so many things that can go wrong from an investment perspective or a sales perspective,” Sorensen quoted Bargis as saying.

Despite the dour prospects, Sorensen acknowledged that syndicated mortgages would remain popular among enterprising individuals for the foreseeable future.

“The myriad risks explain why syndicated mortgages pay interest rates approaching double digits at a time when a five-year Guaranteed Investment Certificate, or GIC—a truly ‘safe’ investment—offers only 1.5 per cent annually for a five-year term,” he said.

Source: MortgageBrokerNews.ca by Ephraim Vecina | 13 Apr 2016
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HIGH NET WORTH – Why the wealthy are heavily focused on real estate

Real estate averages 27 per cent of the investments of the ultra wealthy. (Sheldon Kralstein/Getty Images/iStockphoto)

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.

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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:

Developers

“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.

Income Investors

“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.

Opportunists

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.

Lenders

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

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