Tan.gazine July 2011 Volume 01 Issue 10
How Important
Is the Lowest Mortgage Rate To An Investor’s Success?
>> Page 3
Bankruptcy Blues... >> Page 6 Grow Ops & Fooled Landlords A Cautionary Tale.... >> Page 7
Royal LePage
Sales & Average Price Up In June
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TREB Report - 14 Days Of Increase Sales In July, 35% Over 2010 Comparable >> Page 8
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Tan.gazine How important
is the lowest mortgage rate to an investor’s success? Dalia Barsoum
July 2011
Many investors call their lender and ask, “What is your best mortgage rate?” While reducing your cost of lending, including lowering the interest paid on your mortgage, is important, there is more to evaluate when it comes to arranging a mortgage for an investment property. This includes: • Prepayment privileges • Prepayment penalties • Portability • Cash back and cash-back clawbacks • Value-add services and quality of mortgage advice provided by your lending advisor • Low lender fees (if applicable) Your investment strategy and objectives should drive what you are looking for in a mortgage. Let’s assume you’re buying a cash-flowing investment property to build equity and to possibly re-finance at some point in the future. You call up your lending advisor and ask, “What’s your best five-year mortgage rate for a variable rate mortgage?” and you get the answer prime -90, beating an earlier quote you received by five basis points. You then decide to move forward based on this great rate. If you have not enquired about and paid attention to the prepayment privileges in this case, you may be dealing with a product with a deep discounted rate but with restrictions on re-financing including your ability to do so during the mortgage term. You could unintentionally limit your ability to effectively execute on your investment strategy or incur costs that could have been avoided in the first place. It is not all about the rate. It is about the right mortgage and working closely with a lending advisor who understands your financial situation, portfolio objectives and the types of investment strategies you are using to achieve those objectives
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Tan.gazineNews Investor Peter Kinch examines the cost of Bankruptcy getting bad financial Blues Peter Kinch July, 2011
I had a conversation with a client the other day that really bothered me. The client started the conversation by informing me that they had been through a bankruptcy seven years ago but their credit had been squeaky clean since, and now they are ready to try and get back into homeownership. At first I winced at the thought they had waited for seven long years before re-applying for a mortgage when they could have easily qualified for one much sooner, but that wasn't the worst of it. I then asked if they had re-established any credit over the past seven years, then braced for the answer I was afraid of. They both looked at each other and then back at me with that all too familiar 'I'm not quite sure what you mean' look. Patience not always a virtue... As I feared, they had been told at the time of bankruptcy that they would not be able to qualify for any credit for at least seven years. Now, they might not have been actually told this, but that is certainly the impression that had been made. So here's the worst part - I then had to explain to this nice couple that although it is quite admirable that they have had perfect credit for the past seven years, they also have not re-established any credit in that time and from a lender's perspective that is the single most important component of deciding to lend again to anyone who has a previous history of bruised credit. In fact, most lenders will want to see that you have re-established two to three 'trade-lines' or sources of credit over the past two years and that you have paid them diligently. This proves to a lender that your bankruptcy was an isolated incident and you now have the ability to manage your debt. The fact that you have spent seven years avoiding debt unfortunately does not help a lender determine whether or not you have learned how to handle or manage a debt load. As counter-intuitive as it may seem, no debt or no active trade lines is equal to bad debt in a lender's eyes, because the best indication of future behaviour for a lender is a client's past behaviour. So what did this mean for our unfortunate couple? After waiting patiently (based on poor advice) doing absolutely nothing for seven years to wait to apply for a mortgage, they now have to spend an additional two years re-establishing credit by securing two or three trade lines (such as a Visa or line of credit or a car loan) before any prime lenders would look at a mortgage application. That's nine years in total! I didn't have the heart to tell them that if they had received the right advice from the beginning and simply gone out and established two or three trade lines from the beginning - which they could easily have done within a month of being discharged - they would have been able to
advice...
apply for a mortgage at fully discounted rates five years ago!. I'm writing this article because I have seen too many variations of the above scenario too many times, and I feel compelled to get the word out. Too many consumers who have experienced debt issues are not given this simple advice. So here it is in a nutshell: please spread the word so that others can be spared the same experience. A game plan • If you have declared bankruptcy or applied for consumer debt proposal (OPD) and you want to qualify for a mortgage in the future here are the rules: Yes it is true that the bankruptcy or bad debt will remain on your credit bureau for seven years, but this is not to be misconstrued to mean that you will not qualify for credit for seven years. • From the moment you are discharged, you may apply for a variety of credit sources that will allow you to re-establish your debt and credit rating. These include: • A pre-paid or secure Visa card (Put $5,000 in a trust account as security and then get a secured Visa card with a $5000 balance) • Have a family member or friend act as a co-signor or guarantor for you to get a secured loan from a lender as long as you are the primary borrower. • Get a car loan • An RSP loan Your loans must report to one or both of the credit bureaus and the limits must be at least $2500. Once you get two or three sources of credit - use them and pay them off. The purpose of these loans and credit cards are to prove to a future lender that you now have the ability to use credit responsibly. That means that credit lines must be revolving not just static. Use them - pay them! If you have two to three revolving trade lines and can show that you have had them for at least two years in good standing, and proven that you have re-established your credit - then you may apply for a fully discounted mortgage at virtually any lender and even qualify for high ratio mortgage insurance through CMHC.
