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m a r k e t

issue 18


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08 12

16 20 24

Getting Into the Market New home buyers experience fears when jumping into the housing market. From calculating hypothetical mortgages to securing a secondary means of finance, there are many ways you can conquer fears when purchasing property. In this article, you will read helpful advice for easing into the property market.

Combining House Buying & Financial Planning for Young Adults Many young adults experience difficulties with managing their finances while trying to purchase a new home. As a result, banks and realtors oftencontrol the deals with little say or autonomy left to the owners. In this article you will learn about how figures determined by banks can affect your other expenses or savings, as well as the ideal solution for creating a holistic financial planning strategy.

Real Estate Clichés When it comes to real estate advice, we all hear the same overused sayings and clichés. How much truth do these clichés really hold? This article will discuss four different common real estate adages regarding purchasing real estate and share the significance of each saying. While some statements hold valuable truths, others produce misleading information.

Current Condition the Best for Paying Down Your Mortgage Which is more important: putting money into an RRSP or paying off your mortgage? This article will discuss the importance of making your mortgage your priority. Clearing your debt early on can create much financial freedom later on in life. In this article, you will learn three ways to pay off your mortgage quickly, as well as why the current market condition is the best time to pay off your mortgage.

Tenant Profile Critical to Success For those of you who already own rental properties, you know the importance of the quality of a tenant. This article will show you why tenant profile is critical to your success as a property investor. Read on to discover how you can identify a good tenant vs a bad tenant and what items should be included in your checklist when it comes to looking for one.


about BOOM Magazine BOOM Magazine is all about property investment. When this magazine was conceived, the market lacked some real content relating directly to property investment. It seemed like just about every realtor could contribute an article about selling your home, and it would be in blogs and magazines all over the place. BOOM Magazine was created for the property investor, by the property investor. Each month, you will see contributions from professionals in the market as they share their experience in the field. Within BOOM Magazine, you can expect the very best of our market - whether it relates to property investment, financing and leveraging or the different asset types, BOOM Magazine will be sure to have it as an editorial. Would you like to contribute to BOOM Magazine? Email editor@bestofourmarket.com and we’ll talk. Would you like to influence the direction of the magazine? Register to subscribe and vote on the polls on what type of articles you would like to see more of.


contributors Sylvia Sigurdson

Susan Mallin

For over 14 years, Sylvia has been assisting people with their mortgage needs, originally as a licensed realtor and now as an Accredited Mortgage Professional (AMP) at Mortgage Depot in Victoria, BC since 2004. She has specialized in helping her clients acquire investment real estate as part of a wealth-building strategy and excels at structuring mortgages with the greatest tax advantage in mind.

Based out of Toronto, Susan Mallin, CIM, CFP is in charge of the Financial Planning Division of Goodreid Investment Counsel. Her clients’ needs typically range from basic retirement planning, to the more complex cross border planning strategies. She looks at her role in financial planning as the centre of the financial puzzle to help find the missing pieces needed to make the plan complete. Often this means connecting and coordinating with other professionals such as lawyers, or accountants to help fulfill the entire needs of the client.

www.mortgagecanada.com

Contact information 1-888-466-3734 smallin@goodreid.com

Julie Broad

Melody Cheung

Julie Broad has been investing in residential real estate for over a decade across Canada. She’s a featured keynote speaker and an award winning real estate blogger with a passion for helping others transform their financial future with real estate investing.

Melody is real estate writer out of the Richard Ivey School of Business, one of Canada’s leading business schools. Her interests lie in researching and analyzing market trends and statistics that point to long-term investment growth. Melody has authored a multitude of e-books that include anything from basic real estate investment tips to an analytical overview of real estate trends in different global markets.

Connect with her at: www.revnyou.com

Vivian Wu Vivian is a passionate real estate blogger who specializes in housing market in Canada. She has had much success educating the masses on the Alberta real estate market, specializing in real estate investment. Her main area of expertise involves analyzing economic fundamentals of various investment locations, such as population trends, job growth, gentrification, and area development. Vivian is a graduate of the Beedie School of Business at SFU. Connect with her at: vivian@viproperties.com


Getting into the Market New home buyers experience fears when jumping into the housing market. From calculating hypothetical mortgages to securing a secondary means of finance, there are many ways you can conquer fears when purchasing property. In this article, you will read helpful advice for easing into the property market.


