Creative Home Buying for 20 Somethings

The Ottawa Citizen just released an article saying that more and more “20 Somethings” are getting creative when it comes to buying their first or subsequent property.

Real Estate has been on the rise in Canada for quite some time, and many Canadians have been looking for ways to get into the housing market despite their luming student loans and other debts. One strategy that many people have used is to buy a home with a finished basement or separate unit and then rent that to someone they know, or even someone they don’t. This has proven to very succesful for many “20 Somethings” as the article states “About one-quarter of Canadians aged 18 to 34 are homeowners, according to a recent survey by the Canadian Association of Accredited Mortgage Professionals (CAAMP).”

Your Take-Away: If you are currently single and would prefer to own rather then rent, the door to your goal is by no means closed. With longer amortization periods on mortgages, your mortgage payment can be reduced substantially allowing you to buy something for close to the same price you’d pay to rent. This is just one idea to help you get into your home sooner rather then later, but there are a number of other ways you can get creative if you are serious about buying instead of renting.

One caution however is to not make a hasty decision and go bigger then you should just because it feels more affordable based on smaller payments or our low interest rate market. This can come back to bite you if you are not careful to “stay within your means” on this decision.

Until next time, have a Terrific Thursday!

Chris & Elisseos

It Pays to Know your Closing Costs

The writer of “Canadian Capitalist” wrote a great blog on the costs of owning a home.

In short, he outlined some of the key expenses that are sometimes easily overlooked causing a bit of a panic mode come closing. He also discussed some of the major expenses that we often forget about or all together minimize and cautioned us to seriously think through both the pros and cons of home ownership.

Your Take-Away: In most cases, owning a home to live in can be a great decision. What we see all too often is Canadians over extending themselves and buying larger homes then necessary. With the interest rate market over the last number of years, many have bought more home then they should have and have been forced to scrimp and save to survive their growing expenses.

Always look at all of the possible expenses you may incur, and it pays to definitely air on the side of inflating the numbers simply to safe guard yourselves from becoming trapped at home because you end up cash poor.

Until next time, have a Magnificent Monday!

Chris

New Land Transfer Tax Explained

The new land transfer tax is an extremely hot topic for residents of Toronto, and for good reason too.

This new tax can and most likely will have a significant impact on cash flow, down payments, and even things as simple as furnishings for those Toronto residents who purchase their home after January 1st, 2008.  It is interesting to note that Toronto is the only city with two home buying taxes, we have the highest land transfer taxes in Canada, and the second highest in North America.  That shouldn’t sit well with many Toronto residents at all.

Your Take-Away: To some readers, this new tax is verging on offensive, but it can be hard to know how much of a real impact it will have on Torontonians.  To put it in perspective, an average two storey home sells for approximately (approximate being the key word here) $400,000 in Toronto.  Just for being a Canadian, your existing land transfer tax will cost you $5,475 and with the new Toronto land transfer tax, your total bill jumps to a whopping $10,200.  That means this new Toronto tax alone has a $4,725 price tag.  Pretty hefty.

One thing to be aware of is that this new tax does have a grandfather clause which means that if you were to buy a new home  prior to December 31st, 2007 you will be exempt from this new tax regardless of the closing date. 

If you are looking to buy today, it may make sense to buy before New Year’s Eve…it could save you thousands of dollars!

Until next time, have a Fantastic Weekend

Chris and Elisseos

Is Your Home an Investment?

An article was published today in the Financial Post making the statement that “Your Home is Not an Investment”.

We agree with this statement for two specific reasons.  The first is that an investment will generally have a “tangible value that can be exchanged for cash”. Although it can be argued that this is true for your principal residence, the only way you can “access” that cash is to sell your home and then buy a less expensive home and thus bank the difference. The second reason is that most investments are “held with the purposes of generating a gain, creating cash flow or both”. Despite the growth that most homes will generate, that cash is rarely accessible until or unless the next purchase is smaller then the value of your current home, thus creating a surplus.

 Your Take-Away: In our opinion, your principal residence is the place you call home and where you create lasting memories with your family. Relying on your home as your primary investment is not a wise decision as  your liquidity factor is minimal if not entirely non-existent. If you want to pay your mortgage off early for the purpose of becoming debt free to create additional cash flow which can then be redirected towards your investment portfolio, great. Just consider the benefit of making your annual lump sum deposit towards your mortgage into your RRSP first, and then using your tax refund towards your annual mortgage pre-payment privilege.

Again, each situation is very unique and this is not a “one size fits all” strategy. Talk to a Professional before deciding if this makes sense, but definitely take a serious look at whether the above points make enough logical sense to consider viewing your home as an investment in a different light.

Until next time, have a great day!

Chris

Use Your Home Equity to Invest in Real Estate

Thanks to the appreciation in real estate over the last 5 years, owning an investment property may be closer to reality then you think.

This may be common knowledge to some potential investors, but there are a number of key benefits to owning an investment property.  To name a few, you can a) create a predictable monthly cash flow b) enjoy capital appreciation on the entire value of the home and not only on your initial investment c) have someone else pay down your mortgage for you d) enjoy the tax deferral of your capital appreciation over the long run while taking advantage of tax write offs each year. When compared to a retirement vehicle, you can see how real estate has similar characteristics and can be used very effectively in conjunction with your current retirement plan.

Your Take-Away: Using the equity in your principal residence is the most cost effective method of borrowing money to invest in Canada, and the recent market fluctuations have given otherwise cash strapped Canadians the opportunity actually own their first piece of investment real estate.  However, don’t throw caution to the wind and forget that there is a level of risk involved in owning real estate. Make sure you ask yourself if you are someone who is capable of dealing with the possibility of disgruntled tenants, or the ongoing maintenance that rental properties require. If so, then you may just be the next person who takes the leap of faith and buys their first real estate investment.

Your mortgage for a property is an entirely different discussion, so please ensure that you talk with a Professional Mortgage Consultant before you make a decision of this nature.

Until next time, happy investing.

Elisseos

Miller Has NEW Land Transfer Tax Passed

As of yesterday it became official that David Miller’s new land transfer tax proposal has been passed.

As of January 1st, 2008 second and subsequent home purchasers will be forced to pay a larger land transfer tax from between 0.5% and 2.0% depending on the purchase price of your new home.  The only exceptions are families who are buying their first home up to a maximum of $400,000, and a 1% cap on the tax of residential and commercial properties valued between $55,000 and $400,000. 

What’s worse is that the original proposal was that this new tax would replace the need for a raise in property taxes throughout the GTA. However, as the Globe & Mail reported late yesterday, it appears that we can still expect a raise in property taxes sometime in 2008. It seems to just keep getting better, doesn’t it?

 Your Take-Away: If you are looking to buy and close on a home anytime after January 1st, 2008 you will be forced to pay this new land transfer tax.  What that means for someone looking to buy their second or subsequent home is that you could lose up to an additional $10,000 in land transfer tax on a $500,000 home.  If you have the chance to buy and close sooner, it may just be something to seriously consider.

It’s not too much fun when writing about new taxes and the reality of our bottom line shrinking, but knowledge is power and hopefully this information will prove to be beneficial for those of you considering a new home in the near future.

Enjoy the rest of your day!

Chris