Curtis Leibel 780-438-2500

Capital gains are taxes that you pay on the profit or increase in value of a property when you sell it.  That being said – capital gains means something different to everyone.  The best thing to do is talk to your accountant before you sell any second property to see how it applies to your specific portfolio.

I try and keep this blog as simple as possible and a lot of the topics I speak about, we just brush on the surface of the idea.  So the most important question is: how do you know if you are subject to paying  capital gains taxes and how much will it be?

1)   Basically any property that you do not call your principal residence is considered an investment and thus subject to the tax.  If you do not live in the residence (and you can only have one principal residence) and the value of the house upon sale is greater than the value you purchased it at + renovation or other expenses you incurred on the property, you will have to pay capital gains.  Yes, there may be some loopholes ie. passing property through family, forced sales or relocations for work, etc… but generally you can expect to pay tax if you made money on it.

2)  The amount of tax on capital gains varies throughout North America, but in Alberta you can expect to pay tax on 50% of your profit.  Ie. make 100,000 on the sale of a rental property – 50,000 of that is susceptable to a tax rate coinciding with your specific tax bracket.  (In alberta the lowest personal tax bracket would be 15.25+10% =25.25%)  So in this example you would pay a minimum of $12,625 on $100,000 profit if you were in the lowest bracket.  There are other routes one can take, involving running it through a business that may or may not be advantageous to you.  Again the best advice – ask your accountant before you sell to figure out what the best route for you to take is.

Further to my recent post on RPR’s, title insurance is often offered in place of a current RPR.  Alot of new buyers are hesitant to accept insurance instead of RPR, but in reality in may be in their best interest, and Ill explain why.

Title Insurance is relatively new in Alberta (about 10 years old), but has been around for a century in the United States.   Alberta has created a government-guaranteed system called TORRENS – which goes far beyond Eastern Canada and US standards, so you can be sure that all information is accurate and INCLUSIVE ( American systems dont disclose everything, such as unregistered mortgages!)

So what is title insurance?  Basically its insurance that covers the buyer (or seller) from problems occured through the transfer of land.  The scope of coverage has recently been expanded to cover nearly everything.  Some examples:

Covers the gap between submission date and registration – often things can occur between the time of purchase and the time it takes to transfer title with the city (can take up to 5 weeks).  This insurance will cover this time period.

Covers deficiencys on RPR – this is very important – and in fact after doing more research on this, I am quite amazed by the amount of stuff this will cover ie. unregistered easements, hidden deficiencies, builder liens….

Covers Unknown special assessments in condos

Covers any issues that would have shown up on the RPR, thus avoiding the need for an RPR.  It covers non compliance issues such as lack of permits or failure to meet building codes

Even covers known defects (ex. deck over property lines, deck too big for area, etc…)

Coverage continues after closing date – this is important to cover things like fraud, impersonation, forgery etc…

All of this seems like a no brainer to choose title insurance over RPR.  However there is one downside to getting the RPR – if you accept it when you purchase a property, it does not automatically get passed on when you decide to sell it.  Therefore, if the coverage doesnt include making a modification to something not complying in the RPR, the new buyer will either have to decide to get title insurance as well, or some resolution will need to be made to fix the problem.  In this sense, you may just be delaying changes that will need to be made at your expense.

Still title insurance, is a great alternative if a complying RPR is not convenient to obtain.  It is much cheaper, at a cost of usually $200-$300.  The best idea is always to ask your lawyer or call First Canadain Title get some more information before making a decision on title insurance vs. RPR.

A lot of first time home buyers/sellers have very little knowledge on how the process of hiring a Realtor works or what it costs.  In most real estate transactions there are 2 realtors involved; buying realtor and selling realtor.

The buying Realtor represents the potential buyer.  It is important to note that as a buyer, if you use a Realtor, it costs you absolutely nothing for this service!  All commissions are paid by the seller.  Even if you look at 100 houses and in the end you decide not to buy anything, it costs you nothing as your Realtor will only get paid by the seller if you buy something.

The role that a buying Realtor will/can provide are endless, but in short form this is typically how it goes down:

I sit down with my potential home buyers and make a list of dreams, wants and desire.  I use this information to compile a search engine and search every house that is on the market finding potential matches.  We then arrange showings and look to find the perfect house.  Then we write a purchase contract negotiating things like price, possession date, conditions.  Once a contract is accepted we work to get conditions removed (ie.financing, home inspections).  If this is all completed we send all the information off to the lawyer, the homebuyer meets with the lawyer to sign it off, meets with the Realtor again on possession day and do a walk through to make sure everything is the same and then you enjoy your new home!!

