All posts by Andrew

Andrew Somerville is considered an expert and leader in the Guelph real estate area. His unique approach to real estate is refreshing to his clients.

Spring 2010 Student Rental Update

So were you one of nearly hundreds of investors buying rental properties before the mortgage lending rules were changed? (visit this link for more info:http://guelph-housing.com/2010/canada-tightens-housing-market-with-new-changes/) So now what do you do?  You probably over paid, and to top that off there are more student rental properties than normal on the market for rent.  This means more competition and more vacancy risk.

How do you rent these properties out especially when you missed the ideal time to find students?  Well, honestly, as of right now I don’t know.  Hire a professional is what comes to mind right away.  Lower your rental expectations in terms of price is the second.  Aside from that there are several other places to advertise your property such as kijiji.ca.

Try offering an incentive to sign a lease early (anytime before September 1st would be good at this time of year), lower summer rent, two months free. If you need help finding students, just call us we will help.

Find out how can you avoid this stress in a future article. What was our advice to our clients…

Canada Tightens Housing Market With New Changes

The new changes to mortgage lending policies implemented by the Canadian Federal Government will have some affect on our clients particularly our investor clients.  We used to teach a principle called “leveraging” where you could buy several properties using only 5% downpayments on each one resulting in more properties, cash flow and larger asset value. This helps you and of course helps us.  As of April 19, 2010 this will no longer be possible (at least in its simplest form). Investors will require a 20% downpayment for all non-owner-occupied homes.

Other changes include qualifying for a mortgage using a 5 year fixed term, and refinancing at only 90% of the homes value (formerly 95%).  Although these changes drastically impact our investor clients, the regular home buyer is not affected as much, and these changes will turn out to be good news in areas where speculators and rental investors have devoured homes causing sharply rising home prices. Perhaps after April 19, 2010, homes will stay affordable.  I have included the press release below for your reading, please not that this release was provided by The Mortgage Centre in Guelph Ontario.  If you what great service and a knowledgeable Broker, look them up.  Please comment below.

Guelph Real Estate Investors

PRESS RELEASE:

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada’s housing market and continue to encourage home ownership for Canadians.

“Canada’s housing market is healthy, stable and supported by our country’s solid economic fundamentals,” said Minister Flaherty. “However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing.”

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

o Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

o Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save. o Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

“There’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it,” said Minister Flaherty. “If some lenders aren’t willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long- term stability of a sector that is so vital to our economy and the financial well- being of Canadian families.”

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

Backgrounder Canada’s Housing Market Remains Strong Canada’s housing market remains healthy and stable. According to the International Monetary Fund, our housing market is fully supported by sound economic factors, such as low interest rates, rising incomes and a growing population. Moreover, mortgage arrears—overdue mortgage payments—have also remained low.

Today’s announcement is part of the Government’s policy of proactively adjusting to developments in the housing market that could take root and cause instability. These steps are timely, targeted and measured, and will reinforce the importance of Canadians borrowing responsibly and using home ownership as a savings mechanism.

Mortgage Insurance

Mortgage insurance (which is sometimes called mortgage default insurance) is a credit risk management tool that protects lenders from losses on mortgage loans. If a borrower defaults on a mortgage, and the proceeds from the foreclosure of the property are insufficient to cover the resulting loss, the lender submits a claim to the mortgage insurer to recover its losses.

The law requires federally regulated lenders to obtain mortgage insurance on loans in which the homebuyer has made a down payment of less than 20 per cent of the purchase price (also called high loan-to-value ratio loans). The homebuyer pays the premium for this insurance, which protects the lender if the homebuyer defaults.

The Government ultimately backs most insured mortgages in Canada. It is responsible for the obligations of Canada Mortgage and Housing Corporation (CMHC) as it is an agent Crown corporation. In order for private mortgage insurers to compete with CMHC, the Government backs private mortgage insurers’ obligations to lenders, subject to a deductible equal to 10 per cent of the original principal amount of the loan.

In October 2008, the Government adjusted its minimum standards for government-backed, high-ratio mortgages, including:

o Fixing the maximum amortization period for new government-backed mortgages to 35 years.

o Requiring a minimum down payment of five per cent for new government-backed mortgages.

o Establishing a consistent minimum credit score requirement. o Requiring the lender to make a reasonable effort to verify that the

borrower can afford the loan payment. o Introducing new loan documentation standards to ensure that there is

evidence of reasonableness of property value and of the borrower’s sources and level of income.

