Many new investors begin with single family homes because the required cash investment is smaller than that required to purchase and apartment building, or a shopping center. Many also chose to buy condos, whether in an apartment or town house complex because their cost is even lower than a single family home. But, condominium buyers need to do more diligence in buying a condo than when buying that detached home. (Not all townhouses are condos, but all apartment condo buildings are, except for co-ops, simply be their design.)
These comments use terminology that is in practice in British Columbia. However, each jurisdiction, while the language and specifics may be different, will have essentially the same requirements.
So, where do you start? First, I would suggest that you start with a real estate agent who understands, and specializes in strata (condo) sales. They need to know the law, and how to interpret bylaws for you. They need to know what a strata plan is. (The strata plan is explained below.) By way of example, too many uneducated agents think that a patio belongs to the unit it is attached to. It may, but only if the strata plan says it does. There have been numerous law suits and complaints against Realtors because they represented parts of a condo building as being part of a unit, when in fact those parts were either common property or limited common property.
Next, you should get copies of at least two years of minutes of the strata corporation, including all General Meeting minutes. You need to scour those with a fine tooth comb, and look for signs of ongoing and serious maintenance issues. Be careful of smoke and mirrors language. In BC, there are perhaps hundreds of “leaky condo” buildings, and some strata councils try to hide bad news by using indirect language, such as referring to a soaking wet area as “damp”. They want to avoid scaring off not so savvy buyers.
The minutes should tell you what the maintenance history of the building is, and whether the owners are active in keeping the property maintained, or do they defer maintenance issues, hoping the problems will go away. One high rise building I am familiar with had the rebar in its parking garage begin to surface through the concrete. The estimated cost to repair was about $200,000. The owners delayed making the repair. But, when they finally decided to the repair three years later, the damage had increased and the cost went to $800,000. Postponing does not make the problem go away or become less expensive.
Next you need to examine the bylaws. There are several things to look for here:
1. Rental restrictions
2. Pet restrictions
3. Age restrictions
4. Renovation restrictions
5. How reasonable are the bylaws and rules?
In BC, owners have had the ability to severely restrict rentals, even after you buy. And, there is no such thing as being “grandfathered”. I won’t go into the complicated mechanics of how this works. The point is you need to know if there is a rental restriction clause in the bylaws before you buy. If there is no rental restriction, you need to find out what percentage of the building is investor owned. If it is a high percentage, the chance of these owners enacting rental restrictions is much lower. If there are rental restrictions, move on… plain and simple.
Even if there is no rental restriction when you buy, if legislation allows it, that could be changed by the owners at any time. Do your home work.
When examining the strata’s documents, be sure to go over the strata plan very thoroughly. That is the drawing that identifies what parts of the building actually belong to “your unit”, what part is for “your exclusive use”, and what is common property. Exclusive use property is referred to as “limited common property” (LCP). It does not belong to you, although you have exclusive use of it. Patios and parking are good examples, but neither is always LCP. Some developers do not sell parking stalls, but keep ownership of them and rent the stalls to residents and non-residents alike. This is rare, but is done. Check!
Locate the parking and lockers on the strata plan. Are they part of your “strata lot”, or you unit, or are they LCP or CP (Common Property)? If they are CP, the council may have the right to reallocate or move you at any time. Check!
Ask for and inspect engineering reports and financial statements. What do the engineering reports have to say about the condition of the property? Are there significant long term issues? How well funded is the Contingency Reserve Fund? If it is low, did the owners do major repairs recently? The answers will be in any engineering reports, the minutes, and financial statements.
New to BC this year, but mandatory in several other provinces, is a compulsory Reserve Fund Study. Ask for a copy. This report will also be a help for you to see the current state or repair of the property, and what expected capital expenditures over the next 20 years will be.
In BC, strata corporations may opt out of having a Reserve Fund Study done. Be cautious of these owners. Are they trying to hide something from prospective buyers? I suspect opting out will be a short term thing because I believe lenders will demand Reserve Fund Studies as a condition of the loan. That will have an obvious effect on real estate values. Those with well funded CRF’s will find their values above those comparable buildings with low CRF accounts.
Finally, try to find some owners or residents, or even neighbours who will talk to you about the building and its pros and cons. Be extremely cautious if you seem to be getting the run around from a seller or a strata council when you are asking for information. They have an obligation to provide it, and avoiding direct answers may be a tip off of problems. Numerous councils (condo boards) have directed their property managers not to release engineering reports because they contain bad news and may scare off buyers.
