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Insights Please select from the links below: › Getting Ready to Sell - CMHC › Home Buying Tips - CMHC › 15 Ways to Get a Better Mortgage Faster - by Ozzie Jurock › Investments & Tax Advantages › Fractional Ownership › Rental Pool › Third Party Representation › Strata Implications Getting Ready to Sell - CMHC For answers to most of your questions and concerns in regards to getting ready to sell click on the following link: http://www.cmhc-schl.gc.ca/en/co/buho/buho_002.cfm?renderforprint=1 If you have any additional questions please feel free to call Matt as each property and market situation is unique. Return to Top Home Buying Tips - CMHC Buying a home or vacation home is a major emotional and financial commitment. Here is some information to get you started: http://www.cmhc-schl.gc.ca/en/co/buho/hostst/index.cfm?renderforprint=1 Return to Top 15 Ways to Get a Better Mortgage Faster - by Ozzie Jurock  Negotiating a new mortgage or a change to your existing mortgage requires more prep work than walking in and screaming: "I've been a customer at this bank for eight years and never missed a mortgage payment." Getting a mortgage is sometimes hard enough. Getting the best mortgage - as in a mortgage with the absolutely lowest 'not for everyone' rate and one with various other concessions - can be even harder. Hard, but not impossible.1. Concessions are negotiated in exactly the same manner as a whole new mortgage. Your banker must be educated as to why you deserve special treatment. It is important to demonstrate how wonderful your application is when compared to the dozen or so mortgage files piled on the mortgage manager's desk. Yes, the length of time you've banked at the institution is important, but only after you've met the bank's basic criteria. 2. The better you look, the better the deal you can wring from the banker. When it comes to loans and mortgages, most banks have one-half-per-cent to a full one per-cent discretionary leeway in their posted rates. Simply ask for the best rate. Don't worry. They can afford it. Today's financial institutions are flush with mortgage money. The real-estate market volume is off in many markets by 30 per cent, banks are prepared to lend more, competition is fierce. Any stated bank rate can be beaten, just for the asking. If you're a "heavyweight" borrower, with lots of clout, you can get up to a three-quarters of one-per-cent reduction. Just by asking. More you may have special clauses, like no-frill mortgages or early closing. 3. Rather than the standard 60-day grace period on a pre-approved mortgage, banks will sometimes hold it open to a full 90 days. Cheaper money than the norm, held open for you longer than the norm... but only if you can give the banks solid reasons for doing so. 4. While banks should be more consumer-oriented and are doing their darn best to appear that way in their promotion literature and television ads, keep in mind any concession granted to you means less income for them. What you gain, they lose. If a bank is to feel comfortable making a smaller profit, it must feel secure knowing the profit is coming in without interruption. For example, by you shifting your other chequing, savings and other accounts and RRSPs etc. to the bank. While the bank won't get rich on your mortgage alone, it will benefit from having all of your business. Offer to give them everything and it should swing the balance in your favor. 5. Understand exactly what elements a banker seeks when appraising risk as the bank may not be willing to look beyond the surface facts on your application. But if all the "right" elements are there, the better the chance the loan will be approved without question. Banks rarely rely on charisma as the sole reason for granting concessions (the Reichmann brothers being an exception... and look what happened there). The more your strengths are reinforced on paper, the better and easier the negotiations. 6. Remember, the person you see and charm at the bank or financial institution may not be the one making the ultimate decision about your mortgage concession. Before you visit your banker, learn how to sell your application. Consider the following factors to determine your strengths: a. Equity. Do you have more than 25 percent equity in your home or can you ante in a 25-per-cent downpayment on the manse or cubicle of your dreams? The stronger the chains that bind you, the happier the banker. Besides, if you default and the place goes into foreclosure, your 25-per cent interest should - and will - take the bullet for any losses if the market has meanwhile gone into a downturn.7. Some banks won't advance 75 per cent of value on non-residential properties. If you're not living in it and thus haven't as strong an emotional and practical interest in the place, neither does the banker. In general it's much easier negotiating a loan when the bank is asked to provide 65 per cent or less. Raw-land advances are generally 50 per cent or less than the property's value. But by placing the mortgage on your existing property, or offering it as a co-guarantee, advance amounts can be increased dramatically. 8. Call it a numbers dance but sometimes a large downpayment can save you a good chunk of money in both the short- and long-term. By law, banks can only advance up to 75 percent of the property's assessed value. Anything more than this and the subsequent "high ratio" loan must be reviewed and insured through Canada Mortgage and Housing Corporation. Which means, of course, an extra premium payment tacked onto each and every monthly mortgage payment. When taken to the end of the standard 25-year amortization period, that initial CMHC insurance can compound out to literally tens of thousands of dollars in extra payments. While there are more creative ways to obtain high-ratio financing such as vendor take-backs or involving alternative properties as collateral, in general, there will always be a premium or higher rate of interest on any mortgage loans greater than 75 per cent of the property's value. 9. As stability is the measure of your "reliability", if you've changed jobs within the past year, be sure to emphasize your previous and (it's hoped) uninterrupted experience in the industry in which you've committed your life. Before heading off to the bank, be sure to call the Consumer Information Department at the Credit Bureau of B.C. and see how you measure up. (In Vancouver, telephone (604) 685-2744. In other areas, check with the Better Business Bureau for the correct credit department.) The Credit Bureau acts as a reporting agency on personal and business credit worthiness. If something is incorrect or amiss in your file, send in the appropriate documentation and get it corrected. You may also enter a narrative to explain the extenuating circumstances behind any previous credit misunderstandings. 