Measures Announced Today

Today, the Government announced three changes to the standards governing government-backed mortgages.

Qualifying at a Five-Year Rate

Current interest rates are at record low levels, which has improved the affordability of housing for Canadians. It is important that Canadians borrow prudently and are able to manage their debt loads when interest rates rise.

Lender and mortgage insurers look at two key ratios when assessing the ability of a borrower to make payments on a mortgage loan:

o Gross Debt Service (GDS) ratio—the ratio of the carrying costs of the home, including the mortgage payment, taxes and heating costs, to the borrower’s income.

o Total Debt Service (TDS) ratio—the ratio of the carrying costs of the home and all other debt payments to the borrower’s total income.

Currently, the interest rate used to determine the mortgage payment for these calculations is either the rate fixed for the term of the mortgage or, in the case of a variable-rate mortgage and mortgages with terms of less than three years, the greater of the contract rate and the prevailing three-year fixed rate.

The adjustments to the mortgage framework will require mortgage insurers to ensure that borrowers qualify for their mortgage amount using the greater of the contract rate or the interest rate for a five-year fixed rate mortgage when calculating the GDS and TDS ratios.

This measure is intended to protect Canadians by providing them with additional flexibility to support mortgage payments at higher interest rates in the future.

Limit the Maximum Refinancing Amount to 90 per cent of the Loan-to- Value Ratio

Borrowers seeking financial flexibility can currently refinance their mortgage and increase the amount they are borrowing on the security of their home up to a limit of 95 per cent of the value of the property. This type of refinancing lowers the borrower’s equity in their home. The adjustments today will lower the maximum amount of the mortgage loan in a refinancing of a government-backed high ratio mortgage loan to 90 per cent of the value of the property, consistent with the principle that home ownership is a tool for savings.

Discouraging Speculation by Requiring a Minimum Down Payment of 20 per cent for non-owner-occupied properties

This measure will require a minimum down payment of 20 per cent for government- backed mortgage insurance on non-owner-occupied properties purchased for speculation. Currently, borrowers may purchase a residential property with a 5 per cent down payment. Today’s change will require a 20 per cent down payment for small (i.e., 1- to 4- unit) non-owner-occupied residential rental properties. Borrowers purchasing owner- occupied residential properties which also include some rental units (e.g., borrowers purchasing a duplex to live in one unit and rent out the other) will still be able to access government-backed mortgage insurance with a 5 per cent down payment.

Moving to the New Framework

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010. Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.

This press release was provided as a service of the Mortgage Centre.

Simple Heat Saving Tip

Furnace filter replacement is a very simple way to save money and wasted energy. A clogged filter means your furnace has to work harder to heat your home – and cost more to do it. If you haven’t replaced the filter lately, do so now – in the depth of winter, when your furnace has to work its hardest.

Removing the old filter and replacing it with a new one is usually simple. However, making sure you buy the right one can be more challenging. The best place to look for information is the source – the old filter. Check it out for size and any other info you may need. And when you get to the store, be sure to check various brands that offer improvements in design and functionality to see if a more suitable one is available to maximize the benefits.

When it Comes to Furnaces, Size Does Matter

When it Comes to Furnaces, Size Does Matter

If your home heating system is more than 15 years old, this winter is a great time to consider upgrading your equipment to more energy efficient models, all the more because of the large number of government, utility and manufacturer incentive programs in effect.

If you do make the decision to replace your heating and/or cooling system, be sure to insist that the installing Furnace Diagramcontractor “sizes” the system properly. To determine the correct heating or cooling capacity of your system, a contractor should perform a “heat loss and heat gain calculation”. This calculation relies on an assessment of the size and age of the home, insulation levels of walls and attic, the type and number of windows, air infiltration rate, indoor design temperature, coldest outdoor temperature found in your area (typically in January) and other factors that influence the rate at which your home loses heat.

The “right-sizing” of replacement equipment is one of the most commonly overlooked methods for ensuring that you get the most from your system. Properly sized equipment performs more effectively and more efficiently, ensuring optimal comfort, less temperature differentiation between floors and maximum energy efficiency. If your contractor refuses to do a heat loss/heat gain calculation, find another contractor.

