Curtis Leibel 780-438-2500

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.

Have a beautiful new townhome listed at $222,900 on the west end.  This is a great location; right beside a large park, the YMCA, West Edmonton Mall and 2 blocks off the whitemud.  This 2-storey townhome is completely renovated with 2 new bathrooms, a brand new kitchen, bamboo hardwood and all new paint and trim.  It also boasts new windows as well as a cute almost maintenance free fenced in front yard.  Check out the listings page for more info and pictures!

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.

Last blog on foreign investment we spoke on areas in Croatia and the Phillipines.  This time, I am going to draw your attention to Central America – specifically Nicaragua.

I recently spent a few weeks with realtors on the pacific coast of Nicaragua.  I had done alot of research previously into real estate in Central America before my trip, and IMO Nicaragua has the most growth potential for foreign investment.

First a brief history – after years of war with the US in the 70s Nicaragua has still not fully recovered.  However that being said, their president Daniel Ortega has just been reelected to a second consecutive 5 year term and is big on developing and making Nicaragua a country that can compete with the rest of central america.  Literacy rates have skyrocketed, new roads are being constructed, and tourist taxes have been implemented.  (Although a pain for tourists, the costs are relatively insignificant (ie.10% on a meal – and go along ways towards building infrastructure in their country.)

This new found stability, combined with beautiful beaches, friendly pe0ple, and cheap prices provide a welcoming enviroment for foreign investors.  There are a few areas of interest right now: area around San Juan Del Sur, Cities (Granada, Leon, Chinendega), the corn islands, and the north pacific coast.

San Juan Del Sur is a beautiful area and by far the most touristy area in the country.  Although prices have come down significantly over the last 5 years, they are still slightly overinflated compared to the rest of the country.  If you are looking for a holiday home, this is the spot as there is not many places you can find 1500 square foot houses overlooking beautiful bays and beaches for under 200,000. 

However, if you are looking strictly for investment purposes, the north is where it is at.  Most of the roads have recently been redone, it has the best surf in the country, stretches of miles of miles of uninterrupted, uninhabited beaches and prices couldnt be cheaper.  Beach front lots between 40-80,000 dollars, or ten acre sections by the beach for under 200,000.  Cant beat that.  With labour costs averaging about $5/day per worker, a beautiful home can be built for anywhere between $50000-100000.

I plan to head back in the next few months to gather more information and possibly buy myself a few lots….stay tuned!  Or feel free to email if youd like anymore information about investing in Central America.

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.

I have just listed another condo in south Edmonton.  This is a great condo, as it is the second cheapest 2 bedroom condo in the zone.  I really like the long term potential of this building as it is in a great spot (located right next to southgate mall, and the new LRT) station and it is recently under new management which is much more dedicated and committed to improving the condition of the building. 

Conveniently, I also personally own 2 condos in this same building and currently sit on the condo board.  They have a very healthy reserve fund, have some of the lowest condo fees in the south end, and have already done some major improvements in the roofs and windows.  This particular unit is special, because not only does it have a dishwasher (majority of units in this building dont) it also has a properly vented insuite washer and drier (I believe it to be the only one out of the forty some units).  In addition to that it has brand new flooring, paint, kitchen and bath so it is move in ready.

Not only is this unit bound to increase substantially in the short-term (with the new management) and long-term (with the expanding lrt and appeal/proximity to the university) but the numbers work as a rental.  With %20 down and a current 3.5% interest rate, payments are $600/month.  Add condo fees of $263, and property taxes of $77/month a potential investor is looking at $940/month of expenses.  Rental income for a 2 bedroom in this building is between $1200-1300/month.  That would leave you with a $260/month cash flow as well as a debt service ratio of 1.28 which is better than most lenders are looking for.

A lot of people have questions about flipping houses.  Do I recommend it?  Definitely not.  Is it a good source of revenue if you know what you are doing?  possibly, but it is risky!

I have recently completed my 19th successful flip over the last 3 years.  Over this time I have learnt alot about flipping, and each project I like to think I get a little bit better.  The one question that everyone asks is “how do you do it in a down economy?”  My answer is – it actually makes it easier!  Not only can I find some better prices, but it also less risky because the market is not flucuating at all – thus the property’s value will flucuate less, so there is less uncertainty as to what the property will be worth once renovated.

Over time I plan to post more information about flipping, but for now, here are what I feel the most important suggestions one must follow in order to be successful at flipping:

1) Always look for the worst house in the nicest neighborhood.  Location is one of the most important rules of flipping, and therefore if you can find a house worth 200,000 in a nice community where the average is 250,000 you are already ahead of the game. 

2) Have loads of money – No matter how well you budget, there is ALWAYS going to be unexpected costs.  The worst thing you can do is cheap out on the end of the project because you are out of money.  Buyers will notice this.  It is a good idea to set aside an extra 20% for unexpected costs.

3) Set finished price before you finish!  This is a tough one- but before I ever buy a project I calculate what I will list it for when it is finished so I know what my profit margin will be.  It is very easy after a lot of long hours and days to start to value the house more than it is worth, and thus price it higher than the market says it should be.

4) Have a back up plan – Although stable right now, housing markets are completely unpredictable.  That is why I always have a back up plan with renting.  If for some reason I cant get enough value out of the house that I hoped for, I always know that I can rent it out and make enough to at least cover the carrying costs so I am not losing money.

5) Leave personal taste out of it – The biggest mistake you can make, is to start renovating to your own style and taste.  Not only will you start spending more money (because you will undoubtedly start picking better quality and more expensive products) but you will also start eliminating potential buyers with your own tastes in mind rather than theirs.  Always try to appeal to as many buyers as possible.

6) Be dedicated!  This may sound easy, but over the course of a long project, it can become very stressful and demanding to the point you may not want to be around it anymore.  If this is the case, go back to the drawing board, revise your plan and get back to it  – because the sooner you get it finished, the sooner you make money!

There you have it.  Flipping can be a very risky business, and I dont recommend getting into without having spoken to someone first who has experience in the area.  Theres alot you can learn from speaking with someone who has been through the ups and downs of flipping!