Renting vs Buying

In 2017, the age-old dilemma of renting vs buying couldn’t hold any more weight. If you’d asked this question 20 years ago, most would have resoundingly agreed that buying is a far better option; why pay down someone else’s mortgage when you can pay down your own, all the while building equity and securing your retirement? It’s not that simple anymore as home pricing in the GTA is growing further and further out of reach for the middle class, and even much of the upper class. The reality is this: one is not necessarily better than the other; it’s relative to circumstance. So, what are the factors? How do you decide which option is best? There are no easy answers to these questions. The fact remains that buying a home should be a very sound investment in theory. With that said, you’ll need to pound out the numbers to determine what you can and cannot afford, and you’ll need to be prepared to do some market analysis. It’s all about circumstance.

What’s the Market Doing?

This is perhaps the most relevant question provided you have money to buy. The GTA has seen some alarming jumps in home pricing. In fact, it’s been increasing at a rate greater than inflation, which is extremely abnormal. Canada has implemented new legislations and initiatives meant to tame the market, and it is expected that inflation will catch up to home pricing. With that said, it’s important to look at real estate trends when deciding to make the leap from renting to buying. The last thing you want is to buy at the height of the market, as this poses the risk of depreciation. Losing money on a home just isn’t the goal.

How Long Do You Plan to Live in the Space?

Buying should be looked at as a long-term investment, unless you are a seasoned investor. Even if buying at the height of the market, if you are in it for the long term, things should work out for the better. The market might take a dip, but that’s OK; just wait it out as you’re in no rush to sell in any case. Renting, on the other hand, allows you freedom to be nomadic. Are you single? Is your employment status unsecure? Then you’d better rent. Do you have a family? Is your career secured? Do you want a steady living arrangement for your family? Then buying is a great move.

How Much Can You Afford Monthly?

In 99% of the cases, a mortgage will be costlier than renting. If getting a mortgage will stretch your finances too thin, you’d better wait it out until you’re more financially secured. If you can easily afford the cost of the mortgage, great! But you also must factor in maintenance costs and upkeep. When renting, your landlord assumes responsibility for 99% of the maintenance and repairs. When you’re a homeowner, maintenance and repairs land on you; expect to pay 2-4% annually of your homes worth on repairs.

Do You Want to Rent out a Room?

Hypothetically, you could and probably would have a roommate when renting. The roommate will help cover your rental costs, which is great. But when you own your home, you can rent out a portion of the home and have that tenant help to pay down your mortgage. That’s a very different scenario that kicks your home investment up a notch. Moreover, you can create income by borrowing against your home. The big question here is if you’re prepared and willing to be a landlord.

Equity vs Inflation

Here’s a big issue: despite the current trends we’ve seen, equity typically increases directly in line with inflation. This means that the big take home you’ll get when you sell won’t be nearly as large as you thought. The prospect of buying a home at $500, 000 and selling it a few years later at $600, 000 is a great thought, but remember that the $100, 000 in equity won’t mean the same thing years from now that it currently means. You’ll have closing costs, land transfer tax, moving expenses etc.

Do You Plan to Invest Anywhere Else?

This is arguably one of the biggest factors. For most home owners, their home is their biggest investment. However, there are many other avenues of investment, stocks being a major player. With some research and guidance, renting a space and investing elsewhere can yield just as strong a return, if not stronger. But with that comes the need for research and resources. If this isn’t your forte, then investing in your home may be the best investment for you.

Freedom from Responsibility vs Pride in Ownership

Perhaps the biggest thing to think about is your lifestyle choice. When renting, you are free from responsibilities. You pay a set monthly fee and that’s it. If a pipe bursts, call the landlord. If a window breaks, call the landlord etc. It’s very low in terms of responsibility. Home ownership on the other hand, is a massive responsibility. This is your property, and without proper maintenance, you can forget about any profit on resale. You need to maintain the property and take pride in it. But isn’t that half the fun? If you feel this way, then home ownership can be an incredible experience. You want to paint the living room red? Go for it! You want to tear a wall down and free up space? Get it done! Home ownership can be fun, albeit a great responsibility.