There are many well run strata corporations across the country with proactive owners. There buildings are well maintained, and the units in those building will maintain their value over the years. That is the type of building you want to invest in. Do your due diligence before you sign on the dotted line, or have the satisfactory answers to all of these items, and more, as a condition to your offers. You do not need to run from condos simply because they are condos. But, you need to be educated in their pitfalls.
Dan Eisenhauer is an experienced real estate investor and property manager, based in Vancouver, BC. He is currently a Senior Strata Manager with Touchstone Property Management Ltd.
Thursday, January 12, 2012
Saturday, May 28, 2011
How to Buy a Home When the Bank Says, "No!"
So, you are in the market for a home for you and your family, but you have some credit challenges, and the bank has turned down your mortgage application. Cheer up. It is not the end of the world. There are several options for you to consider.
Banks often decline mortgage application for three main reasons:
1. The borrower has a blemish in their credit history;
2. The borrower is self-employed, and banks often interpret that as meaning “unemployed”;
3. The borrower has no verifiable credit history, as would be the case with a new immigrant.
The most common way to buy a home if you fall into one of these three categories is through a Rent To Own program, sometimes called Lease Options, or Lease To Own. In a very few words, if you qualify for the Rent To Own program, your rent a home, often of your choosing, for a fixed term, and having an option to buy it for a previously established price at the end of the term. A portion of your monthly rent and a down payment (called the Option Fee) get contributed to the purchase price.
Over the term of the lease, the Tenant-Buyer is able to establish a good payment history, and to build up a large enough down payment that banks will often lend the money to the Borrower when the lease term expires.
The money would look something like this, as an example only:
Purchase Price $ 300,000
Option Fee 9,000
Rent (24 mo @ $2300) 28,800
Monthly Credit (24 @ 550) 13,200
Net rent 15,600
Total Purchase Contributions 22,200
Percentage of Accumated DP 7.4%
The Net Rent is the Total Rent minus the Monthly Purchase Credit. The Total Purchase Contribution equals the Option Fee (down payment paid on signing the lease) plus the total Monthly Credits. In this scenario, it is 7.4% of the Purchase Price, large enough to most lenders to lend the money to buy the home.
It is important for those considering buying a home whether through regular means, or by Rent To Own, that they need to qualify for the mortgage. A Rent To Own company will do its diligence on the applicant in the same way a bank does, but the rules a less onerous. However, the applicant must be able to afford to buy the home at the end of the day.
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Being an Option to Purchase, the Tenant-Buyer is not obligated to buy at the end of the term of the lease. There is another way to purchase a property when banks would not normally loan to the borrower. It is called an Agreement For Sale.
In many ways, it works just like the Option, except that it is a contract to buy the property when all conditions in the contract have been met. The numbers above would be identical in an Agreement For Sale. The big difference is that the Tenant-Buyer is obligated to buy when the contract reaches its maturity date.
If you would like more information about how you might buy a home using either of these two programs, visit our website: http://www.RentToOwnItNow.com
Banks often decline mortgage application for three main reasons:
1. The borrower has a blemish in their credit history;
2. The borrower is self-employed, and banks often interpret that as meaning “unemployed”;
3. The borrower has no verifiable credit history, as would be the case with a new immigrant.
The most common way to buy a home if you fall into one of these three categories is through a Rent To Own program, sometimes called Lease Options, or Lease To Own. In a very few words, if you qualify for the Rent To Own program, your rent a home, often of your choosing, for a fixed term, and having an option to buy it for a previously established price at the end of the term. A portion of your monthly rent and a down payment (called the Option Fee) get contributed to the purchase price.
Over the term of the lease, the Tenant-Buyer is able to establish a good payment history, and to build up a large enough down payment that banks will often lend the money to the Borrower when the lease term expires.
The money would look something like this, as an example only:
Purchase Price $ 300,000
Option Fee 9,000
Rent (24 mo @ $2300) 28,800
Monthly Credit (24 @ 550) 13,200
Net rent 15,600
Total Purchase Contributions 22,200
Percentage of Accumated DP 7.4%
The Net Rent is the Total Rent minus the Monthly Purchase Credit. The Total Purchase Contribution equals the Option Fee (down payment paid on signing the lease) plus the total Monthly Credits. In this scenario, it is 7.4% of the Purchase Price, large enough to most lenders to lend the money to buy the home.