Getting into the Market By: Sylvia Sigurdson Buying your first home can be a daunting task – but buying in this market makes it even more challenging. How can you overcome both the normal fears that come with purchasing your first home and the actual hurdles that present themselves? Like anything, it’s best to take it one step at a time. It’s hard to be unbiased, but I would suggest you visit a mortgage broker first. You can find out what you would qualify for, have them go over your credit history and make a plan just for you, based on your actual situation. What I often suggest to first-time buyers is to take on what one of my clients has coined, ‘A Fake Mortgage.’ Once you know what mortgage amount you are pre-qualified for and have an estimate of property taxes and strata fees (where applicable) in the areas you’re interested in purchasing, you’ll be able to walk away from your meeting with a total number that represents the monthly costs of owning a home. (You may also want to include an amount for maintenance in order to build up a savings account for your home.) Whatever that figure is, deduct what you pay in rent first and then from that day on, start putting the difference into a savings account. This accomplishes two things: 1) This will give you a very good idea of what it will be like as a homeowner, from a financial perspective. If it’s a real pinch each month, maybe ‘downsizing’ your dream makes more sense. If it’s comfortable, then you’re probably ready. It takes some time to adjust as well, so don’t give up after a month or two. 2) The additional money, between your ‘Fake Mortgage’ and your rent will start building up your savings for either your down payment or other closing costs. It’s natural to be scared to jump into the real estate market. Fears are a healthy response to selfpreservation, but fears can be over-inflated, thereby

preventing you from ever taking the Real Estate plunge. It’s good to trust your gut instinct, but look closely at what it is you’re most afraid of. If you feel you would be over extending yourself and the mortgage payments would not be manageable, that’s a valid fear and should be listened to. You can either start out with something less expensive or purchase something that generates additional income, like a duplex or a house with a suite. But if your worries stem from things like, ‘what if the market collapses?’ or ‘what if we buy at the wrong time?’, then you may never take action. While it is always good to do your homework as market conditions are always moving, it is important to remember that real estate is cyclical and is meant to be a long-term investment. Ultimately, it is time that helps you tolerate market fluctuations. When you’re first starting out you may need to reach out to people for help. Whether it’s your parents or grandparents, or even aunts and uncles, sometimes getting into the market is a joint effort. Parents often have most of their mortgages paid off and have built up a lot of equity in their homes. If that’s the case, it would likely make things more affordable, if they were willing to lend you the money (borrowed against their property) or even gift some of it for the down payment. Many homeowners already have a secured Line-of-Credit in place, making it easy to get involved. If this is not your situation and you know you’ll be doing it on your own, then one of the best things about buying in this market is to be able to reap the benefits of the low interest rates we’re experiencing. Besides the obvious interest savings, this also translates into lower payments, the ability to qualify for a higher mortgage or both. This can make or break your ability to purchase in some of the high-priced markets across Canada. Using a $300,000 mortgage as an example, look at the impact1% can make in the difference mortgage

rates: Over 25 years, you could save over $65,000 in interest, or You would need to earn approximately $5,000 less per year to qualify, or Your payments would be $160 less per month. You may have looked at purchasing a home a few years ago and decided it wasn’t a possibility. It may now be worth revisiting as mortgage payments will be lower than five years ago as rates were around 5.25% then. Using the same $300,000 example, the payments would have been $1,788/month compared to $1,403 today – a $385/month savings – and in many areas home prices haven’t increased significantly if at all. Do your homework first. If you think it will be too much of a stretch, hold off until your situation changes. But if the finances make sense, you’re most likely ready to jump in! Sylvia Singurdson has been assisting people with their mortgage needs for 14 years. For more information, please visit www.mortgagecanada.com


Combining House Buying & Financial Planning for Young Adults Many young adults experience difficulties with managing their finances while trying to purchase a new home. As a result, banks and realtors oftencontrol the deals with little say or autonomy left to the owners. In this article you will learn about how figures determined by banks can affect your other expenses or savings, as well as the ideal solution for creating a holistic financial planning strategy.


