Another property???

Well, there are those that are close to me that might know which home I am moving into to try to buy. At this point, we are still in the negotiation stage, but I'd like to reach an agreement in the next couple of weeks. It's going to be a private deal to save the seller some commissions. I'm hoping that this will translate into some savings for me.

I'll keep people posted. I'm sorry for the vague nature of the post, but I really wanted to share this information. I suppose that a little post is better than nothing right?

Changing the way business is done in Ottawa

There are probably quite a few people that read this blog that do not have any experience whatsoever in real estate. This is fine. It's one of the main reasons that I have this blog. I enjoy sharing my knowledge and experience with everyone. As such, I am going to talk a little bit about another speaker that was at the OREIO roundtable on Monday.

The speaker was a lawyer. Now, lawyer's tend to have the mindset that anything that can go wrong will go wrong and that's not necessarily a bad thing. You want to be protected by the law in case something does not work out for you, especially in real estate. With such high dollar amounts, a bad deal in real estate can take years or even decades to recover from. I was definitely listening closely to what he had to say.

With the recent decline in the markets, there is a greater likelihood that someone will be pulling out of a signed deal. A potential buyer could have second thoughts when purchasing a home, especially if they have just lost their job. Now, as a seller, you need to protect yourself against this. Typically, a deposit is given at the time of offer to show the vendor the seriousness of a bid on a property. In Ottawa, the amount has usually been a token amount, about $1000. This is not the rule, but fairly custom in Ottawa.

Now, the $1000 is all that the vendor has against the buyer if the buyer backs out. This is not sufficient. If you have pulled your house off the market to work a deal, you are possibly letting other potential buyers slip by. You need to be compensated for this. It is not uncommon for a property in Toronto for the deposit to be in the $20,000-$30,000 range. This allows the vendor to recover some of the legal fees and some of the headaches that accompany this type of failed deal.

The lawyer's message was clear. Ask for larger deposits when selling your home. If buyer's are serious in your property they will put up or shut up. It's important that you protect yourself from a bad deal, especially given the deteriorating economic environment.

Lawyer fees

The other day someone had asked me about lawyer fees on a real estate purchase. This is a bit of a tricky area. It's sort of like the Southwest Airlines commercials. You know, the ones where the guys are scuba diving when one of the men realize that is no oxygen tank, and finds out after he's under water that there was an extra charge. There are always extra costs to consider.

First, I was charged $400 by my lawyer, but that did not include many of his disbursements. Some lawyer's may include their disbursements in their quotes, so the quotes can differ quite a bit. When I went for a mortgage, the mortgage broker had estimated costs of about $1400 for a lawyer. I am assuming that this amount included many of the disbursements. All in all, I paid about $1000 for all of my legal work. This includes title registration and other various things lawyer's do. I recommend that you budget for the worse (say $1400) just in case, but realistically it should be less if you have a decent lawyer.

Planting the real estate seed...

I'm not going to say that real estate is easy, but getting the word out that I'm going to be a real estate agent is pretty easy. It's a good introduction for people. It allows me to let them know that if they ever need someone to buy or sell a home that I would be available to them. The person may not be ready to buy or sell right away, but at least they know that I will soon be able to help them out.

So, when do I get my licence? Well, that isn't for certain yet. There are three courses that I need to pass first to be eligible. Typically, as I understand, it should take about 6 months to complete. Unfortunately, I don't think I want to spend that much time waiting for the exams to occur. I'm going to push myself to write right away, so that I can begin selling in 2009. I'm not sure if it's even possible with the way the exams are scheduled, but I will push for that.

So, if you're sitting there thinking, I think I would like to help Chad out with getting started in real estate, well, here's something I can do for you now. I'm going to give you a little bit of planning advice. If you're seriously thinking about buying a house in the near future, begin by putting money into an RRSP. You're going to need a downpayment for the house, so you might as well do this. Under a program called the Home Buyer's Plan (HBP), you can withdraw up to $20,000 from your RRSP for your first home. The only catch is that the money has to have been in your RRSP for 90 days. Therefore, before you go and start looking for your home, you should be putting your downpayment into an RRSP, so that you will be able to save on your taxes next year, and have a decent downpayment for your home.

So, how does this help me? Well, first, it gets me 90 days closer to my real estate licence. :P Next, it will also give you a natural buffer for giving yourself enough time to make the right decision on likely your biggest investment decision of your life. That way, I can ensure that you will be a very satisfied customer and that you will refer me to anyone else you know that may be looking at purchasing a home.

Howdy Neighbour

OK. I've had another brain wave. I have to thank my real estate agent for this one. Jeff called me the other day to let me know that he has recently sold one of his properties. He had just purchased it, but decided to flip it as he was going to turn a nice little profit.

The downtown market is still hot. There are parts of the city where housing prices are certainly cooling off, but the downtown core is where it is at. This is where the brain wave comes in.

I'm going to visit my neighbour. The home that I purchased is a semi-detached and it yields a nice return on my investment. The rental income is great. I even end up with some positive cash flow on a monthly basis. This is fairly rare in the real estate world. Real estate is very cash hungry. It takes a lot of cash to make any money.

I want to visit my neighbor to see how much he is willing to sell his half of the house for. I'd like to know because having the whole building will be much better than just one half. If I wanted to do some work to the exterior for example, I will not have to consult with my neighbour about performing the repairs.

Now, I know I do not have the money right now. I'd have to sell my house in Stittsville. Although I've had it pretty good with the tenants, I want to maximize my investment by getting deeper in the downtown market. I'd hope that I could sell the house in Stittsville and use the proceeds to purchase the house downtown. There are a lot of steps required for this to happen, but I suppose it wouldn't hurt to at least communicate with my neighbour about the possibilities of him selling. I think it is simply another rental property, so hopefully he doesn't mind taking some profits off of the table.

US real estate

With the American housing market in crisis, the Canadian dollar at near parity, and foreclosures at an all-time high in some of the southern states, Real estate is becoming a very attractive venture for Canadians. I hadn't really thought about US real estate at this point in my portfolio, but it certainly appears as if this is the time to be acting.

There are quite a few risks to consider when going into real estate in the US. At this point, I am probably just posting this as a reminder to myself to look at some these risks in further detail. There are different rules for estate taxes. There is currency risk. There are higher property taxes for non-residents. There are a slew of things to consider.

On the other hand, if you had owned an ocean-side property, in say Florida this past winter, you would be smiling as you would have been able to take a mini-vacation at a very reasonable cost. US real estate may not be everyone's cup-of-tea, but under the current circumstances, this may be the chance to take advantage of the weak American economy.