Investing in a multi-unit properties? Take care…

March 30, 2011 — Steve Garganis

Recently, I noticed something very strange happening with multi-unit properties and I want to share two experiences with you…

I was approached to refinance 2 separate and different Multi-unit properties by 2 completely different borrowers.    Both properties were in the Greater Toronto area.   They were both in great condition and were bringing in good rental income.

Property 1 was purchased in 2008 for $385k.  There are 3 legal rental units.   It generates good rental income of $3700/month. The owner paid utilities.

Property 2 was purchased in 2006 for $610k.  There are 3 legal rental units.  It generates rental income of $3400/mth…. The tenants paid utilities…(it should be noted that Property 2 is in a more expensive part of town where real estate prices are higher).

Fast forward to today…. Based on current appraised values, Property 1 is currently worth $460k, Property 2 is currently worth $660k.   Keep in mind that these are actual rents for both properties.

So how can this happen?  It’s clear to me… the buyer’s of Property 2 overpaid in 2006….Property 1 is in a less expensive part of town but the rental income and condition of the property are more relevant when dealing with investment properties….

How can you avoid this mistake?  Seek out the help of a good Mortgage Broker… A good broker can seek out the opinions of a recognized real estate appraiser… and even crunch the numbers with an experienced Lender to determine the property’s Lending Value…

As an aside, the average sale price of a single family home in GTA in 2006 was $350k…. today, it’s around $427k.   Multi-unit dwellings can be attractive but consider single family homes if you want to invest in real estate.  Always discuss the purchase with a trusted group of advisors… including your Mortgage Broker.

 

Posted in Case study, Mortgage Tips, Real Estate Trends. Tags: , , . Leave a Comment »

Inflation rate drops in February and rate hikes pulled back.

March 24, 2011 — Steve Garganis

It may seem hard to believe  but Canada’s core inflation rate is down in February to lowest level since 1984 as reported by CBC.  It’s now 0.90%.

Filling up my car at the gas pumps or buying groceries is certainly costing me more… So how can the inflation rate be lower be lower?

The Core inflation rate strips away food and energy costs resulting in a lower rate of inflation.

The Bank of Canada has a Target inflation rate of 2%.  The Target range is 1% to 3%.  When you combine a high Canadian $dollar that is at par with the $US dollar and this low inflation rate, the Bank of Canada less likely to raise the Target Rate….for now.

Here are a few forecasts…  Citigroup says a rate hike will not take place in April but instead, July.  And retired RBC Chief Economist, Patricia Croft says to watch the Bank of Canada 2 year bond yields for an indication of where the market thinks rates are headed.   The yields have dropped from 1.90% to 1.68%.    She says the market thinks rates won’t go up til October and only by 35bps.  But she thinks we should be ready for summer rate hikes.  The next few inflation reports will play a big part in the Bank of Canada’s future decisions.

I tend to agree with both forecasts… Summer rate hikes are  likely…. but I’m not sure how high and how quickly these rate hikes will happen.   We’ll be watching and reporting.

Posted in Interest rates, Mortgage Rates, Mortgage Trends, Rate forecast. Tags: , , . Leave a Comment »

CBC news reports Scotiabank slams client with $30,000 penalty!

March 23, 2011 — Steve Garganis

A word about world events the past 4 weeks…  We have seen a lot of turmoil overseas……  Egypt, Libya  and other middle east countries…. We need to pay attention…. Let’s hope for an immediate and peaceful resolution…

The Tsunami in Japan has been horrible… the images on TV are tough to watch…what a tragedy… Our hearts go out to the people of that nation.

Fixed rates drop slightly and Variable rates remain flat.

We have also seen how mortgage rates can be affected by these events… The uncertainty has caused the Bond market to fall…. and we even saw a very small rate reduction by the Big Banks… Posted Fixed rates are down around 10bps… 5 yr fixed is 5.34%.

Variable rates are expected to stay the same until end of summer…maybe longer…Current Variable rates are around 2.25%.   There were some stats on inflation falling… we’ll report on this later as this will have a big impact on future interest rates…

Scotiabank says ‘You’re richer than you think’… Well, not if you have one of their mortgages.

Here’s another Mortgage Penalty nightmare… CBC’s Kathy Tomlinson reported that one Scotiabank client had his penalty double over the course of 9 months.  They first quoted him a penalty of $13,000 on a mortgage that was over $400k…

In November, he sold his condo and when he went back to the Scotiabank branch, his personal banker said his penalty was now $33,000….!!  Yikes!   The borrower was floored, to say the least…  How could this happen.. ?

Well, the Banks have been getting away with this for over a decade… (here’s a link to an in-depth study that we did in January that explains in detail how they do it and why it’s not right and needs to be challenged.)

In the end, by the time the client closed his sale, the penalty had dropped to $30,000 (because interest rates went up) and Scotiabank discounted this by another $5,000 for a total penalty of $25,000.  It was their gesture of goodwill according to the article….  (I’m sure that made the client feel much better.. it’s like saying, “drink this glass of poison kool-aid… no wait…you only need to drink half that glass….It will still kill you but it’s our goodwill gesture.”)

And here’s something I picked up in the article that should be addressed… the client said he was 2 years into a 5 year blended fixed rate at 5.19%…that means he either refinanced his mortgage or early renewed… that rate of 5.19% is extremely high… Discounted rates in April 2009 were around 4.19% and falling…  This also would indicate that he may not have received a fully discounted mortgage rate.  And if that’s the case, then how could he be charged this enormous penalty?  I would love to see the paperwork on this penalty calculation…

Come on Federal Govt…. you promised to standardize mortgage penalties over 14 months ago… what are you waiting for?   Canadians need this now… not when the economy is strong and interest rates go up…  Make the changes now…

Posted in Case study, Interest rates, Mortgage News, Mortgage Rates. Tags: , , , , . 11 Comments »

Scotiabank says Bank of Canada won’t move till October

March 7, 2011 — Steve Garganis

Last week, the Bank of Canada (BOC) kept it’s Target Rate unchanged for the 4th consecutive meeting.  That’s means Bank Prime is still 3.00%.  Many Experts and Economists think the next rate hike will come as early as April or as late as June….

But not all Economists agree.  Scotiabank’s economists say the rate will remain unchanged til October.   They give a detailed explanation as outlined in this National Post article... but the main reasons are:

  • high $Canadian Dollar (an increase by BOC usually increases the $CAD)
  • global uncertainty… the middle east turmoil and European debt worries
  • tougher financing rules including the new mortgage rules
  • U.S. Fed not expected to raise their rate til next year…any increase by the BOC would push the $CAD even higher and make our exports even more expensive
  • possible Federal election in Canada coming soon.. and provincial elections this year…  history tells us that rates are usually flat during election time.

The Scotiabank economist make a good argument.   I like the political reason… History shows us politics play a big role in the BOC actions….  Enjoy the low rates… They seem to be here for a while.

Posted in Mortgage Trends, Rate forecast. Tags: , , . Leave a Comment »
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