Combining House Buying & Financial Planning for Young Adults By: Susan Mallin If you’re taking the financial plunge to buy a house, the first stop you will likely make is at your bank to talk about mortgages. There, they will gather your personal and financial information and plug it into their mortgage software program. After a few minutes, they will print out what looks like a giant certificate of a pre-approved mortgage amount and a limited time interest rate guarantee.

alistic net income basis. Many situations arise that can stretch the budget out of the comfort zone, such as an increase in interest rates, increasing property taxes, unexpected repairs, loss of income etc.

This reduces the ability for one to save money to fund other needs, such as retirement assets. In severe cases, older adults may find they have to borrow money against the equity in their house to provide an income Most likely your next step will be a realty office stream for retirement-which of course, defeats the purwhere a real estate agent will show you houses pose of paying down the mortgage in the first place. priced in the range of your pre-approved mortgage plus your down payment. Throughout this process, What is the ideal solution for combining a house the “experts� are calling the shots, or at least taking purchase while having a holistic financial planning charge of your decision making. Stop the madness! strategy? My rule of thumb is to use 25-29% of gross income towards the mortgage and property taxes and Looking at the various parties involved, we can as- 10-18% towards other appreciable assets such as certain that it is in the best interest of the bank, for stocks and bonds to be used for retirement or other profitability reasons, to approve you for the largest financial needs. Having other assets,besides your mortgage available relative to your financial situ- house, increases your choices later in life as to what ation. However, one should not lose sight of your your most suitable strategy will be when eventually interests, which should be to buy a suitable home drawing a retirement income. while maximizing your entire financial situation. Often people tend to compartmentalize financial Susan Mallin, CIM, CFP is the Financial Planner at planning by focusing on one thing at a time, such Goodreid Investment Counsel. For more info please as paying off a mortgage as fast as they can, then visit www.susanmallin.com. starting a retirement savings account, then purchasing life insurance, and listgoes on. But, as you may know, life cannot be put into neat little boxes. The best way to maximize your financial plan is to construct a multi-faceted strategy to accomplish all of your financial goals. Going back to the bank mortgage pre-approval, most financial institutions use a formula based on 32% of your gross income. That figure is what they deem a reasonable amount to go towards mortgage payments and property taxes. The reality is that it does not really provide a very large cushion for other expenses or savings, especially on a more re-


The Real Estate Clichés: What Truths Do They Really Hold?

We’ve all heard the typical sayings when looking into the real estate market, but how much truth do these statements hold and how seriously are we supposed to take them? Every real estate cliché holds several layers of meaning that do sometimes hold valuable truths.


The Real Estate Clichés: What Truths Do They Really Hold? By Melody Cheung We’ve all heard the typical sayings when looking into the real estate market, but how much truth do these statements hold and how seriously are we supposed to take them? Every real estate cliché holds several layers of meaning that do sometimes hold valuable truths. Location, location, location This age-old adage holds a significant amount of truth. Realtors and other property connoisseurs always stick to this statement when providing advice on where to purchase. When purchasing real estate property, choosing the right location can make or break a good investment. This is because an identical house can be priced entirely differently in two different locations – $1 million in Vancouver will only buy you a one-bedroom condo, whereas in Charlottetown it can buy you an eight-bedroom house. Whether purchasing a home to live in or just looking for a property to invest in, the area surrounding your future property is very important. If you’re searching for a place to live, you want to look at costs of living, crime rates, nearby conveniences and more. If you’re searching for investment properties, you want to pick an area with good tenants, high demand, and lower vacancies that will bring you the best returnon-investment. Buy the worst house on the best street This saying goes hand-in-hand with the previous adage about location. You can’t change the qualities of a location, but you can change the qualities of a house. If you purchase the worst house in a prime location, your role is to fix it up and turn it into something people will want; however, if you choose to do nothing, your house will do nothing for you. If you purchase a property and sit around, your house cannot and will not be able to generate interest for you. Despite having the prime location, you need to put in effort, time, and money in order to create improvements. Despite this famous saying, it is not always the best