So, the truth is there are no easy answers. Financially speaking, both options can make sense. It depends on a variety of factors; your best bet is to keep an eye on the market to determine the best times to buy and sell, and to thoroughly analyze your current financial status, goals and strengths.

So, You Want to be a Landlord?

There seem to be many misconceptions relating Landlords. People seem to think it’s a lottery ticket. People seem to think it’s a sure-fire way of having someone else pay down their mortgage. People seem to think it’s an investment. I’m here to tell you that it’s none of the above; it’s a full-time job, and it’s not easy. Ok, maybe it can be viewed as an investment, but not in the traditional sense. Typical investments have you fronting the money after you’ve researched and decided on a sound option. Once you’ve invested the money, you typically sit back, monitor and hope for the best. With a landlord investment, the work doesn’t stop after you’ve fronted the money. That’s when the work begins.

Now, I’m not trying to dissuade anyone from becoming a landlord; in fact, it can be incredibly lucrative. But it’s no cake walk, and you should know that. So, before deciding on becoming a landlord, here are a few factors to consider:

Being a Landlord is a Full-Time Job, Not a Winning Lottery Ticket

Right in line with my opening statements, being a landlord is a lot of work. You constantly need to keep up with rules and regulations, you need to go through vigorous screening processes when finding tenant candidates, you need to be able to moderate relationships, you need to monitor and maintain upkeep of the unit. The list goes on and on. Granted, the work can be incredibly rewarding both financially as well as emotionally, but you need to be prepared for it.

You Need to do it Legally

Some municipalities don’t issue permits for secondary suites. If you build one without the proper permits, you may find yourself in a world of trouble. You may be forced to pay obscene fines, or even be forced to tear the unit down. Zoning issues and fire codes all need to be adhered to, along with building permits. Just because you have the space for a rental unit, doesn’t mean you can legally pull it off. Do the research, and make sure you are following the legalities. There have been scenarios of disgruntled neighbors reporting illegal units, and that’s a scenario that you don’t want to put yourself in.

The Entire Monthly Rental Amount is Not Pocketed

Tenants may wish to claim their rent on their income tax forms. You’ll need to be prepared to issue your tenants with receipts for the rent they pay you. Even if the tenant doesn’t wish to claim the rent come tax season, you’ll be expected to claim the income and pay tax on it accordingly. Moreover, Landlords face many other expenses that can eat away at their profits. Home maintenance and upkeep of the rental property is typically the responsibility of the landlord. In between tenants, landlords are usually faced with many costs in the process of making the unit desirable for the next tenant. Otherwise, they’ll have a very hard time attracting the type of tenants they want. Which brings me to my next point.

Bad Tenants are a Dime a Dozen

No landlord wants to be faced with a tenant from hell scenario. Bad tenants will end up costing a landlord more than they’re worth, regarding both finances as well as mental health. A bad tenant can be an extreme source of stress, and stress can lead to a multitude of mental and physical issues. It’s just not worth it. Thorough screening processes are key to avoiding such a scenario, and even so, some bad tenants will fall through the cracks.

Once the Tenant Has Moved In, It’s Hard to Get Them Out

Regarding bad tenants falling through the cracks, getting them out once they’re in can be next to impossible. The Landlord and Tenant Board tends to favour tenants, and many landlords have been stuck in the impossible situations of dealing with a bad tenant. This can be incredibly costly and detrimental to a landlord’s livelihood, and it can take months to evict. In some scenarios, an eviction will not even be granted. This is perhaps the biggest issue that landlords face today.

This is simply cracking the surface when it comes to landlord need-to-knows, but it should give you a general idea of what Landlords must deal with. So, don’t go jumping into this endeavour thinking it will be easy-breezy, because chances are, it won’t. That said, if you’re prepared to research and put in the work, being a landlord can be a smart move – just don’t jump in blind.