It is important for those considering buying a home whether through regular means, or by Rent To Own, that they need to qualify for the mortgage. A Rent To Own company will do its diligence on the applicant in the same way a bank does, but the rules a less onerous. However, the applicant must be able to afford to buy the home at the end of the day.
http://www.blogger.com/img/blank.gif
Being an Option to Purchase, the Tenant-Buyer is not obligated to buy at the end of the term of the lease. There is another way to purchase a property when banks would not normally loan to the borrower. It is called an Agreement For Sale.
In many ways, it works just like the Option, except that it is a contract to buy the property when all conditions in the contract have been met. The numbers above would be identical in an Agreement For Sale. The big difference is that the Tenant-Buyer is obligated to buy when the contract reaches its maturity date.
If you would like more information about how you might buy a home using either of these two programs, visit our website: http://www.RentToOwnItNow.com
Friday, April 16, 2010
Pricing your house to sell
When buyers are looking for a new home, they use the listing price to determine which houses they will look at. The set a price range within which they will look. If you are outside that range, your house will not make the viewing list. It is a fact of life that most houses in a given neighbourhood sell within about 10% of each other.
It is important that you get the price right the first time. The longer a house sits on the market, the harder it becomes to sell. Buyers begin to think something is wrong with the house that it has not sold… especially if it is a hot market.
Market conditions can change the value of a property very quickly, both up and down. Get either a Comparative Market Analysis (CMA) from one or two Realtors. If you are considering listing your property with a real estate agent, do not necessarily pick the highest price you receive. Listen to the reasons the Realtor gives you for setting that price. Is he or she justifying the price by showing you recent sales and expired listings.
Recent sales tell you what buyers are willing to pay for a house like yours in today's market. Expired listings tell you what buyers are not willing to pay at this time. If a property is priced properly, it will always sell, regardless of its condition or location.
If your property has been on the market for longer than the average market time for your area, it is time for an up-dated CMA. Be prepared to lower your price.
Remember that is the buyer who ultimately determines what the selling price is, no matter what the listed price is. It is the market that will tell you what the selling price is going to be.
Factors that contribute to the listing price include:
• Realtor input. It will be your decision, but the Realtor will give you market information to help you pick the right price. They look at a number of factors, including: property condition, other sales in the area, size of the house, location, etc.
What happens if you under price the property? That could happen, especially if the market is rising quickly.
Well, you will be flooded by a lot of showings. Buyers and their Realtors know good value when they see it. It is possible that you will get multiple offers to consider at the same time, some above asking price.
What happens when you over price the property? This is the worst thing you can do. Buyers have a set price range. Houses in a neighbourhood often fall within 10% of a price range. If your property is over the price set by the buyer, the buyer will probably chose to ignore it.
Realtors will use your property to show their Buyers what an overpriced listing is. This will help convince them that the property around the corner is a better value. It is the property which the buyer perceives as having better value to them that determines which house an offer will be made on.
A house that is overpriced will sit on the market a long time. Realtors tend to ignore over priced listings, and the number of showing declines rapidly after just four weeks on the market. That time frame decreases even more quickly in a hot market. Buyers often know that listing has been around for a while, and the first question is often, “What is wrong with it?”
The house needs to be priced properly the first time. It will get the most showings within the first two weeks. And statistically, if a house sells, it will sell within the first 4 – 6 weeks of its being listed.
And REMEMBER… the seller sets the asking price. The buyer determines the selling price… plain and simple.
It is important that you get the price right the first time. The longer a house sits on the market, the harder it becomes to sell. Buyers begin to think something is wrong with the house that it has not sold… especially if it is a hot market.
Market conditions can change the value of a property very quickly, both up and down. Get either a Comparative Market Analysis (CMA) from one or two Realtors. If you are considering listing your property with a real estate agent, do not necessarily pick the highest price you receive. Listen to the reasons the Realtor gives you for setting that price. Is he or she justifying the price by showing you recent sales and expired listings.
Recent sales tell you what buyers are willing to pay for a house like yours in today's market. Expired listings tell you what buyers are not willing to pay at this time. If a property is priced properly, it will always sell, regardless of its condition or location.