to purchase the worst house on the best street. Because these houses are typically the cheapest, they also have the most buyers. This makes the competition steeper. Furthermore, renovations do not always turn out to work out as smoothly as planned. As a home buyer, chances are you will not know how to do the renovations yourself. This means you will need to hire someone to fix up your place. This will quickly increase your costs and also take up a lot of your time and effort. By purchasing on the “best street”, you are also going to be paying a premium for the location of your property, despite the actual house being a dump. Why pay someone else’s mortgage? This saying refers to the argument that purchasing your own home may be better than renting, which is equivalent to paying for someone’s home for them. This seems logical and is reflected in the fact that approximately 70% of Canadians are now homeowners, but is it entirely true? From the view of a property investor it is good to see people continue to rent. So why rent? Renting still provides many advantages that homeowners do not receive. Despite the saying that purchasing is more advantageous, renting is actually better suited to young couples, new immigrants, or other people who are trying to get settled into a stable position. Data has shown that for the first five years, renting is actually more beneficial than purchasing. This is because there are many costs renters do not have to pay that homeowners do. These costs include property taxes, home maintenance, mortgage interest, home insurance, real estate and legal fees, landscaping and lawn care, and potential Home Owners’ Association fees. Renters also benefit from increased mobility and greater ease when wanting to move. Real estate always goes up There are many sources with graphs that illustrate how real estate always increases in value – but how accurate are these graphs? Often, many graphs with increasing trends do not account for inflation. So

what do they really mean? The truth is real estate trends vary depending on how you look at them. Not only does the time period you are examining the real estate market, but also the location. When examining markets on a shorter scale, there are more fluctuations; however, when examining trends on a longer scale there is an upwards trend. What seems to be true is that real estate experiences cycles of ups and downs. Although prices may seem to increase in the long-run, it is not entirely true that real estate always goes up. Despite predictions both of an incoming crash or an increasing trend, real estate remains difficult to predict. Looking at detailed past data, it is clear that the market does indeed fluctuate and may or may not continue to rise. In general, real estate clichés do hold some truths. When listening to a real estate agent or any other expert, do not take these commons sayings word for word. Instead, unpack their statements, do some research, and understand what these sayings are really trying to say.


Current Market Condition Ideal for Paying Down Your Mortgage Which is more important: putting money into an RRSP or paying off your mortgage? This article will discuss the importance of making your mortgage your priority. Clearing your debt early on can create much financial freedom later on in life. In this article, you will learn three ways to pay off your mortgage quickly, as well as why the current market condition is the best time to pay off your mortgage.


Current Market Condition Ideal for Paying Down Your Mortgage By: Vivian Wu When it comes to investing, many people question whether to start putting money in an RRSP or paying down mortgage first. My suggestion is to put off RRSP and make paying off your mortgage a priority, especially in the volatile and unpredictable market we are experiencing today. Of course, the earlier you start investing, the more time you have to enjoy the benefits from the accumulated growth of your investment in your lifetime. However, you definitely want to clear your debt first because you will want to put money in your own pockets instead of in the bank down the road. Aside from financial benefits, there are many emotional benefits from being debt free and both these benefits are guaranteed.

As you can see from the above table, you are still paying the same amount monthly, but by going with the bi-weekly payment plan, you save on interests and it also shortens your mortgage term by almost 4 years! 3. Make a lump sum payment. Again, every dollar counts! This amount will be going towards your outstanding principal, provided that there is no outstanding interest owing. By doing this you will Also, I’m not just saying you should pay off your save time and money over your mortgage period. mortgage first; I’m saying you should pay it off fast. In general, there are 3 of the ways you can do this: Now let’s get back to why the current market condition is an ideal time to pay off your mortgage. When 1. Increase your payment amount. Remember, ev- it comes to RRSP investments, there are two types: ery extra dollar you put in for each of your payment 1) safe investments 2) risky investments. While to your principal will help shorten the length of your risky investments may offer a high interest, as a loan. The sooner you pay off your loan, the more sound investor, we know that that’s not the route to money you can save on interest. Another tip is to go. However, with safe investments such as GICs round up your mortgage payments. If your monthly and AAA bonds, interests are low, which will lead to payment is $890, add $110 to it to make a payment the issue of “real rate gap.” of $1000. Every effort you put into increasing your mortgage will pay off in the end. Real rate is the difference between your purchasing power today and your purchasing power a year later. 2. Accelerate your payments. Paying monthly We talk about real rates when we take inflation into now? How about pay bi-weekly? This will substan- consideration. In an ideal economy, what happens tially save you money in interests in the long run. is that incomes usually rise with inflation at similar To illustrate this point, let’s say you have a 5-year rates, so there isn’t really an issue, but when you are closed, fixed rate mortgage of $100,000 with a 30- saving cash you earn today to use 20-30 years from year amortization at an annual interest rate of 3% now, you really need to start thinking about real compounded semi-annually: rates. You can lose on your investment due to inflation.

