Today's post is from guest editor, Julia Stepanova, a local real estate expert who has done some great investments herself, and is on board to help guide us in our wealth building activities.
In Toronto the real estate market has not been as affected as it is in the USA. In fact we've had a hot market for the past few months. Our 2010 Forecast called for a strong first half in sales and a slower second half due to three factors.
- the introduction of the HST (which will NOT impact prices in the resale market but will increase the cost of services and new properties over $400,000).
- we are expecting a bump in Bank of Canada interest rates in the second half of the year, which will make it harder for some people to afford (and therefore fewer people will buy).
- more listings are coming to the market (particularly in the condo segment). Right now the market is still hot but will be softening towards the end of June/2010.
And if you like to take your time looking for a place and multiple offers is not your thing this means it is your time to shine.
If you are looking to get into the real estate market it's a great time.
But how do you get the most out of it?
First, make sure you're taking the right steps.
1. Get yourself preapproved by going to your local bank.
2. Decide on the area.
3. Write your wish list.
4. Find an agent specializing in your preferred area.
5. Do not forget to allocate 1.5% of the purchase price towards the closing cost.
If you want a steady return on your money, houses can be a sure bet and it have two strong things going for them as an investment.
First, any capital gains on your principal residence are tax-free. If your house appreciates by 6 per cent, you get to keep every cent of your gains. Now 6 per cent may not sound like much, but in terms of how much you end up with, you'd have to earn as much as 12 per cent on a fixed-income investment such as a GIC to match that return, after tax.
Second, you don't have to come up with the full purchase price, meaning you're able to harness leverage. The conventional mortgages require a down payment of 25 per cent of a house's appraised value. Where as the High Ratio Mortgage, requires only 5% down payment.
For example, if you buy a $200,000 home, you need to come up with around $50,000 for a conventional mortgage. If the home's value rises to $220,000, that's an increase of 10 per cent. But what's really happened is you've put up $50,000, and made $20,000. Your real gross return on your invested funds is around 40 per cent. But notice the word “gross”. Don't forget that your real return will be less.
Buying a home and having a mortgage is also a tremendously powerful forced savings program. You need to pay for housing, whether you are renting, leasing, or paying your mortgage. So why not put your money towards a mortgage, and if you invest wisely when you sell you will get it all back. If you rent, you never get anythign back.
Julia is a real estate agent with Re/Max Condos Plus and you can find her here