If your property has been on the market for longer than the average market time for your area, it is time for an up-dated CMA. Be prepared to lower your price.
Remember that is the buyer who ultimately determines what the selling price is, no matter what the listed price is. It is the market that will tell you what the selling price is going to be.
Factors that contribute to the listing price include:
• Realtor input. It will be your decision, but the Realtor will give you market information to help you pick the right price. They look at a number of factors, including: property condition, other sales in the area, size of the house, location, etc.
What happens if you under price the property? That could happen, especially if the market is rising quickly.
Well, you will be flooded by a lot of showings. Buyers and their Realtors know good value when they see it. It is possible that you will get multiple offers to consider at the same time, some above asking price.
What happens when you over price the property? This is the worst thing you can do. Buyers have a set price range. Houses in a neighbourhood often fall within 10% of a price range. If your property is over the price set by the buyer, the buyer will probably chose to ignore it.
Realtors will use your property to show their Buyers what an overpriced listing is. This will help convince them that the property around the corner is a better value. It is the property which the buyer perceives as having better value to them that determines which house an offer will be made on.
A house that is overpriced will sit on the market a long time. Realtors tend to ignore over priced listings, and the number of showing declines rapidly after just four weeks on the market. That time frame decreases even more quickly in a hot market. Buyers often know that listing has been around for a while, and the first question is often, “What is wrong with it?”
The house needs to be priced properly the first time. It will get the most showings within the first two weeks. And statistically, if a house sells, it will sell within the first 4 – 6 weeks of its being listed.
And REMEMBER… the seller sets the asking price. The buyer determines the selling price… plain and simple.
Wednesday, April 14, 2010
WHAT TO DO IF YOUR HOUSE IS NOT SELLING!
First, selling your house is like going to a job interview. The presentation is critical. Presentation is the way of life in the world of real estate. Buyers in today’s market are looking for good presentation, with many basing their final decision on it.
When average home buyers buy, they buy on emotion. Buyers often know within 10 seconds of walking in the door whether or not the house was for them. They need to feel that emotional attachment as soon as they walk into your house. The buyers need to be able to see themselves living in your house. You need to make it appealing for that first glance.
There are things you need to consider when putting your house on the market:
• Clean and organize your garage. Get rid of that junk that has piled up over the years. You know how large the garage is. But, all the buyer sees is small clogged space. Pre-pack and send on needed “stuff” to storage or recycling.
• Make sure all your light bulbs are working. A well lit house looks bright and cheery. Be sure to turn on all the lights before the buyers arrive.
• Clear out all the clutter. You love your memorabilia and knick-knacks. But, a buyer wants to be able to visualize their stuff in your house.
• Clean out your closets of unused clothing. A closet that is jammed with clothes looks small to the buyer.
• Take down posters and other such art in the children’s rooms. Doing so opens the room up, and helps the buyer see what it will look like with their “artwork” on the walls.
• Remove stuff from kitchen counters and closets. Again, this opens up the room, giving it a bigger feel.
Curb appeal is really important. Many buyers will drive by your property before they make an appointment to go through it. If they do not find the property attractive on the outside, many will not go inside. Realtors often have appointments to visit houses, only to have the buyer refuse to go inside when they arrive at the house because the buyer dislikes the outside. Consider the following:
• Be sure that the lawn is impeccable condition. Keep the grass and gardens trimmed and clean of toys, etc.
• Front entries should look fresh and inviting. Repaint trim and doors if the paint is faded or chipped. Paint lawn furniture that may need attending for the same reasons.
• If you have trees or shrubs that are blocking the front door or windows, trim them back, or even replace them with smaller plants. This will open the front of the home up making it more attractive.
• Pay attention to any gardens. Renew mulch. Get rid of weeds and dead plants.
• If it is winter, and you live in a snow belt, keep the drive and walk ways clear of snow and ice.
Carrying out necessary repairs before putting the property on the market is essential. Buyers pay a great deal of attention to details, especially if the come back for future visits.
• Repair dents, holes, or scratches found anywhere around the house, inside and outside.
• Repair faucets, doors, squeaky hinges, toilets, windows, etc.
• Exterminate insects, and get rid of their debris found on window sills and lamp shades, etc.
