25 Apr

How does buying a home compare with other ways of investing?


Posted by: Nick Kaaki

How does buying a home compare with other ways of investing?

Investor Education Fund


Buying a home can be a very good investment for many people. Just make sure it’s the right choice for you. Home buying differs from other types of investing in several important ways:

1. You may find it hard to get your money out.

2. You will pay very different kinds of costs.

3. Many factors affect what you will make.

4. You get the unique advantage of living in your investment.

5. You are not just investing, you are also borrowing.

6. You use different sources of information to research your home investment.


Charlie was in his late 20s when he got serious about buying a house. But it didn’t look like housing prices would go up very quickly in his area any time soon. In fact, they might even go down. So, Charlie wondered: could he make more money investing his extra money instead?

If you’re like most people, buying a home will be one of the biggest investments you will ever make. Make sure you do your homework so you understand the pros and cons.


What makes buying a home different from other investments?

Investor Education Fund


1. You may find it hard to get your money out. Some investments can lock in your money for a while, but you can usually pay a penalty and get your money out if you really need it (for example, a five-year Guaranteed Interest Certificate (GIC)). If you buy a home, you may find it will tie up most of your savings. Turning your house into cash means selling it or renting it out, and that can take a lot of time and effort. That’s why a home is not considered a very liquid investment.
2. You will pay very different kinds of costs. Most investments have costs like service charges, fees, or commissions. The costs to maintain a home investment are different, and many are hard to plan for. There are taxes and utility costs, for starters. Then there’s maintenance. On top of that, if you have a mortgage, you will pay interest – and interest rates can go up, making your home investment more costly to own.


3. Many factors affect what you will make. Some investments, such as GICs or bonds, give you a fixed rate of return, so there’s no guesswork. You can estimate the return on other investments, such as stocks or mutual funds, based on past results and other factors, but there is no guarantee what you will make. To predict how much money you’ll make when you sell a home, you have to look at factors such as:

  • The average increase in housing prices over time, which runs between 2% and 4% a year in most locations
  • The location of your home
  • Your home’s size, age, and condition


4. You get the unique advantage of living in your investment. Most investments bring you a return in the future. A home can do that too, but with a home, you also get to enjoy your investment by living in it.


5. You are not just investing, you are also borrowing. A few lucky people have enough money to pay cash for their homes, but most people make a down payment and borrow the rest by taking out a mortgage. When you buy investments like stocks and bonds, you don’t usually borrow the money you invest – or at least, not as much.


6. You use different sources of information to research your home investment. Your real estate agent is your best source of information when buying a home. Find one you feel comfortable with, who seems to understand your needs and your budget. Make sure they are familiar with the area you are interested in. Of course, don’t overlook other sources of information. For example, people in the neighbourhood are often willing to share information that can help you make your final decision. Newspapers, books and the Internet also provide useful information. You can also talk to your banker or financial adviser.


Remember: Location matters when you’re buying a home

The return on investment for homes in some places is higher than it is in others. Whether you live in a small town or a big city, you get the same interest on a GIC. If you buy a house in a small town, you probably will not pay as much for it as you will for a similar house in the centre of a large Canadian city, close to public transit, shopping, schools, and entertainment.

22 Apr

Property tax: 10 things you need to know


Posted by: Nick Kaaki

By John Spears | Tue Sep 07 2010


For homeowners property tax is one of the most painful and visible taxes going. Instead of having the tax skimmed off their pay cheques at source, they generally have to cough up hefty installments either monthly or four to six times a year. Alternatively, they can see their mortgage payments swollen even more, if their lender insists on making the tax payments.

Tenants pay property tax, too – arguably at higher rates than homeowners in some municipalities – but landlords build it into their rent. If you can’t avoid it, you can at least understand it.

Here are ten things you need to know about property tax.

1. How is it calculated?

Your municipality takes the assessed value of your home and applies the tax rate. If your home is assessed at $300,000 and the tax rate is 2 per cent, your tax is 2 per cent of $300,000, or $6,000 a year.