10. Cash flow or debt-service ability is probably one of the most highly scrutinized elements of any mortgage application. If you don't have a downpayment in excess of 35 per cent, the financial institution will be most interested in how you're able to prove your ability to repay the loan. If you work in a salaried job, proving this ability is simple. The banks simply want to be assured that no more than 32 per cent of your gross income will be dedicated towards the following: mortgage payments; property taxes; heat; one-half maintenance payments. Factor in all other debt obligations such as credit cards, car loans, alimony etc., and the complete load shouldn't - in the bank's eyes - exceed 42 per cent of your gross income. 11. If self-employed, proving your debt-payment ability becomes a little more difficult. The banks commonly look at a three-year average of your personal income to determine your qualification. You in turn may add auto expenses, depreciation, net income and, occasionally, rent (if your office is in your rental digs) etc. back into the mix. Most lenders recognize that self-employed people/businesses enjoy certain tax concessions and write-offs which means that smaller overall income actually translates out to a larger net income and thus a greater ability to support a larger mortgage. Before you visit the lender, see your accountant. 12. If uncertain of your standing and clout, make your run at the bank manager, rather than the mortgage officer. The manager often can make an immediate call on an interest-rate reduction; the mortgage officer needs permission. 13. Timing can also be an issue. In some markets and in periods when lenders are slugging it out for new clients, it's sometimes possible to be seen in a much more favorable light. 14. Tens of thousands of dollars can be saved by shortening the amortization period from the standard 25 years to a fewer number of years. Our favorite term happens to be 17 years. It maximizes benefits without unduly increasing the mortgage payment beyond the stretching point. Have your mortgage officer work out the mortgage repayment period over 25 and 17 years. Compare the payments: the amount saved is astounding. For instance, a $100,000 mortgage carried over 25 years carries a payment of $861 per month. Carried over 17 years, the payment is $978 or $117 more per month. But for the extra cost of $3 per day you will save $82,656 in interest payments. If an extra $100 a month is too much, make it an extra $50. The saving is worth it. 15. FINAL THOUGHTS. Negotiating a mortgage when self-employed can be tricky. Before you go in, it's wise to contact the financial institution or your mortgage broker to get a handle on the policy for calculating self-employed cashflows and payment abilities. Forewarned is forearmed. You may try and find a co-signer (your benevolent mom or dad for instance). Equity, stability, cashflow: different financial institutions put different weight upon each of these three elements. A particular ratio that might fly with one, will flop with another. Some lenders demand your application have all three elements, others are comfortable with two. An important point: if you're refused by one institution, don't be discouraged. Instead, politely ask why, do your best to rectify the problem... and then go onto the next institution. (Or avoid the fuss and get your mortgage broker to do the dance on your behalf. Yes, this is a plug for mortgage brokers but remember, in the majority of cases they're paid a commission from the 'winning' lender and thus won't cost you a cent more than you would have paid for a 'normal' mortgage anyway.) In certain cases, say where two of the three prerequisites are "twisted" (i.e you have terrible credit and want to buy a swamp), you may be asked to replace the commission which would have been paid by the bank. This can run anywhere from one-half to a full one per cent of the mortgage... or more, if your situation is really twisted. To successfully negotiate a mortgage, remember that attitude counts. Lending has a very human element to it. If you're organized, courteous and make a small effort to assist the loans officer, you'll often discover that small variations or special requests in your application may be treated with "exception" and thus granted. The principal reason many mortgages are declined is because of poor communications between the client and the potential lending institution. In other words, comb your hair, have tidy and comprehensive paperwork and try not to shriek as per the opening paragraph to this article. In this crazy world, go long. A 6.5-per-cent ten-year mortgage (Jan 1999) and the 5.75% 5-year mortgage are at a 42-year low. Nobody has the proverbial crystal ball, but rates could suddenly rise. Play it safe and go for five years. If you must gamble, match your renewal date to the U.S. election year (autumn of 2000, autumn of 2004, autumn of 2008 etc. and so forth) where interest rates traditionally fall in a bid to cheer up the voters. Finally, get yourself organized. Get your "ducks in a row" in terms of a nice presentation, the offer to move your accounts in from the other financial institutions and so forth. And while you should always be polite (no screaming), polite people can still be firm. Bargain hard. Remember, a half-point reduction can save more than $3,000 in a five-year term. If you put that savings into paying down the principal, you're even farther ahead. Happy hunting. Return to Top Investment & Tax Advantages
Return to Top  Fractional OwnershipHow would it work? Well, take a typical, whole ownership property and split the title into fractions so that different people could each own their share of the property. A legal structure would be put in place that defined when each of the owners could use the property so it was clear and easy. Then an outside third party manager would be put in place to manage the property on behalf of all of the owners to make it convenient and hassle free and to make sure that when each owner arrived to use their property that it would be perfect and ready for them to simply come in and enjoy. The property would typically come fully furnished so that there was no argument by the owners on the furnishings. Each owner could purchase the amount of, or fraction of the property that they wanted and that was a fit for them financially. Because each owner essentially has their own title for their fraction of the property, they can put a mortgage on their share of the property (although there are some complications), sell their share or leave