• A new coat of paint makes the house smell fresh and new
• If carpet is worn with wear patterns readily visible, consider replacing the carpet.
In short, make it easy for your buyer to say yes to your house. Remember that they are comparing your to all the others they will be visiting.
When average home buyers buy, they buy on emotion. Buyers often know within 10 seconds of walking in the door whether or not the house was for them. They need to feel that emotional attachment as soon as they walk into your house. The buyers need to be able to see themselves living in your house. You need to make it appealing for that first glance.
There are things you need to consider when putting your house on the market:
• Clean and organize your garage. Get rid of that junk that has piled up over the years. You know how large the garage is. But, all the buyer sees is small clogged space. Pre-pack and send on needed “stuff” to storage or recycling.
• Make sure all your light bulbs are working. A well lit house looks bright and cheery. Be sure to turn on all the lights before the buyers arrive.
• Clear out all the clutter. You love your memorabilia and knick-knacks. But, a buyer wants to be able to visualize their stuff in your house.
• Clean out your closets of unused clothing. A closet that is jammed with clothes looks small to the buyer.
• Take down posters and other such art in the children’s rooms. Doing so opens the room up, and helps the buyer see what it will look like with their “artwork” on the walls.
• Remove stuff from kitchen counters and closets. Again, this opens up the room, giving it a bigger feel.
Curb appeal is really important. Many buyers will drive by your property before they make an appointment to go through it. If they do not find the property attractive on the outside, many will not go inside. Realtors often have appointments to visit houses, only to have the buyer refuse to go inside when they arrive at the house because the buyer dislikes the outside. Consider the following:
• Be sure that the lawn is impeccable condition. Keep the grass and gardens trimmed and clean of toys, etc.
• Front entries should look fresh and inviting. Repaint trim and doors if the paint is faded or chipped. Paint lawn furniture that may need attending for the same reasons.
• If you have trees or shrubs that are blocking the front door or windows, trim them back, or even replace them with smaller plants. This will open the front of the home up making it more attractive.
• Pay attention to any gardens. Renew mulch. Get rid of weeds and dead plants.
• If it is winter, and you live in a snow belt, keep the drive and walk ways clear of snow and ice.
Carrying out necessary repairs before putting the property on the market is essential. Buyers pay a great deal of attention to details, especially if the come back for future visits.
• Repair dents, holes, or scratches found anywhere around the house, inside and outside.
• Repair faucets, doors, squeaky hinges, toilets, windows, etc.
• Exterminate insects, and get rid of their debris found on window sills and lamp shades, etc.
• A new coat of paint makes the house smell fresh and new
• If carpet is worn with wear patterns readily visible, consider replacing the carpet.
In short, make it easy for your buyer to say yes to your house. Remember that they are comparing your to all the others they will be visiting.
Tuesday, August 18, 2009
Is Now The Time To Buy In The US?
Often I get asked by friends and family alike, and even some investors, “What do you think of investing in the
There are several factors which lead to my decision. The current stimulus package is going to lead to US inflation, and have a depressing affect on the value of the US dollar. Those bills have got to be paid somehow, and without increasing taxes, the Government is going to have to print money, with inflation to follow. I doubt our American friends will see inflation as they had in
As the US dollar falls, the price of oil, which is expressed in US dollars, goes up. Oil is not going up in value. The dollar is falling. That has a positive affect on resource based countries like
One factor to watch is the price of gold. It is another measure of the
In terms of falling values alone, any Canadian considering investing in real estate in the
Then we have the current housing crisis in the
Then I hear, “But, I can get it for $60,000.” Right! You can get it for that. But, who is going to rent it? What is the neighbourhood like where you are looking? There are large expanses of
And as for that $60,000 building… wouldn’t it be better to pay $30,000 or $40,000 for it later. A drop in value of the US dollar of, let’s say 25%, would wipe out any ROI for a long time. And if values come down, rents are going to follow.
There is a huge inventory of property across the
Next we have taxes, and dealing with income tax issues on both sides of the border. Anyone seriously considering investing on the other side of his or her own border needs to consult an accountant or tax expert familiar with both countries’ laws.
Now, the final concern I have is physically crossing the border. A Canadian investing in the
There are ways for Canadians to invest in the
Friday, July 17, 2009
A Lesson for Everyone
NB: While everyone should take note of this, the phone numbers below for the credit bureaus are for Canada. Sorry, my American friends. :-(
We have all heard the news reports of identity theft. You may even have experienced it yourself. However, I have had a recent experience I want to share with you, that you may be able take some lessons from.