If only it was that easy – there is always a lot more to it, and always a few bumps in the road, but this is it in its simplest form.

As a selling Realtor, the process looks more like this:

Meet with potential home buyers and discuss the wants and desires of the seller.  Compile this and write in a contract with commissions.  The seller will have to pay both buying and selling Realtor commissions, which is typically 7% on the first 100k and 3% on the remaining balance.  (ex. $300,000 house costs 7,000+6000+GST = $13650).  Once the contract is signed, house is made to look its best, pictures taken, keybox arranged, and house is put on the MLS system for everyone to see.  Showings arranged, property is advertised, someone makes an offer, contract is negotiated and signed and possession day is set.  Again – Both Realtors only get paid if the house is actually sold, so if your home doesnt sell, you dont pay anyone.

This is more the process of the role Realtors play.  In an upcoming blog I will explain more the advantages of having a Realtor vs doing it on your own.

If you have a little time and want to do some more research, I recommend the website http://www.howrealtorshelp.ca/ which should answer most of your questions.  If you still have any questions regarding this, give me a call or send me an email and I would love to clarify it for you.

When buying a new home, always be sure to calculate property taxes into  your monthly expenses.  Sometimes mortgage companies include this as part of the mortgage (they pay taxes on  your behalf) but be sure to clarify this before final signing your mortgage.

Quite often a MLS listing will state the tax amount of the previous year – however it is important to note that taxes usually increase every year with inflation, and at the end of May, all property owners are sent a statement saying what the taxes will be for the following year.  For the city purposes, the new property tax year ends June 30 (coincidentally the busiest day of the year for real estate transactions).

Property taxes in the city of Edmonton are composed of 3 parts:

Muncipal portion- based on the budget set each year by city council

Provincial Education portion- set by the Alberta government

Local improvement portion- this is often an assessment added on for improvements made in your specific area (ie. sidewalk replacement, light posts, etc..)  It can be added to a one year statement, or if the cost is more significant, it is often spread out over many years, as to not raise your taxes by more than a minimal amount.

Since the end of the property tax year is June 30, it is important to be aware of this when you are buying or selling a home.  Often the buyer or seller will need to reimbursed for paying taxes up until June.30.

There are a few options when it comes to securing financing for your home.  The most common are private funding or institutional financing.  The first is far more risky, expensive and only seeked when you have no other option (ie. bad credit, bankruptcy history) whereas the latter is more common and readily available.

The most traditional method of getting a mortgage is by going through your bank.  You may have an advantage by going through your bank if you have a long history with them.  Ultimately their rates are usually already set (not necessarily the lowest around), but if once providing all your income/expenses you are right on the edge of getting/not getting a mortgage, your personal history with the lender might be enough to sway them to lend to you.

The most common method nowadays however is to get a mortgage through a mortgage broker, or mortgage specialist.  It is really win/win for the applicant, as it is no cost to you (the lenders are paying the broker to bring them clients) and the specialist is searching all avenues (including banks) to try and find you the best terms and rate.  And if you are considered high risk (low down payment, low credit rating) mortgage brokers can also apply to the private lenders if traditional lenders are not an option for you.  Again, keep in mind these “high risk” mortgages often come with fees to set up, as well as much higher interest rates.

In an upcoming post I will talk more about debt service ratio, percentage down payment, CMHC insurance and other factors that come into play when applying for a mortgage, but I hope this is enough to get you started on your quest to secure a mortgage.

This is probably the most common question I get asked right now.  Again, my answer like always, is it depends.  It depends on what your goals are and what your real estate plans for the future are.  The main point you need to consider is supply vs. demand.  This principal is quite simple:  A high demand for housing and shortage of houses on the market creates an ideal situation for selling.

However, there is alot more to it than that.  Spring typically brings more buyers to the market, so there tends to be a slightly higher demand for houses.  But, over the last few years, sellers have taken this into consideration and waited for srping to list their houses; thus increasing the supply of houses as well.  You could expect to get more potential buyers looking at your house, but they have more options to choose from.

Now the other thing to remember is that if you plan to sell your home, and buy a new home in the same area, you are subject to the same market.  This means that if you wait until spring to sell your home and get 5% more than you would have in the winter, you will also be paying 5% more for your new home.  And if you are moving up to a more expensive home, this means a higher cost.

For example: sell house for 5% more on $300,000 =make $15000 more.  Buy house for 5% more on $400,000 = spend $20,000 more.