their share to someone as part of their estate, all without having to talk to or impacting the other owners in the property. In fact, if you don't want to, you never have to meet, see or talk to the other owners. When you're there it is your property and it feels like you own the whole thing. So if you want to own a resort property but you know that you'd never use it very much and you either can't justify or afford to purchase the whole property, you now have a great option. Why purchase the whole property if you aren't going to use it all the time. The fractional concept lets you purchase the amount of ownership and use that is right for you. It is much different than a time share which loses value every year, fractional ownership appreciates over time. To enhance the benefits of fractional property ownership, the fractional property often comes in a project that offers additional amenities and staffing as well as a fabulous location. In addition there might be an exchange program put in place for the property so that the owners can exchange their property for use of resort property in other areas. In terms of use there are a variety of different programs. Some are very straight forward and the time is either fixed or rotates on a fixed basis with other owners. Other programs allow for flex time or some fixed time and flex time. All of the programs work, you just have to make sure that the program works for you. Common fractions in resort property would be: one half, one third, one quarter, one sixth, one seventh, one eighth, one tenth and one twelfth. It gives you lots of options to choose from to find the perfect fit for you. The most common fraction in British Columbia is one quarter. Fractional property has been available in North America for over 20 years, but it's really started to take off at a blistering pace in the last seven or eight years. We are now seeing fractional property available in most major resort areas, in golf setting, ski resorts and at the lake and ocean. It's working in houses, condominiums, townhouses and villas. Contact a Realtor for further information about the risks and benefits of owning fractional Real Estate. Return to Top  Rental PoolMany recreational developments and properties offer owners the opportunity to include their unit in a rental pool even without being part of a fractional arrangement. In some cases the income will totally cover the cost of ownership, in other cases the tax implications, combined with the wrong product for the market or oversupply will result in poor income flow opportunities. Understanding the local tourism market can give you a good idea of how much revenue can be expected. The zoning can have a major impact on the taxes. Commercially zoned real estate has much higher tax rates than residential. These are important questions to ask and research on your own. Often the property management company will contact you prior to the season and ask when you expect to use the property or when you will not be using the property. If you change your mind, you can still look into using your unit as long as it has not been rented. Or you can have a previously reserved date entered into the pool if you decide not to use the property, but remember the more warning they have the better the outcome. The income earned on a given night is usually shared by all of the unit holders who at that time the income was earned had their unit up for rent. For example on Friday night, if there were 100 units in total and 75 units were being used by their owners, only the 25 units who were available for rent (not necessarily rented) would share all of the income earned on that night. A 2 bedroom unit would receive a larger portion that a 1 bedroom. A portion of the income goes to the property management company, and a portion goes to the owner. 60/40 is a common split, but the important thing is what is included. For vacation rentals, having more amenities, more marketing and better service will result in better income in the long run than a more favorable split that has little to offer. These are all important considerations, and should be understood fully before purchasing. Return to Top Third Party Representation When making any important financial and emotional transaction it is very important to attain third party advice. Remember when you are enquiring about a recreational property straight from the developer or a sales representitive from that particular project they are not working for you and do not have to be licensed Realtors. Of course 99% (if not more) of sales reps are honest, trustworthy, and capable, but their job is to sell you that property. The information you are hearing will always be somewhat biased. By using a third party, either a Realtor's representation, a lawyer's legal opinion, or some other experienced third party source, you ensure that your interests are taken care of. For more information check out our buyer services and see how we can help you attain the property you desire with total confidence. Return to Top Strata Implications Many people ignore or do not understand the important role of strata corporations and property management. When you buy a strata unit (condo, town home) and you are essentially becoming a part of a multi-million dollar corporation. There are risks and benefits. It is possible to be sued and it is also possible to make a significant financial gain. But the most overlooked factor is the emotional side and the time and effort required. The strata fees you pay every month go towards operating the strata corporation and maintaining the property and its value, money well spent, you hope! Does the average person know how to service a large complex? No. You want to be 100% sure the people in charge are qualified to do so. For a small development, maybe the owners can arrange this, but often the best arrangement is for professional property management companies to be hired. This way you are assured that your investment, emotions and home are taken care of properly. New developments have regulations to follow and the developer must set up the Strata Corporation and a preliminary operating budget for the development; after which it is the responsibility of its owners. It is a major investment, do the right thing and have qualified people manage your property and do your own research into the concept. In a nut shell, the old saying that fences make good neighbors can be adapted for Strata Corporations to "professional management makes even better neighbors". Return to Top More "Insights" available on my Blog ›› |
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Matt Cameron Recreational Real Estate Professional |
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