10 Biggest Mistakes Novice Investors Make

10 Biggest Mistakes Novice Investors Make

Real estate has become the tech stock of the 2000s, the darling investment that everyone seems to think will be his ticket to easy wealth. And why shouldn't investors be snapping up cute little cottages? After all, mortgage rates are low and the housing market is hot. How hard could it be? Slap on a new coat of paint, put some flowers in pots by the front door, put a "For Rent" sign in the yard, and start counting the cash.

 

In 2004, the National Association of Realtors reported that nearly a fourth of all the houses sold in went to investors; about 80 percent of investment properties were existing single family houses. If you're looking for rental income -- and most investors are, according to the NAR -- buying a single-family house may be the first mistake. All it takes is for a property to sit vacant for a couple of months -- or a tenant to run out on the lease -- to put a new real estate investor in a financial bind. Far better to buy multifamily units, such as duplexes. That way, you can live on one side and have the rent from the other side pay your mortgage. Or, rent out both sides and give yourself some breathing room in case one tenant moves in the middle of the night without paying his rent. A first-time investor should look at (multifamily units of up to) four units to limit their risk.

If you're still convinced that investing in rental real estate is the road to riches, at least go into the proposition with your eyes, as well as your wallet, open. Here are 10 common mistakes made by new real estate investors:

1. Falling in love with the property. Stop thinking like a homeowner and start thinking like a business owner.  Get emotional about the deal, not the house. 
2. Not performing your due diligence.This is more than just an inspection of the property, although that's essential. (Can you say, "deferred maintenance costs"?) It's also a thorough investigation of your area's current rental market. What are the vacancy rates and average rents for comparable units? What's the average age of the rental housing stock? How is the neighbourhood zoned? What are the government regulations about rental properties? Has the Municipality approved new rental complexes nearby?
3. Forgetting the rule of home improvements.It will always take three times the money and twice as long as you estimate to get a unit ready to rent. Or is that twice the money and three times longer? Either way, you need to build that extra cost into your expenses. 
4. Thinking you'll get those low mortgage rates you see on the Internet. Those are for owner-occupied homes. Investment property is considered a riskier loan and you'll pay more in interest rates. The credit qualifications also will be higher. You don't need perfect credit, but if your credit is in the dumps, you won't get the loan. 
5. Not pre-screening tenants. New landlords can get very excited about prospective tenants who show up, take one look at the place, hand them a cash deposit, and want to move in that weekend. Don't do it. When selecting renters make them fill out an application, and check their credit, employment and rental history before you take a dime from them. It's a much more expensive -- and potentially nasty -- headache to evict a bad tenant than to have a unit sit vacant for a couple of months. 
6. Breaking your own rules. Landlords establish policies for good reasons. When they start ignoring those policies, they're headed for trouble. No pets means no pets. Don't ever let someone move in without a security deposit, and don't ignore collecting late fees. (where permitted by law) 
7. Investing long-distance. Unless your rental property is in a spot you love to visit regularly, such as a lake or the beach, keep your rentals very close to home. Otherwise, you'll eat up your profits by driving back and forth to manage the property or by paying someone to make repairs, etc. for you. 
8. Paying too much for the property. If you're embarrassed to make a low-ball offer to a seller, don't invest in real estate.. Rental property owners generally work off a multiple of 100. That means that if you pay $100,000 for a unit, you need to collect $1,000 a month in rent to pay all the bills and have a decent profit margin. If you've done your homework, you'll know what your rental market will bear. 
9. Not studying the competition. Why does the guy across the street fill his units the same day someone moves out and yours sits vacant for months? He might not be very picky about whom he rents to, but he also might have lower prices, have washers and dryers in his units, pay for lawn maintenance and trash pick-up, or have his building on a wireless network. 
10. Being under insured. Insurance on rental property goes beyond insuring the building against fire or a flood. You need to look at your own coverage for liability. If there's a loose railing and a tenant's child falls off a balcony or there is a burglary and a tenant says it's because you wouldn't install security alarms, you're likely to get sued. 

 Real estate investing can be lucrative by following successful strategies and tactics of other successful investors. These 10 tips are by no means exhaustive but are a good starting point for a novice investor.

Posted by Steven Porter, Real Estate Broker & Mortgage Advisor.
 

Canadian real estate market outlook 2015

Sooner or later mortgage rates will rise and house prices will start to moderate. Why this is the year the market will finally start to turn. Buy a house. Don’t buy a house. Soft landing. Crash landing. As we start the new year, the question on everyone’s mind is: What can we expect from Canada’s housing market?