To summarize, if you plan to buy a house in the same area you currently live in, there is really no advantage to waiting for a certain time of the year to sell.  The only way you can use this to your advantage is if you are downsizing to a cheaper home or moving to a completely different market that isnt following the same current market trends.   If anything, it would be most advantageous to look at the current trends in your current neighborhood to see if there is more of a local advantage to listing at certain time (ie. currently no comparable houses in your neighborhood for sale = smaller supply).  Let me know and I’d be happy to sit down and do a current market analysis with you of your neighborhood to see how it is trending.

A lot of people are quite surprised when they buy a new home with all the costs they may incur.  We call any costs associated with the purchase or sale of a home, “closing costs”.  Here is an idea of what you could expect:

SELLING A HOME:

Lawyer fees (with a mortgage): $800-1000

Mortgage transfer/breakage:  Often you can transfer a mortgage for very little cost, but paying off a mortgage will usually cost 3 months interest.

Realtor fees:  Of course these are negotiable, but a typical contract will pay 7% on the first $100,000 and 3% on the remaining balance.  (ie. selling a home for $200,000 would cost $7000+$3000 = $10,000)

Condo Documents: $200-$300.  If you live in a condo, and do not have current condo documentation, you will need to supply them for a potential buyer

Real Property Report:  An article you recieved when you first purchased your home showing property lines – if you have made any changes to your property since purchase (built a shed, fence, deck, etc…) you will need to get a new one – $600

Property taxes/condo fees:  Sometimes these are paid for a year at a time, so depending on the time of year the house is sold, debits or credits may have to be made to the buyer.

Staging: if applicable – $700-$1000/month

Cleaning costs: if applicable – $20-$50/hr for maid service

Moving fees:  if applicable – gas, renting vehicles, hiring movers, buying beer and pizza for friends 😉

BUYING A HOME:

Lawyer fees: $800-$1000

Realtor fees: 0.  Realtor fees are only payed by seller.

Mortgage Broker fees: Typically 0.  The mortgage breaker makes money from the lending company by bringing them clients.

Property inspection:  Not necessary, but recommended for sure.  $450

Future repairs:  the best thing about getting a property inspection, is being able to create a timeline for what expenses may be incurred in the future (ie. new furnace in 5 years, shingles in 10).  Although there may not be any immediate costs, it is a good idea to have money set aside for these expenditures that could arise.

Property taxes/condo fees:  Sometimes these are paid for a year at a time, so depending on the time of year the house is sold, debits or credits may have to be made to the sellers.

Cost of moving:  Same as above

Furniture:  Well if you have a nice new home, you need nice new furniture to go with it right 😉

Transfer of utilities:  If you havent had your name on epcor, direct energy, shaw, telus, etc… before quite often you may need to put down a deposit on your account.  Avg per utility – $200-$300

Insurance:  It is definitely recommended to get insurance on your house and its contents, but could also be a good idea to get insurance on your mortgage should something happen to you in the future and you cant make your payments ~ $100-$150/month

That should cover most things.  Keep in mind you may need to buy specific things such as lawn mowers, snow shovels, etc….if you have a yard to look after now.

Hope this helps!  Feel free to email me if you think I missed anything, and Ill add it to the list.

Quite often, we as realtors can get a bit caught up with our “realtor lingo” and assume everyone knows what we mean when we use certain terms.  One of these terms, in which I will talk about briefly today, is used quite frequently in the industry; “pending”.

In its simplest form, pending means a house is sold but still has conditions.  The seller has agreed to the terms of the offer presented by the buyer, however there are still certain conditions that must be met, before the contract becomes legally binding.   Therefore, a house is never “sold” until all conditions have been removed.

A condition is any clause that the buyer has included that requires further investigation.   The three most common conditions are:

1) Property inspection – The buyer (at their own expense) hires a property inspector to come do a complete review of the condition of the home.  They can be fairly expensive ($400-$500) and take 3 to 4 hours of your time, but I ALWAYS recommend my clients do this.  Not only are you provided with a written comprehensive review of the entire property, but you are also provided timelines for future maintenance issues and can allow you to set up a budget for future repairs.

2) Financing approval – Quite often nowadays I suggest to my clients to go to a mortgage broker before looking at a properties so they know what their house spending limits are (pre-approval).  Pre-approval however does not guarantee you will be aprroved for a particular home though, so after the intial purchase contract is agreed to, it is important to send it to your broker to get the final ok before removing this condition.