Last week I went to pay for my dinner at a local restaurant by using one of my credit cards (one of the ones with the new memory chip in it). The card was rejected. I treated it rather lightly and figured I missed a payment, something that I try to avoid, but which does happen from time to time. My thought was I would pay it over the weekend and be up and running again by midweek, at the latest.
On Sunday I called the bank and learned that my account balance was more than $21,000. I almost had a heart attack as I sat in my chair listening to the message. I knew I had not made those kinds of purchases and that I had better talk to a real person, ASAP.
I called the Lost Card department and got through to a real person. When we began going through my purchases since my last statement, I could identify everything until she asked about a cash advance. “I don’t use my credit card for cash advances.” was my reply. We went through some more purchases, including a couple really small ones that I did not recognize, but weren’t worth worrying about. Then she asked about another cash advance… and another… and another. In total, there were 23 cash advances of $750 or more.
Leaving much of the minutia out, I have had several conversations with the bank investigators and RCMP (our local police force) over the last few days. In summary, this is what I have learned, and what I pass on to you for your information:
The lessons I have been handed over the last week include:
When this first started I thought it was a bit of a joke, and treated it lightly. However, as a result of my talks with the RCMP I recognize how serious this really is. I do not know yet whether or not I have been a victim identity theft.
Take some lessons from my experience.
We have all heard the news reports of identity theft. You may even have experienced it yourself. However, I have had a recent experience I want to share with you, that you may be able take some lessons from.
Last week I went to pay for my dinner at a local restaurant by using one of my credit cards (one of the ones with the new memory chip in it). The card was rejected. I treated it rather lightly and figured I missed a payment, something that I try to avoid, but which does happen from time to time. My thought was I would pay it over the weekend and be up and running again by midweek, at the latest.
On Sunday I called the bank and learned that my account balance was more than $21,000. I almost had a heart attack as I sat in my chair listening to the message. I knew I had not made those kinds of purchases and that I had better talk to a real person, ASAP.
I called the Lost Card department and got through to a real person. When we began going through my purchases since my last statement, I could identify everything until she asked about a cash advance. “I don’t use my credit card for cash advances.” was my reply. We went through some more purchases, including a couple really small ones that I did not recognize, but weren’t worth worrying about. Then she asked about another cash advance… and another… and another. In total, there were 23 cash advances of $750 or more.
Leaving much of the minutia out, I have had several conversations with the bank investigators and RCMP (our local police force) over the last few days. In summary, this is what I have learned, and what I pass on to you for your information:
- 1. There is a gang of bad guys working the North Shore stealing credit card data.
- 2. They think my mail was compromised and that the bad guys intercepted both my card info and PIN directly from my mail
- 3. Both the card and PIN were then remailed to me, with the PIN on what may be a phony letter. (My PIN letter, which fortuitously I kept, is now with the RCMP.)
- 4. There is also a possibility that a retailer I shopped at had its credit card information mined, although this is the less likely scenario. NB: At least one of the North Shore theatres has had its system attacked.
- 5. The bad guys use the card for cash advances until they can't use it any more. They may buy gas at a gas bar, but tend not to make purchases where they could be identified later by a person.
The lessons I have been handed over the last week include:
- 1. Those chipped cards can be compromised.
- 2. As soon as you receive one, after activating the card, change your bank issued PIN immediately, and frequently after that.
- 3. If your card has been compromised, this will limit your exposure to the fraud, but may not eliminate it. The bad guys go to work within days of collecting your information, giving you sufficient time to activate your new card. They may even activate the card themselves, although this is unlikely. They don't want you, the legitimate card owner, to call to activate your card, only to find it has already been activated by someone else.
- 4. Check your credit rating at least annually, and preferably every 6 months, to see if anyone is creating accounts in your name. CHECK BOTH!
- a. Equifax Canada 1 800-465-7166
- b. Trans Union Credit 1 800-663-9980
- (As I noted above, these numbers are for Canada. My American friends should check for the US phone numbers.)
- 5. When they arrive, check your credit card and bank statements carefully for irregularities.
When this first started I thought it was a bit of a joke, and treated it lightly. However, as a result of my talks with the RCMP I recognize how serious this really is. I do not know yet whether or not I have been a victim identity theft.