2. How is my assessment determined?

A non-profit agency called the Municipal Property Assessment Corporation (MPAC) assesses your property, and sends the owner a notice of its assessment. The assessment is supposed to reflect the price it would likely fetch if you put it up for sale. MPAC tracks real estate sales neighbourhood by neighbourhood so it can put a value on a one-bedroom condo in the St. Lawrence neighbourhood, say, or a four-bedroom detached home in Stouffville. It may reduce the assessment if the home is on a busy corner beside a gas station, or boost it if it’s on a prestigious street backing on ravine.

3. How is the tax rate set?

Your city or town council sets a tax rate through the annual budgeting process. The regional council, if there is one, also sets a tax rate. (Toronto has no regional government, but the other municipalities in Greater Toronto each have both local and regional governments.) Finally, the provincial government sets a tax rate for education. The three rates are added together.

If the local tax rate is 1 per cent, the regional rate is 1 per cent, and the education rate is 0.5 per cent, the total tax rate is 2.5 per cent. The city (or town or township) collects the tax on behalf of all the other governments, so you get just one tax bill.

4. I think my tax rate is too high

There’s not much you can do. Politicians on local and regional councils set property tax rates for their areas, and the provincial government sets a province-wide rate for education. If you don’t like the tax rates, you’ll have to persuade the politicians to change them, or run for office yourself.

5. I think my assessment is unfair

First, you should call MPAC at 1-866-296-6722. If a phone call doesn’t change your mind, you should ask MPAC to send you a list of the assessment on properties similar to yours. There is no fee. You can also send MPAC a list of properties you think are comparable and they will select six properties of their choosing. You can do this in the “About My Property” section of the MPAC website. Your assessment notice should contain the User ID and password you’ll need.

If you still think you’re over-assessed, you can make a “request for reconsideration,” an informal process in which you state your case in writing, and MPAC tries to respond within 60 days. Instructions are on the MPAC website. This is free.

6. I’m still not happy

You have one further avenue, which is appealing to the Assessment Review Board, a tribunal independent of MPAC. This is a more formal process involving a hearing before a board member. You can represent yourself, or hire a lawyer. You must pay a fee of $75. You must have already been through the “request for reconsideration” process, and must file your appeal within 90 days of the mailing date of your request for reconsideration decision.

7. If my assessment rises, do my taxes go up?

Not necessarily. If everyone’s assessment goes up 10 per cent, but the cities and school systems don’t increase their budgets, they should be able to lower their tax rates 10 per cent and still collect the same amount of money. It’s seldom that everyone’s assessment rises by the same proportion, of course. A hot housing market in one neighbourhood may drive up assessments faster in that area than in others.

8. Do businesses pay property tax?

They do. In fact, some business property owners in Toronto have long complained that they bear more than their fair share of the property tax burden.

9. What happens if I don’t pay?

You get charged credit-card type interest on unpaid tax. Toronto, for example, charges 1.25 per cent a month. If you put your head in the sand and continually refuse to pay, the municipality can seize your property and sell it to recoup the taxes, although this is a long and seldom-used process that often takes years. The property owner gets whatever is left over. This doesn’t happen often, but towns and cities do use this power in some cases if payments fall far in arrears.

10. Where does the tax money go?

Property tax goes to local governments to pay for services such as roads, parks, police, fire fighting, ambulance and transit. Municipal property taxes also cover part of the cost of welfare. Some of the proceeds also flow to the public and separate school systems; taxpayers are given the option which system to support.

John Spears is a Toronto Star business reporter. This article was commissioned for Moneyville’s launch.

19 Apr

When is renovating my home a good investment?


Posted by: Nick Kaaki

When is renovating my home a good investment?

Investor Education Fund


If you own a home, chances are you may think about making home improvements at some time. Renovation is a kind of investment because it can add value to your home. How does it compare to other kinds of investing, or to the interest you save by paying off your mortgage more quickly?

It depends on the kind of renovation you make. You may be making changes to your home that will be pleasant for you, but not increase its future value much. Before you plan any improvements, be aware of what does and does not add value to your home.