Over-sizing equipment can result in increased fuel consumption and higher operating costs, potential premature parts failure, higher noise levels, and reduced comfort (including hot or cold spots within the home). On the other hand, under-sizing can result in higher operational costs, particularly with today’s sophisticated models. The units will be working at full capacity most of the time, which can lead to premature breakdowns and, more generally, reduced comfort levels.

Furnace technology advanced significantly over the past few years. The introduction of two-stage and modulating technologies have allowed furnaces to provide heating at two or more different capacities. This will allow the furnace to deliver air to the home at a rate which more closely matches the heat loss requirements found throughout the year providing a more even temperature and comfortable environment.

A replacement furnace is not an everyday purchase, so make sure you look at all the options carefully. Remember to get three quotes when considering the purchase of new HVACR equipment, and make sure the contractor you select includes the cost of performing a heat loss/heat gain calculation in the price. You can find a qualified contractor by calling HRAI at 1-877-467-HRAI or online at www.hrai.ca. —  www.newscanada.com

Did you know?

You can get a combined Federal/Provincial grant of up to $1,580.00 to replace your existing furnace with one more energy efficient?  Find out how — > www.GetEnergyGrants.ca

And that…

Time is running out on the Home Renovation Tax Credit?  You only have until February 1, 2010 to acquire eligible purchases.   Such expenses can be claimed on your 2009 income tax return and applies to work performed or goods acquired after January 27, 2009 but before February 1, 2010.   Find out more –> Tax Credit!

Rent to Own in Guelph

Guelph Rent to Own

Have you ever thought to yourself, “why am I paying rent, when I could have a house of my own for the same money?” If you have, you are not alone. So with this thought you head off to the bank with a skip in your step because you are about to buy a house! After all it makes sense right?  With interest rates so low, you can buy your own house and be paying less than your current rent!  Sounds exciting.

20 minutes later you slowly walk out of the bank with your head down… you were just informed that your credit isn’t good enough and you do not qualify for a mortgage. Most of you would just stop there and accept the fact that this world is cruel and backwards. That just doesn’t make sense… If you are paying less than you are now then how come you can’t get a mortgage?

There is hope though!  “How can this be?” you ask. There are thousands of people out there just like you already living in a home with the same credit problems.  They just found a way, which I am going to show you in a second. Maybe your job is good, but you just have a little too much debt, or you have been bankrupt in the past, perhaps you are new to the country.  Whatever the situation, you have hope from something called rent-to-own or lease-to-own.  Some media present this alternative as a dangerous scheme by business savvy entrepreneurs who feast on unwary helpless victims. There is some merit to these reports, so be ware, but like every profession or business there are crooks and heroes. So having said that, there are more good deals than bad deals.  In fact I have access to several trustworthy investors who are willing to help people get a leg up in life.  Of course they do make a profit but are more than fair with the terms and have a strong desire to help people build their credit and live in the home they eventually purchase at the same time.

So This is How it Works

The concept is simple really, you see the problem isn’t that you cannot “pay” for the home, it is simply that according to the bank’s preset rules something in that formula doesn’t click. That could be anything from student loans, a car payment, maybe you missed a few payments along the way. I won’t get into the details of why you didn’t “fit the mold,” but will focus on how you can “break the mold.”

In comes the investor.  Why would an investor help me, you might ask. Well an investor wants to make money, that is their primary goal and real estate is a proven investment. They have good credit and some cash reserves, so they want to buy a rental property.  Most investors will just buy a typical house or student rental and proceed to rent it out and collect cheques.  Somewhere down the road they sell it and make more money. The risk in this concept is that not every tenant is guaranteed to take care of the property, or even pay the rent for that matter. Then the sale; that’s not guaranteed either.

Imagine that they could find a renter who is guaranteed to take care of the property and is actually willing to put money into improvements. Why would a renter do this? Because they will eventually own it. They will also make all the payments because if they don’t the contract becomes void.  Lastly the problem of ownership is solved because there is an agreement to purchase at a set date for a set price. The banks like to lend money for these types of deals.  It is a win, win, win for all.

How Does a Renter Benefit?

A renter will benefit because they will get to live in a house that they will eventually own while building their credit. They will also feel comfortable in adding improvements to the home because they will get to enjoy the results after ownership is achieved.  They also have the benefit of knowing what they will pay for the property at a fixed time.  If the market goes up really fast, then they can feel comfortable in knowing that they are gaining equity, rather than always being behind the market. (aren’t able to save faster than house prices rise).  Sometimes the market does go down, but history has shown somewhere around a 3% annual gain on average.