 

*Photo Source: http://vipgloballistings.com

Can’t Afford to Buy in Toronto? Here are your Options

If you’ve been priced out of the market, you’re not alone. Toronto’s real estate values have skyrocketed year over year, and it’s reached a point where many of the top Canadian income earners can’t even afford an average priced home in the city. Some of you might be thinking that this is an exaggeration. Guess again.

As of February 2017, Canada’s real estate association, better known as CREA, reported an average home cost of $835, 000 in Toronto. This represents a 23.8% increase year over year, and contrasts with a $500,000 average across Canada. Ok, despite the alarming year over year increase and the distressingly high price compared to the rest of Canada, that’s not so bad that even the “rich” can’t afford an average priced home, right? Here’s the thing; that number includes Condos and Townhomes. When we look at strictly detached properties, that number shoots up to a whopping $1.57 million in Toronto’s 416 area code.

I bet I know what you’re thinking now too: “ok, buy in the suburbs!”. While that is sound logic, you’d better guess again. When we look at The Greater Toronto Areas (GTA) 905 area code, the price point remains unattainable at $1.11 million. So, when I say that many of the top Canadian income earners can’t even afford an average priced home in Toronto, I’m not blowing smoke. For example, a couple who earns an annual income of $250, 000 (which would put them close to the top 1%) would only be able to afford a maximum price of $987, 289. This is factoring in down payment requirements and  the rate at which a $250K earner would be taxed (a whopping 53.53%). This simply isn’t enough to afford an average detached home in Toronto, or anywhere else in the GTA. And when we look at the average price of a home including condos and townhomes, the story doesn’t get a whole lot better: to afford an $800, 000 home, one would need to earn an annual income of $143,342. When we look at the median family income in Toronto, according to the most recent reports from Statistics Canada, the number floats around $75,270 annually. So where does this leave most Torontonians? It means we’re looking at Condos or maybe a townhouse if we’re lucky. Even then, an overwhelmingly high number of us are priced out of the market all together.

Even so, the bidding wars have continued in Toronto. It’s yet to be determined what 2017 holds, and with new legislation in the works, we may start to see the market even itself out. One things for sure, these trends cannot continue, as sooner or later there will be nobody left in the market who can purchase. Everything evens out over time, but until then, you do have some options.

Buy Small

Clearly there are still plenty of people buying homes in the city. Otherwise the market wouldn’t be trending the way it has been. So, let’s not start to think it’s all grim yet! Many are in fact turning to Condos or townhomes, and the way the market has been going, they should see some strong equity within a few years. At that stage, they can sell off their property and upgrade to the detached that they want. If your finances allow for a smaller purchase, it may be worth considering.

Look Outside the Suburbs

It may not be ideal, but you have the option of relocating or taking on a commute. For example, about an hour drive West of the city, Hamilton-Burlington offers an average home price of $507,131. This is significantly lower than anything you’ll find in the GTA, and would save you money even when factoring in gas costs and wear and tear on your car. With plans for the city to expand West in any case, this is a wonderful option.

Split the Cost

Have a friend or family member who you can stomach living with? It’s becoming more and more common for friends and family to split the cost of a home. Not only will the financial burden be shared, but you’ll have a lively home with plenty of helping hands to handle the maintenance and upkeep. Just make sure you choose your partner(s) wisely.

Rent and Wait

The final option: find a rental unit and wait it out. In heated housing markets, renting can often be a smart financial decision. The key though, is to ensure you are saving throughout the process. Living pay cheque to pay cheque when renting makes zero financial sense, but if the lower monthly costs of renting a unit allows you to save money monthly, that is the safest move. What goes up must come down. The Canadian government will do everything in it’s power to ensure people don’t lose out on their equity when buying in a heated market, but sooner or later the cost of living will align with the cost of homes in the city. So, if you are in no urgent need of stepping into the market, rent for the time being and make sure you have the down payment when things cool down.