Currently, short-term GICs pay significantly lower the annual inflation rate, which means that you are losing money. GICs with longer terms do offer more but if inflation rate climbs more, you will be stuck below rate of inflation and again be losing your money. In the volatile market we experience today, do you think you can always keep up with inflation? Think of paying off your mortgage as an investment—it is safe, tax-free and has a guaranteed rate of return! Whatever you put in your mortgage won’t affect the value of your property; market fluctuations will not change the amount you owe on your mortgage. There are many emotional benefits from clearing your mortgage debt. How would you feel if you never have to worry about mortgage fees and constantly checking your bank account? After you paid off your mortgage, you will be able to contribute to your RRSP!


How to Make More Cash With Real Estate

People often turn to real estate as a way to generate more cash and wealth. This article will discuss five different ways to use real estate to create cash: wholesaling, flipping, becoming a realtor, creating a property management business, or using rent-to-own strategies. The advantages and disadvantages of each option will be discussed and Julie Broad will share what she and her husband personally did to achieve success.


How to Make More Cash with Real Estate By: Julie Broad Think “Buy-and-Hold” real estate is your ticket to early retirement? For the odd person with luck and good timing on their side, it can be. For most people, unless you’re talking early retirement in 15 – 20 years, it’s not. Buy-and-hold rental property is a critical component to every real estate portfolio. I think it is the greatest wealth creator over time, but if you want to live off your real estate without waiting to pay off the mortgages or working your butt off to buy 100 houses, then you’ll need to find a way to bring in some cash today. Besides holding down a job to pay bills, which is a great strategy if you like what you’re doing (after all, it is much easier to get financing for your deals if you have a job!), most real estate investors create their cash today using one of the following five strategies: 1. Wholesaling or assignments 2. Flipping 3. Becoming a realtor 4. Creating a property management business 5. Adding a strategy like rent-to-own that will increase your cash flow on a monthly basis (This is what my husband and I did when I quit my job four years ago) 1. Wholesaling or assignments Wholesaling is basically where you do all the leg work to find under market deals and get them under contract before assigning them to someone else for a fee. A traditional wholesale model is when an investor wants to be assigned a profit producing property. You put in the effort to market, filter and negotiate the great deals and build a network of investors that will buy the deals off of you, and then when

you have a good deal you assign it to an investor. This model is a great way to add thousands of dollars to your pocket for every deal you do. Of course, the challenge with wholesaling is you always have to work your funnel of deals and build your investor network so you have supply and demand for the product. It is a lot of work – but it does help fill your bank account once you get your systems in place. 2. Flipping Most people think they know what it takes to flip a house thanks to all the television shows on the subject.Ian Szabo, for example, is a guy who knows what it takes to make $50,000 – $150,000 on a flip and he flips 2 or 3 houses like this a year). Szabo, the author of From Renos to Riches and creator of FlipSchool.ca, says he flips houses in two ways: 1. He buys a derelict house in a great area, fixes it up, and sells it for a juicy profit. 2. He buys a house that needs work, adds a legal suite, refinances to pull out all his money and some profit, and then rents it out to make cash flow. Flipping is a high-risk strategy, however, and even Ian doesn’t recommend anyone approach it without a back-up strategy in place. With the right strategy, the right house and the right plan, most flippers starting out can make about $30,000 on a flip, according to Szabo – and that’s about right! One of our VIP Coaching Clients just finished her first flip and made pretty close to that too.With that kind of profit potential, you’d only need to do one or two a year to really fill in your “cash today” needs. 3. Becoming a realtor