The greatest benefit for the buyer is that they have special guidance in repairing their credit and have a team of professionals who are guiding them. If your Realtor or Investor is not willing to refer professionals who can build your credit then this is a sign that they are not looking to help you.

How Does a Rent to Own Work?

Good question. A simple answer is better than a long winded and confusing one, but a good conversation with your Realtor after reading this article (I would be this person) is definitely required. So here it goes… Ok, so you start off by meeting with your real estate team which includes the agent, investor and banker to determine what your current situation is. After all you can’t determine how to get where you are going if you don’t know where you are currently at. After you figure out a time frame and how much you can afford at the end of that time frame, you will talk with the real estate agent to determine what you want and what is available. You then set out to find a house. Once you find a house that you love, the Realtor will construct a purchase offer in the name of the investor with a side agreement between you and the investor to lease the property for a period of time (usually 2 years), with an option to purchase at a pre-determined  price. Sounds simple, so what’s the catch?

The catch is that the investor needs a guarantee that the property buyout will actually take place, so they will require a non-refundable deposit. This amount will depend on the investor and is usually 5% of the property value but there are some who only require as low as 2%.  Often they ask for rent with an extra portion on top which is held in trust and applied to the eventual purchase (a down payment). The reason for the extra amount is to assist in the savings for a down payment. The last part is the purchase price, the investor will require the buyer to agree to an eventual purchase price of at least 2% per annum above the original purchase price.

If a property were purchased foe $200,000 the future purchase price in two years would be

Guelph University Housing and Investment Property

Every year starting in January there is a sudden demand for student housing in Guelph Ontario.  This when students know that they have to start looking for the best accommodations for the following school year. Although this annual ritual may seem strange to the average citizen who assumes that August is when most students should be looking for a place to call home for the semester starting in September, it is not strange to the average student.

Conservatory Garden
Conservatory Garden

Many first year students were stuck single handedly trying to find mediocre accommodation the previous semester, and many settled for student residence with high costs and a lot of chaos! They are determined to avoid this mistake for the second year.  After all they are now veterans and are no longer timid, new freshmen.  They now know the ropes, and the secrets of university life, in addition have aquired a group of friends who all experienced the same crappy living arrangements.  They now, together, hand in hand, flood the Guelph real estate rental market ready to snatch up the best and most affordable living space! they will beat out the unaware new freshmen, many whom in January do not even know what university they will attend never mind where they will live!! Survival of the fittest in action.

So why am I concerned with this annual migration? Quite simple actually!  I am a real estate agent in Guelph, and work with investors who buy and sell rental properties, where these students will live.  I also have the honour of meeting these young aspiring university graduates in my quest to fill the properties I have sold to landlords.

On January first I will set out with the handfull of current clients to buy townhouses, detached houses, or condos, with the intention of providing a place for students to live.  These are the best type of investments in my opinion.  The reason is because students will always be there, I know they will pay the rent, if there are 4 students in a property, there are 4 sources of income, mommy and daddy usually foot the bill, and I know that if there is a problem they will leave.

How can you profit from student rentals? Look for information in my next post, I will tell you!

Off Campus Housing

Free Listings of Investment Properties

Find the Value of Your Guelph Investment Property

Bus Routes

Guelph Housing – Winter Renos

Winter has come with a vengeance; make sure to take advantage of the home renovation tax credit while you still can! The home renovation tax credit will provide a one-year 15% income tax credit on eligible home renovation expenses for work done or goods bought between Jan. 27, 2009 and Feb. 1, 2010. The credit may be claimed on eligible expenses greater than $1,000, but not greater than $10,000 for a total credit of up to $1,350.

Before tackling a renovation project, advanced planning is a must and the key to success. Make sure that you understand the process and the people that will be involved in the project. A question to ask yourself is …” is your renovation practical?” Will your investment in the renovation costs make sense through savings in heating or will the investment increase the value of your home for future resale? How will you pay for your renovation project?

Another important thing to consider is what renovation project will give you the “biggest bang for your buck?” Here are a few estimated payback ranges for various renos; kitchen, 75-100%; bathroom, 75-100%; interior painting, 50-100%; exterior painting, 50-100%; main floor family room, 50-75%; and finished basement, 50-75%.