 

Image Source: Shutterstock. https://www.timeout.com/toronto

There’s a New Legislation in Town

Ontario Landlords have been feeling the short end of the stick for a long time now. Many have raised complaints and asked for more fairness when dealing with tenant/landlord issues. It seems the general consensus among landlords, is that the board favors tenants. Granted, the relationship between tenant and landlord is a dicey one, and the powers that be certainly have no easy task on their hands when it comes to managing these relationships. With that said, Ontario has proposed new rental legislation that some landlords may feel continues the trend of favoring tenants. The Rental Fairness Act is set to for public hearings in Toronto on Tuesday May 9th and Wednesday May 10th 2017. The Standing Committee will be considering those who wish to make an oral hearing on either date. The proposed legislation is officially known as Bill 124, and any current and prospective landlords should absolutely be aware of its proposed changes and what they would potentially mean.

One of the biggest take homes of Bill 124, is that Landlords who wish to evict a tenant for “own use”, will now be forced to either pay the tenant one month’s worth of rent, or offer the tenant another unit as a replacement. For large scale landlords, this may not be an issue; they may have a new unit or be able to arrange for one. For the small-scale landlord, however, they may be forced to pay back the month worth of rent, as they may simply not have another unit to offer. In either case, this will be reality if the bill is passed. In such a scenario, the landlord will also be required to put in writing to the Landlord and Tenant Board that they need the unit for at least a year, and are acting “in good faith”. So, any landlords who wish to evict for “own use” had better make sure they really do need the unit for personal reasons for at least one year. If the unit goes up on advertising sites within the 12-month time frame of eviction, it will be the landlord’s responsibility to explain themselves to the board. Many are arguing that this will kill the small-scale landlord, as they will simply sell off their units finding the headache to simply not be worth it. This in turn will minimize supply.

The proposed legislation runs much deeper than this, however, and any landlords in Ontario should certainly take the time to read the entire proposal. Among the other changes, the new legislation eliminates the “1991 Exemption”, which basically means that landlords will be restricted to set guidelines in terms of how much they are able to raise their rent on a year to year basis. Moreover, new rent control rules will also come into effect once the bill is passed. Landlords will still have the options to raise their rates above the guideline, but to do so they will be forced to apply to the Landlord and Tenant board and follow the often-lengthy timeframes of gaining an approval. One thing that any landlords looking to raise rent above the guidelines must know, however, is that “increased utilities cost” will not be an approved reason.

Also, oral tenancy agreements will still be an option for those who wish, but any landlord who wants a written lease will now have to use a standard government lease. This is meant to prevent dishonest landlords from sneaking in illegal clauses such as prohibiting pets, or demanding security deposits. On this note, the bill will also make it an offence for landlords to go after tenants for any rent accumulated in the period after the tenant has vacated the unit, key fees or any other illegal charges.

One important note, fortunate for the landlord, is that they will still have vacancy decontrol. This basically means that a landlord can raise their rent as much as they want in-between tenants. They simply cannot do so with a current tenant who wishes to stay past the initial tenancy period.

Many landlords are perceiving the proposed changed as draconian in nature. They feel as though these changes will make it very difficult for landlords to conduct their business in a profitable manner. With that said, any landlords who feel that these proposed changes are unfair, should certainly reach out to the Clerk of the Standing Committee to voice their concerns this coming Tuesday and Wednesday.

 

 

*Image Source: http://www.ehouse411.com/Canada/view/6801.htm

Ontario Implemented a “Fair Housing Plan”

What exactly is going on in the Canadian Real Estate market? It seems like everyone is talking about the crazy increase in home pricing, the lack of supply to meet the demand, and trying hard to pin point reasons for the seemingly unstable market. But very few measures have been implemented by the powers that be to bring harmony back to the industry. This is largely due to the controversy surrounding why the market has spiralled out of control to begin with; everyone seems to have a different idea. Some have pin pointed foreign buyers, whereas others have deemed a lack of supply as the culprit. At this stage, it should be evident that there are numerous factors at play, and without measures being taken to tame the market, Canada runs the risk of a market crash. To what extent is debatable.