3) Review of condo documents (for condos) – This only applies for condo buildings – it gives an extensive overview of the reserve fund study (like a property inspection for a condo), the reserve fund (how much money they have in the budget), the meeting minutes (the ongoing day to day issues and expenses of the condo) and of course, the bylaws ( the rules of the building).  If any of these documents are not satisfactory to the buyer, they can choose not to remove this condition at this point.

Although these are the most common, any condition can be included in a contract, and it is up to the seller to decide if they wish to allow them.  Some examples of others I have seen – condition to the approval the buyers father, condition to certain work being completed at the property first, or condition of the sale of the buyers own home first.   There are no limits as to what conditions are included, however it is mandatory that the buyer take every necessary step to ensure the condition can be removed before agreeing not to.  (example – if it is condition to financing, the buyer can not not waive this condition saying they cant get financing if they have made no attempt to seek financing.  In this case, the buyer could be forced to uphold  the contract.)

If conditions are included, a date must be set for condition removal.  For example, if the contract gets accepted on the 1st of the month, the buyer might set the 8th of the month as condition removal date.  This condition removal date can be whenever, but most typically its about one week later (However, the shorter the time for conditional removal the more appealling the offer).   At the date of condition removal, 1 of 2 forms must be signed and submitted: a waiver of condition removal or a non-waiver of condition removal.  A waiver of removal signed by the purchaser means that this deal is legally completed and submitted to the lawyers – now it is technically “sold”.  Non-removal however nullifies the contract and the purchaser is no longer bound to the contract.  There is also an option, should for example the buyer need more time to fulfill the conditions, to complete an amendment – which basically allows for a change of condition removal date, but everything else in the contract remains the same.

Hope this helps, and in the future I plan to have more “realtor lingo” posts to keep you up to date and informed with whats happening in the real estate world.

When one thinks of a rental property, usually we assume they mean long term investment.  This is not always the case, as short term rentals can make money as well.  However – I do not recommend this as it is a very risky investment.

Generally anytime you NEED to get your cash out or HAVE to liquidate to access you money, you are taking a big gamble as you are leaving yourself without any options.  The only way short term investment properties are a safe risk, is if you are able to switch to long term without any consequences.

Let me explain; again with the $200,000 condo example.  Say your goal is to make a 10% ROI in one year by renting it out for one year and then selling it for $210,000 as you are expecting housing prices to increase by 5% over the next year. 

First off, if you include mortgage fees, lawyers fees, realtor costs and other carrying costs, in fact to make $10,000 you would probably have to sell for around $220,000.  Now that means housing prices have to increase 10% that year in order for that to work, which is making your goal harder to reach.  If now, at the end of the year, housing prices havent went up, yet you are forced to sell because you need access to that down payment money you invested, you are going to have to take a loss to get it back.

The only way this investment strategy makes sense, is if you are not forced to sell and you can instead hold on to the property until it makes it worthwhile to sell.   It is always a good strategy to buy investment properties in areas where you expect to see big increases in property values (ie. increased public transportation, neighborhood revitalization) and this can be a lucrative technique if you are buying in the right areas.  However unless you are able to hold the property until it reaches its growth potential, (which may take longer than expected) you are better off investing in other strategies.

My advice:  Always buy in an area where you anticipate seeing the biggest growth in value, but never expect it to increase at the rate you hope, as that is for the market to determine.  Never leave yourself without options.

Rental properties can quite often make great long term investments.  I myself own a few and plan to accumulate more in the future.  Now there are many books out there that explain why its a good idea to buy rental properties, but let me save some time and summarize it for you.  In its simplest form:

It is important to look at real estate in cycles – in every cycle there are ups and downs, but the longer you hold onto a property, the more likely it is to mediate towards the average (example – a cycle may see a period of growth of 10%, as well as a period of 0% but it would average as 5%). 

Canadas houses have appreciated on average (depending on the area) 5 – 6% /year.  That being said, Canadas average inflation rate over the last 100 years or so has been 3.26%.  Now that extra 2% isn’t alot, but this isnt where the returns come from.

Say for example you buy a $200,000 condo with 25% down ($50,000 investment).  You have an average 25 year mortgate at a rate of 4%.

From this you can expect to pay about $87,000 over 25 years in interest (or 290/month)

But say you rent your place for $1200/month.  Subtract property taxes, insurance and the interest and you are still left with about $600/month going towards the principal balance.  Over the course of 25 years that is almost $100,000 paid down on your principal.

This rental income would account for an extra $4000/year on your initial $50,000 investment (8% ROI + 2-3% annual inflation).  Of course, repairs, rental vacancies, flucuating interest rates and other factors need to be considered, but if you look at this way – it can be a very safe long term investment providing a solid return on investment.