What are some renovations that add value to my home?

Investor Education Fund


A good investment in a renovation should increase the value of your home by at least the amount of money you spent, or close to it. A bad one doesn’t get you much of your money back. Here are some investments that have proven to return their value, or close to it:

· Low-cost improvements that make your home look better: Painting, new wallpaper, and items like new rugs and curtains help to brighten and improve the look of a home, and add value to your house if they are done close to the time of sale.

· New or improved kitchens and bathrooms: Improvements to your kitchen and bathroom seem most likely to increase the value of your home. Keep in mind that these improvements lose value over time.

· Improvements to the living room and the master bedroom: These are also good investments and will usually return most of the money you spent, if not more.

· Investments in more efficient use of energy: Oil, gas, and hydro costs continue to go up. That’s becoming more of a concern when people are looking to buy a home. You can make your home more energy efficient as an investment in its value. Some government programs help reduce the costs of these projects. Also, consider buying appliances that waste less energy.

· Keeping up with repairs. If you do a little at a time, you can avoid doing a lot of expensive repairs at the same time. A reasonable amount to spend yearly is 1% to 2% of the value of your home.

What are some renovations that don’t add much value to my home?

· Swimming pool: Make sure you want a pool before you invest in a pool. The cost of putting in one won’t show up in the price that you get when you sell a home.

· Costly appliances: Most people won’t want to pay an extra $4,000 for your home to pay for a $7,000 refrigerator instead of a $1,200 refrigerator. If you pay thousands of dollars for top-of-the-line appliances, enjoy them. You probably won’t get your money back if you sell them with your home.

· Costly landscaping: The way your home looks from the street can really help interest buyers. It’s called ‘curb appeal.’ But if you spend $30,000 in landscaping, don’t expect to get it all back. Most buyers probably won’t see or appreciate the value.

· Renovating in an area where homes are being torn down: Tear-down activity involves homes being sold, torn down, and replaced by bigger, more expensive homes. If someone is going to buy your home and tear it down, a renovation won’t return any of your money. The buyer will have no interest in the building, just in the land.

Remember: Don’t assume you will get all your money back from a renovation

The key to renovating is to keep the house in good repair and do the renovations you want to enjoy. If you think you might be selling in the near future, focus on renovations that are more likely to get your money back.

14 Apr

Is a home a good investment?


Posted by: Nick Kaaki

Investor Education Fund


If you are renting right now, you may have spent some time thinking about buying a home. There are some very good reasons to invest in a home, but there are also reasons to think with care about taking this step, especially if this is your only investment.

Why would I want to invest in a home?

  • You are investing in something that has value: When you buy a home, you own it (at least the part that you don’t owe the bank through a mortgage).
  • Your home can go up in value: You may be able to sell your home for more money than you paid for it. You can use that money to spend on a new home, save, invest, or do whatever you like.
  • You get to live in your investment: You have to live somewhere. You can’t live in a Guaranteed Investment Certificate (GIC) or mutual fund.
  • The cost may be about the same as rent: In some cases, your monthly mortgage payment to the bank may be about the same as what you would pay in rent.
  • It forces you to save: With each mortgage payment you make, you own a little more of your home. The more you own of your home when you sell it, the more money that goes into your pocket.

What are the dangers of putting all my money in my home?

  • Housing prices can fall: If you buy your home when prices are up, and then have to sell when prices are lower, you could lose money.
  • Bad luck happens: Homes can get damaged by fire, wind, or water. You should have home insurance, but insurance doesn’t always cover everything.
  • Getting your money may not be easy: It can often take months to sell your home and get your money back.
  • There are other costs: There are lots of costs when you own a home, including roof repairs, painting, heat, property taxes, and hydro, to name just a few.

Remember: Don’t put all your savings in one investment

Buying a home can be an important part of your investment plan. Still, think carefully about your financial situation before you take this major step. You are usually better off if you have a number of different investments. Then, if one does poorly, you can hope the others do better.