It’s been a long time coming, but the Ontario government has finally introduced a “Fair Housing Plan” in response to growing concerns. The plan is a comprehensive package meant to address the ability for Ontario residents to find affordable housing (duh, right?), increase supply, protect buyers and renters, and to finally bring stability back to the real estate market. Let’s take a look one by one:

Addressing Demand: The issue of demand relates directly to foreign investors swooping in and purchasing Canadian properties. There is no doubt that foreign investors have been a culprit in the continually increased pricing. It happened in BC, and it’s happened in Ontario as well. In 2016, BC acted and implemented a foreign buyers tax. Simply put, it worked to help bring some harmony back to the market. The Ontario government held off for quite some time, concerned with the fact that immigration has been such an integral aspect of our economies overall growth; they didn’t want it to appear as though Ontario doesn’t welcome new comers. Walking a fine line, the government is implementing a new 15 percent Non-Resident-Speculation-Tax (NRST) on the price of homes in the Greater Golden Horseshoe purchased by individuals or corporations who are not citizens or permanent residents of Canada. This is meant to address unsustainable demand by slowing the rate at which foreigners look to purchase in Canada. In theory, this will make housing more available and affordable for Canadian residents.

Addressing Supply: Hand in hand with the issue of Demand, is that of supply. There simply has not been enough supply to support the increased demand, and this has been a massive cause of increased pricing: Bidding wars drive up the average home cost. There will be action to increase production of new homes throughout Ontario, legislation to encourage landlords of vacant lots to either sell or rent out the property, legislation to encourage builders to build more new-purpose rental housing, provide municipalities with the flexibility to help unlock development opportunities, and more.

What About Renters? As house pricing rises, rental units tend to follow, albeit at a typically slower rate. The issue here, is that home pricing has been rising at a rate exceeding that of inflation. Renters are typically renting because they cannot afford to buy a home, and it’s unrealistic to expect them to keep up with the increased home pricing as a result. The act will expand rent control to all private rental units in Ontario, including those built after 1991. Under the proposed changes, landlords will still be able to apply vacancy decontrol and seek above guideline increases where permitted, but the standard will ensure that the majority of increases in rental costs will only rise at the rate posted in the annual provincial rent increase guideline, which has averaged 2% per year over the last 10 years. The government is also implementing changes to the Residential Tenancies Act to further protect tenants, and to create more predictability for landlords. A “standard lease” will be developed which will tighten provisions for “landlords own use” evictions. This will ensure that tenants are adequately compensated if forced to vacate under this rule. They will also be making “technical changes” to the Landlord-Tenant Board meant to make processes easier and fairer for both landlords and tenants.

What Else? The Fair Housing Plan has many other facets to it. It aims to work with both the real estate industry as well as consumers to help mitigate pains. The government plans to “modernize its rules”, discourage “paper flipping” (the act of entering into a contractual agreement to buy a residential property and assigning it to another person prior to closing), it aims to establish a housing advisory group that will meet quarterly to inform the government of their insights related to the market and the changes being implemented, and much more.

All in all, this new act is meant to increase collaboration among the powers that be, stabilize the market, and to educate consumers. There has been much debate among professionals on whether it will help to level out the market, or if it will cause more turmoil. It’s great to finally see the Ontario government take some action, but we’ll all have to wait and see what kind of effects this initiative will have on the housing market and economy.

 

Image Source: Chris Selley, April 21, 2017. Chris Selley: A simpleton’s guide to Ontario’s ‘Fair Housing Plan’. http://news.nationalpost.com/full-comment/chris-selley-a-simpletons-guide-to-ontarios-fair-housing-plan