Real Estate Wisdom

What determines a market?
supply & demand, mortgage rates, consumer confidence (economy).

Baby Boomers (demographics) will have impact on real estate.

Buyer success in hot market:

• Pounce (houses can sell in days or even hours)
  
• Be prepared (pre-approved for a mortgage, select a lawyer, cash on hand for biggest possible down payment)
  
• Be clean (best offer has no conditions)
  
• Set a limit on price willing to pay and stick with it (= available down payment + amount of pre-approved mortgage + closing & other fees)
  
• Apply pressure
  

Buyer’s market:

• Be tough (go after everything you want: appliances, furniture, low price, etc)
  
• Be wise (investigate the reasons behind the listing: divorce, job relocation, etc)
  

When to buy and borrow:

• Greatest competition & number of listings: Feb – May and Sept – Nov for Houses, March – July for cottages
  
• Avoid mortgage commitment during RRSP season (New Year’s – March 1st) higher rates
  
• Shop for real estate during slow times (holidays & long weekends)
  

Lawyer needs a month to do tasks

Mortgage lender needs a few weeks to approve property and advance funds

Include in the offer an opportunity to visit the property a few times.

Get a warranty (if anything breaks before the closing date, it will be them responsible to fix it)

Demand for Multi-bedroom houses will decrease as the average size of a family decreases

Rules of intelligent residential real estate buying:

• Buy the worst home on the best street and then fix it up (location, location, location). The condition of the structure can be fixed, rebuilt, repaired, restored, & replaced… a location can not.
  
• Don’t buy a corner lot (more traffic, less privacy).
  
• Don’t buy a house near a major highway, bus stop, police station, fire station, hospital.
  
• Discount on houses next to schools or retail stores.
  
• Tree filled areas are worth more.
  
• Buy what you can afford.
  
• A house should not cost more than two-and-a-half times your gross earnings
  
• Think resale (parking is an issue in urban areas; buyers like yards and gardens)
  
• Pre-shop the Net

Use an agent for buying and selling (keep in mind future development for resale). Free to use agent when buying. Good idea to use the same agent when reselling the home because the agent knows about the property already.

Closing costs are typically 2% of purchase price for home.

Have a home inspector ready before shopping for homes.

If inspection is negative, have seller fix it or renegotiate the price.

Be there during inspection.

It’s a bad idea to increase the mortgage amount in order to cover the closing costs.

Option to rent out cottages or sell fraction of cottage for a fraction of the season.

Make sure the land between the cottage and water is yours, get a home inspection, check out the mechanicals, check out the quality of water in the lake, and view a survey.

Keep all receipts that you invested in improving the cottage (used to deduct capital gains tax: difference of sale price and price originally paid)

Another tax advantage comes if you rent out the cottage for part of the season.

Mortgage elimination strategies (save a lot in interest payments):

• Make pre-payments (10% or 15% of the loan paid lump sum once a year)
  
• Increase payments
  
• Go weekly

Mortgage pre-approval will let you know how much you can spend on a house, lock a rate (if interest rate rise, yours does not, but if interest rate declines, the bank will pass the lower rate to you), eliminate the financing clause on the offer.

Good rule of thumb is to have no more than 30% of family income used towards mortgage payments plus realty taxes.

Interest on money borrowed to invest is tax-deductible

• Asset Swap
  
• Home equity loan

Future demand lies with urban bungalows, semis, and towns, condominiums, golf towns, cottage and recreational property, and apartments.

Painting gives the best return for money invested (there is smart and stupid renovation)

- Information quoted from "The Little Book of Real Estate Wisdom", by Garth Turner