11 Apr

What effect will the mortgage rule changes have on the property market in Canada?


Posted by: Nick Kaaki

7 Apr

The five most overlooked problems in a home inspection


Posted by: Nick Kaaki



After you find a home that is aesthetically appealing, the next step is to ensure the house is in top condition with a home inspection. Once the buyer and seller have settled on price, it’s the last safeguard for the buyer to know that the soon-to-be-purchased home is really worth the money inside and out. But a home inspection is never a guarantee that your new home is going to be in perfect working order.


1. Heating, Ventilation and Air Conditioning

Heating, ventilation and air conditioning systems (HVAC) are one of the top problems that home inspectors can miss, says Mark Vuncannon, a broker with Allen Tate Realtors in Asheboro, North Carolina, because the technicians may be reluctant to run the air conditioning in extreme cold, or to check the heat in blistering heat. “The inspectors do this because they do not want to do damage by running the unit too long in adverse conditions or they do not want to be held responsible for repairs if it breaks a few days after the new homeowner moves in,” he says.

When the home inspection report is issued, it usually contains a disclaimer that relieves inspectors of this liability. To cover any glitches with your heating and cooling systems down the road, Vuncannon recommends having the system checked by a licensed specialist separate from the home inspection.

2. Roof Leaks

The number-one culprit to slip through a home inspection is roof leaks, according to Reggie Marston, president of Residential Equity Management Home Inspections in Springfield, Virginia. That’s because home inspectors don’t physically access the roof to check on its condition, he explains. Instead, inspectors generally examine the roof from ground level with binoculars or when possible, they’ll look out higher level windows to get a view of roofing below. Inspectors will note torn or missing shingles and nail pops that may or may not be indicative of a full-fledged problem. To guarantee that you are buying a house with a durable roof, Marston suggests hiring a licensed roof contractor to provide a full evaluation of its state.

3. Faulty Appliances

Part of a home inspection is checking that all major appliances are functioning properly. Marston says that this is the second most likely flaw to be overlooked in a home inspection. To confirm that all appliances are in working order, a technician will run them through one or two cycles to make sure there’s no trouble, such as a leaking refrigerator or a smoking dryer.
However, the check is only a neutral source confirming that the appliances work, not an internal or technical diagnostic of the appliance. That means an appliance could work fine the day the inspector tests it, and flare-up on move-in day when the seller has already been absolved of any responsibility.

4. Damaged Siding and Windows

According to Marston, real estate contracts are structured so that major systems, such as electric and plumbing, are reviewed and obligate the seller to fix any deficiencies to complete the sale. But other imperfections that fall outside of the contract’s purview may go unrepaired. For example, in past inspections, Marston says he has noted that damaged siding or old windows that the seller is not required to fix, but that could develop into a much bigger problem later.

5. Under the Carpet

Inspectors look for evidence of significant wear that are in plain view, but the things that can’t be seen pose a risk, says Chobee Hoy, Owner of Chobee Hoy Realty Associates, Inc. She recommends shadowing an inspector to have them look at concerns you have about the house and probing what is under some moldy carpet or is lurking behind paneling, adding that buyers can seek sellers’ permission to remove superficial facades for the inspector to take a deeper look.

What to Do Next

If the home inspector reports a problem with your dream home, the process doesn’t end here. Next, it’s up to you to hire specialists – whether it’s a roof contractor or an air conditioning technician – to fully investigate the problem at hand. It may run you a few hundred dollars upfront, but that’s a savings compared to the thousands of dollars unreported or unresolved problems could costs after the sale has been finalized.

4 Apr

13 costs to consider when you buy a house


Posted by: Nick Kaaki

Spring fever! Ahhhh — that hint of warmth in the air, bursting buds, the caress of sunshine. Oh yes, and a new home.

Nothing compares to the excitement of abode shopping except, perhaps, love. And spring is definitely the season for both.

House and condo sales are in the doldrums after the new year then leap forward in April and May. “On average, the peak in sales has been about 2.25 times higher than January,” says Jason Mercer, senior manager of market analysis for the Toronto Real Estate Board. “In 2010, the highest monthly sales were reported in April (10,898), which were 2.18 times higher than January.”