Police had to condemn the properties of a few landlords in the Calgary area after they were found to house marijuana growing operations under the Hells Angels bike gang.
July 2011
The results are a cautionary tale to carefully screen and monitor the premises of your rental properties, Staff Sgt. Tom Hanson of the Alberta Law Enforcement Response Teams told the Calgary Herald recently. The criminals typically sent families with children or elderly people to pose as prospective tenants, Hanson said. Landlords can avoid such a disastrous result by requiring tenants to provide proper identification and then performing background checks, as well as checking in on the property from time to time.
that were seized, but rather grew marijuana plants there. The moisture caused by the watering operation caused extensive mould damage, according to the Herald, and the homes’ utility connections and foundations were also compromised by illegal hookups designed to steal water and electricity to feed the operation. Such illegal hookups can cause other problems, as well. An illegal electrical hookup led to a fire at a grow operation east of Calgary in 2009. “The damage that had occurred to some of these properties, I can say they were being used for a very long time,” Hanson told the Herald.
Tenants did not live in these actually properties
TorontoMLS® Sales and Average Price Up in June In June, the median price was $405,000, from the $367,750 recorded during June of 2010. TORONTO - July 6, 2011 Greater Toronto REALTORS® reported 10,230 home sales through the TorontoMLS® system in June 2011 – up 21 per cent compared to June 2010. This number represented the third best June result on record behind 2007 and 2009. The number of transactions during the first six months of 2011 amounted to 48,189 – down by 4.5 per cent compared to the first half of 2010. “The strong June result capped off an interesting first half of 2011,” said Toronto Real Estate Board President Richard Silver. “The pace of sales was a bit sluggish at the beginning of the year, but rebounded in May and June. Because of the positive affordability picture, home buyers remained confident in their ability to purchase and pay for a home over the long term.” The average price for June transactions was $476,371 – a 9.5 per cent increase over June
2010. Through the first six months of the year, the average selling price was $467,169 – almost an eight per cent increase compared to the same period in 2010. “While sales have been strong, we would be on track for a record number of transactions in 2011 if not for the decline in listings so far this year,” said Jason Mercer, the Toronto Real Estate Board’s Senior Manager of Market Analysis. “Tight supply meant more competition between home buyers and an accelerating annual rate of price growth in the second quarter.” “Home owners will likely react to the stronger price growth by listing their homes in greater numbers. A better supplied market would result in more moderate price increases,” continued Mercer.
Tan.gazineNews
Bike Gang Fools Landlords To Setup Marijuana Growing Operations: Police
Tan.gazineNews
June, 2011
Greater Toronto REALTORS® Report July Mid-Month Resale Market Figures Toronto, July 18, 2011 – During the first 14 days of July, Greater Toronto REALTORS® reported an increase in sales and the average selling price compared to the first two weeks of July 2010. The number of sales through the TorontoMLS® system was up 35 per cent to 3,609, compared to 2,672 last year. “Low mortgage rates, rising incomes and good news on the jobs front have kept consumers confident in purchasing a home in the Greater Toronto Area. In fact, home buyers are much more confident than they were this time last year when concerns around the HST, interest rate hikes and new mortgage lending rules had temporarily put a damper on home sales,” said Toronto Real Estate Board (TREB) President Richard Silver. Tight market conditions in the GTA drove a strong rate of price growth through the first two weeks July. The average selling price was $464,277 – up 9.6 per cent compared to the average of $423,773 in July 2010. “Enhanced competition between home buyers continued to drive strong price growth through the first two weeks of July,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “While new listings were up year-over-year in the first half of the month, seller’s market conditions were sustained as sales grew at an even greater rate.”
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Summary of July Sales & Average Price July 1st to July 14th
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Are These The Questions Floating In Your Mind? • Is the Canadian Housing Bubble Forming? • Are you ready for the return of Real Estate Market? • Are you not wondering, what is next in the market? • For all Sellers, is it still possible to sell for a good price? • How do you prepare to buy or to sell a home in a slow market? • If you are renting now and is thinking of buying a home but you have bad credit, past bankruptcy etc and do not know what to do next. you next e t move? o e? What iss your
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