We don’t have an official survey, but I’d venture to say this is one of the most common ways real estate investors make their cash today. When you’re an active buyer of real estate, it doesn’t take too many deals where you see your agent make $10,000 in commission for doing minimal work, to begin to see the value in working as a realtor on your own deals. When you also consider that you can help a few of your investor friends and make a bit of commission on their deals too, it can be very appealing for you to become a realtor to satisfy your needs for cash today – plus you’ll get access to all the MLS data for your area. That being said, becoming a realtor can be quite the distraction. No matter how little choose to do as a realtor, it takes time and money to have a license. My husband and I have considered this, but ruled it out because we think that it will distract us from

our primary business of buying real estate. Other challenges associated with being a realtor and an investor includes ensuring you follow disclosure and other licensed realtor rules. Furthermore, there can be considerable ongoing brokerage and marketing costs to stay licensed as a realtor. For many investors, though, this option has been the ticket to freedom. If you can stay focused on your investment business and build a successful side business as a realtor, this seems like a very popular way many real estate investors make cash today. 4. Creating a property management business At one point, with property all over Canada, my husband and I were working with 6 different property management firms. When we quit our jobs and began to spend more time evaluating our cash flow, we began to spot a lot of cash leaks.To plug some of the holes, we began bringing our property man-


Many other investors come to this conclusion as well. When they managed their property well, their investor friends took notice and asked for help managing their own properties as well. In general, however, managing properties take a lot of work and is not exactly a fast source of cash. There are also restrictions that come with managing properties. For example, some provinces require a Property Management license to manage properties that are not your own. 5. Adding a strategy like rent-to-own that will increase your cash flow on a monthly basis Rent-to-own is when a tenant rents your property with the option to purchase it. You set their purchase price at the beginning, they pay a fee for the option to purchase it in the future, and a portion of their rent acts as a credit that builds up over time towards their future purchase. This strategy generates more cash flow because the tenants are paying a higher-than-market rent for their property in exchange for credits that build up towards their purchase all while they are responsible for their own basic maintenance. You also don’t typically need property management because of the quality of tenants that move in and because the tenants are responsible for taking care of their own repairs up to a certain dollar amount ($300 in our case but many other investors have their tenants handle up to $500 or even $1,000). When I quit my job, we evaluated all of the options for cash today. Wholesaling requires constant marketing and funnel management. If you’re not constantly finding sellers and buyers you aren’t making money. Flipping is stressful and higher risk. It also requires you consistently be working on a flip or you won’t be filling your cash needs. We felt being a realtor would reduce the focus from our own deals and since we were planning to do a deal every month or so, we knew we’d need a lot of focus for that. Finally, property management is not something we really enjoy, so we didn’t want to create a business around it. That left us with rent-to-own as the best solution for us.By changing a few of our existing rentals to rent-

to-own and adding just a handful of rent-to-own properties to our portfolio, we were able to boost our cash position and increase cash flow to a point where we felt comfortable financially. We also like the fact that rent-to-own helps good people get into home ownership. Our rent-to-own tenants give us big warm hugs, invite us for dinner, make us handmade thank-you cards and invest in fixing up the homes. With this strategy, we continue to add properties in order to keep the cash flowing, because rent-toown deals turn over every 12 – 24 months after purchasing them. That has largely been the reason we so aggressively added property to our portfolio in the last three years adding 10 – 12 new properties a year. We like rent-to-own because if we want to take a month off from working on our deals, we still make money, which we can’t say that about any of the other strategies. For us, our real estate business has been created so we can live the life we want.We wanted to maximize our freedom and minimize the amount of ongoing work that has to be done in order to generate the income we need. Regardless of how you do it, if you want to become a full time real estate investor, you’ll need to find a cash today strategy that works for you, so you don’t have to wait 10 years before you can call it quits. Author: Julie Broad www.revnyou.com/


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Magazine b e s t

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issue 18


Boom 18