There’s hardly a more emotional event than buying a new home and in the process it’s all too easy to forget a host of nickel, dime and dollar charges that can tip you from under-budget to over in less than the time it takes to seal the deal.

Here’s a baker’s dozen of standard costs to consider before you make your first offer.

Mortgage costs. Make sure you know the range of payment possibilities for varying amortizations, payment schedules (monthly, bimonthly, weekly) and types and terms of mortgages. Ask your lender to provide a printout to keep handy when home buyer stars are blinding your eyes.

Other mortgage costs to keep on your radar include interest adjustments to cover any gap between closing date and first mortgage payment. You can avoid this cost if you line up the closing date and first payment so they are exactly a month apart. Another cost is optional mortgage insurance. Before you agree to it compare with a term life insurance policy. Usually the latter is a better deal.

Insurance. Mortgage insurance is mandatory with 5 per cent down and usually required by lenders with 20 per cent or less. This can include a one-time cost of up to 2.75 per cent of your mortgage (more if you are self-employed without third-party verification of income.) Typically insurance is added to the principal borrowed and will increase your payments. CMHC offers a table of premiums for various downpayment percentages, http://www.cmhc.ca/en/co/moloin/moloin_005.cfm.

Home Inspection. This is an absolute must for re-sale homes, late model and older editions alike. The average cost is around $100 an hour, though some home inspectors will charge by the house size. Smaller homes may take a couple of hours while larger, older ones four or five.

Survey (certificate of location). If there isn’t an up-to-date one available from the vendor, plan on spending from $750 to $1,500. In some circumstances a bank might cover this cost if it is dying for your business.

Legal costs and disbursements. They vary depending on where you live but plan on $1,500 to $2,500. It’s a good idea to ask your lawyer for an estimate beforehand. Optional title insurance is becoming increasingly common and it covers survey issues and undischarged mortgages relating to previous owners. The cost averages $200 to $300.

Property appraisal. This may be required by your lender to determine how much it is prepared to lend you. Remember, the amount isn’t the same as the purchase price so don’t be surprised if the figure is less than you expect. As with the survey, some lenders may include this as part of the mortgage package. Otherwise plan on $150 to $200.

Home insurance. This is an oft overlooked item when calculating monthly payments. Get at least two estimates and make sure you inquire about the need for separate riders for jewelry, high performance bicycles, art and antiques.

Vendor reimbursements. There may be reimbursements for things such as taxes and fuel which the vendor may have paid for in advance for the year.

Land transfer tax. Loathed by home buyers this tax may be levied in your area but there also could be reductions for first time or senior buyers. To calculate the amount go to http://www.torontorealestateboard.com/consumer_info/buying_selling/additional_costs.htm#.

Repairs. You know how it goes. The real estate agent sails through the house noting that a little paint here, a bit of carpentry there, a new fixture somewhere else and presto! You have an abode worthy of Elle Decor. Take a pen and paper or camera with you to record what repairs must be made and also those you would simply like to make. Pass these on to the home inspector, most of whom will provide an estimate schedule for repair of common items.

Replacements. Curtains and rugs mostly come in standard sizes but, amazingly, when you move they never seem to fit the new nest. And if the drapes remain from the previous owner they won’t match your furniture. Costs vary hugely but do the measurements and estimate a mid-level replacement cost using the site of a major home renovation retailer.

Condo costs. These can include a parking spot, estoppel or status certificate, in-advance monthly condo fee and a host of charges for new construction including PSTHST on chattels (appliances), occupancy fees, tax on upgrades and warranty program enrollment fees.

Moving. Unless you have friends who adore you and own trucks, get at least two estimates from moving companies once you zero in on a location for your new purchase. Be aware that there are still costs for DIY moves from vehicle rental to replacing broken items and worn out friendships.

It takes a little work but calculating the extra costs of home-buying in advance saves you from sticker shock at closing and after you take possession.