Skip to content

Tagreal estate trends

Posted Case study

Investing in a multi-unit properties? Take care…

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 Mortgage News

CIBC Economist gives us the stats

CIBC Senior Economist, Ben Tal, spoke at this year’s annual Mortgage Broker conference in Montreal.  The conference, organized by the Canadian Association of Accredited Mortgage Professionals, is a great place for Mortgage Brokers to meet all the Lenders and service providers under one roof.

It’s also a great opportunity to hear some of Canada’s experts talk about the economy, real estate, interest rates and the mortgage market.  Here are a few highlights from Mr. Tal’s presentation.

-there are 12.5million households in Canada…31% rent, 69% own..

-of the 69% that own, 39.9% have a mortgage and 28.9% have no mortgage.

-69% of homeowners with a mortgage have more than 20% equity in their homes… only 30% have less than 20% equity in their homes.

-Renters have excellent cashflow… 96% of renters are using less than 40% of their income to pay for all their debts… so in reality, these renters could qualify for a mortgage based on their debt servicing ratios.. (most lenders allow borrowers to use up to 42% of their gross income towards a mortgage payment)…

One more comment that caught our attention was about Variable rate mortgages vs. Fixed rate… The historical data is overwhelmingly in favour of Variable rates….it’s really been a no-brainer… But what about now?  Fixed rates are at historical lows…  Mr. Tal said that Fixed rates might outperform Variable rate over the next 5 years… BUT it is so close that a 0.50% increase in Fixed rates would probably tip the scales back in favour of Variable…

That being said, we must also consider the flexibility of a Variable Rate product.. it does allow one to lock into a fixed rate at any time and it does allow for an early exit at a minimal cost….   For me, Variable rate is still better choice…for most of us.