Take some lessons from my experience.
Sunday, June 28, 2009
How much should I spend on renovations?
Recently, I became involved with a property that was clearly over price for the neighbourhood. It was a very well built side by side duplex, with each side having a self-contained suite. Workmanship and finishes were first class.
We see all kinds of programs on TV where, generally, new investors go into a property, with the hopes of renovating and making a killing when they resell. It would be interesting to learn what percentage of those "speculators" actually make money on the transformations. I call them speculators because newbies entering a business they do not know with the hopes of making a profit on the flips are not true investors, IMHO. They may become investors over time and with experience.
A rule of thumb in renovating a home is to never spend more that 5% of the value of the home on a renovation. So, if a home costs $300,000, the most you should spend is $15,000.
There is a lot to be said for adding rouge and lip stick only when renovating a home, in others, cosmetic repairs only. However, if the property in question is the lowest valued home in the neighbourhood, and doing major renoes, such as redoing kitchen and bathrooms, will bring the value up to the neighbourhood standard, then by all means do the renovations.
What about the property I mentioned above? Well, another rule of thumb is, "Never do improvements to a property that would increase its value more than 10% above the neighbourhood average." If homes in the area have an average value of $300,000, and the combined value of the property in question and the renovations totals more than $330,000, you will be over improving the property, and will never get your money back.
In this case, the market value of surrounding detached homes was about $330,000. The asking price for each unit was $400,000. I first looked at these two units in August 2008. As of June 2009, they are still for sale.
Years ago a friend of mine owned a home in an area where the average price was about $140,000, as I recall. He decided to do MAJOR renovations to the home. The house was a one of a kind home when finished. They had a huge walk in closet and bathroom off the Master Bedroom (taking out the other two BRs on the main floor in the process), a cavernous basement family room, a party room with hot tub accessed through the MBR by a circular staircase. This room had a spectacular view of Halifax Harbour. This is a house that I would love to own.
When my friend put it on the market, his asking price was well into the $200s, far above the 10% guideline. I do not know what it finally sold for, but I am pretty certain my friend took a bath, other than in his hot tub.
In summary, when doing renovations, keep your work under 5% of the value of the property. Do not take the supposed value of a property after renovations over 10% above the average value of the neighbourhood.
We see all kinds of programs on TV where, generally, new investors go into a property, with the hopes of renovating and making a killing when they resell. It would be interesting to learn what percentage of those "speculators" actually make money on the transformations. I call them speculators because newbies entering a business they do not know with the hopes of making a profit on the flips are not true investors, IMHO. They may become investors over time and with experience.
A rule of thumb in renovating a home is to never spend more that 5% of the value of the home on a renovation. So, if a home costs $300,000, the most you should spend is $15,000.
There is a lot to be said for adding rouge and lip stick only when renovating a home, in others, cosmetic repairs only. However, if the property in question is the lowest valued home in the neighbourhood, and doing major renoes, such as redoing kitchen and bathrooms, will bring the value up to the neighbourhood standard, then by all means do the renovations.
What about the property I mentioned above? Well, another rule of thumb is, "Never do improvements to a property that would increase its value more than 10% above the neighbourhood average." If homes in the area have an average value of $300,000, and the combined value of the property in question and the renovations totals more than $330,000, you will be over improving the property, and will never get your money back.
In this case, the market value of surrounding detached homes was about $330,000. The asking price for each unit was $400,000. I first looked at these two units in August 2008. As of June 2009, they are still for sale.
Years ago a friend of mine owned a home in an area where the average price was about $140,000, as I recall. He decided to do MAJOR renovations to the home. The house was a one of a kind home when finished. They had a huge walk in closet and bathroom off the Master Bedroom (taking out the other two BRs on the main floor in the process), a cavernous basement family room, a party room with hot tub accessed through the MBR by a circular staircase. This room had a spectacular view of Halifax Harbour. This is a house that I would love to own.
When my friend put it on the market, his asking price was well into the $200s, far above the 10% guideline. I do not know what it finally sold for, but I am pretty certain my friend took a bath, other than in his hot tub.
In summary, when doing renovations, keep your work under 5% of the value of the property. Do not take the supposed value of a property after renovations over 10% above the average value of the neighbourhood.
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