Once again, experts agree that housing affordability is stretched, historically low interest rates will rise, and housing prices will drop. Rewind 365 days and you could be reading a forecast for 2014. But this time the experts agree: prices really will fall and it’s got everything to do with the recovery of the global economy.

Now, if the global economy were a ballgame we wouldn’t be in the World Series. Oil prices are depressed and Europe is still struggling with its credit crunch. But things are slowly improving in the U.S. and within Canada, and the important teams are still in the game: our employment rate is stable, oil prices are not (yet) low enough to cause real concern, and exports have picked up as the value of our dollar has dropped. All this leads most economists to believe we’ll see slightly higher bond and mortgage rates and a nation-wide cooling of the housing market over the next couple of years.

Robert Hogue, senior economist with RBC Bank, says he believes the coming year will be “a moderating phase for the market with a soft landing in 2016.” Hogue predicts national home prices will actually rise 1% or maybe 1.5% in 2015, as buyers race to get in the market before mortgage rates increase, after which prices will fall later in the year. “It’s one of the reasons why 2014 was such a strong year.”

But he cautions home owners: “Canada’s real estate market really is a multi-headed beast. It’s essentially very strong in Toronto, Vancouver and Calgary, but it’s balanced or soft in the majority of other markets.” As such, he predicts we’ll see a cooling of the three biggest markets by the end of the year in response to small mortgage rate hikes starting mid-year.

Now, if the prime rate were to climb from its current 3% level to 5% or 6% over the next year or two, many Canadians could find themselves in deep trouble, says Hogue. But he isn’t sure we’ll see rates shooting up that fast any time soon. Until recently, analysts and policy makers considered 5% to be the neutral or natural interest rate. It was the rate that allowed full employment, a stable inflation rate, and a sustainable growing economy. But Hogue, along with economists from Morgan Stanley and analysts from the C.D. Howe Institute, believe that the “new neutral rate” has actually dropped.

The primary reason is the impact baby boomers continue to have on the national economy. As boomers continue to age and leave the workforce, Canada can expect a slowing of the labour market, which will depress productivity growth, limit the economy, and suppress potential inflation, explains Hogue. “If the new normal is markedly below what we’re used to, then we won’t see as much downward pressure on housing prices,” he says.

The impact of demographics doesn’t stop there. According to a new report by Benjamin Tal, deputy chief economist with CIBC, analysts have been seriously underestimating the number of new immigrants in Canada. New immigrants account for 70% of the country’s population growth and about half are between the ages of 25 and 44—the key demographic that leads to household formations. According to Tal the under-estimated increase in the number of home-buying immigrants in Canada will help to offset a slowing economy, created by the boomer generation. “Immigration, itself, won’t be able to change this trajectory, but it will help to offset it,” explains Tal.

But David Madani from Capital Economics isn’t convinced. “Every good economist knows that immigration always fluctuates and it’s never prevented a housing cycle in the past.” He’s also not convinced that builders are out of the weeds when it comes to supply and demand. While he agrees that absorption rates are close to historical long-term averages, he’s confident that the market will suffer. “There are too many one-bedroom condo units being built when demand shows a need for family accommodation.”

So what’s a regular home buyer to do? The best advice is prepare for the worst, but if you’re ready to jump in and you can afford it, waiting for prices to fall might not be the best idea. Ted Rechtshaffen, president and CEO at TriDelta Financial, advises against trying to time the market in general. “It’s not about prices or the mortgage rate, it’s whether you can truly afford to own the home.” This means calculating whether or not you could still afford your monthly payments even if mortgage rates increased to 4% or 5% a few years from now. It also means deciding whether or not you can stomach a housing price drop. While many economists are predicting a 10% drop, the correction could be as great as 30% in some Canadian markets.

Of course, your home is more then equity and capital. It’s the place you spend time with friends and family, and the place you build memories. “Life and lifestyle is just as important,” says Rechtshaffen, so as long as you can afford your payments, “don’t be too concerned about the correction.” - by Romana King

Today's Most Desirable Home Features

Housing trends and styles are changing constantly. Today, more than ever, buyers have a strong sense of what they want in a home. 

Today’s desirable home features depend greatly on the type of buyer.  Buyers can be divided into two main groups. The first group are first-time buyers which is pretty self-explanatory. The second group are the move up buyers, which are looking to move into a home that addresses the shortcomings of their existing home. They aren't necessarily second-time buyers but they are often people that have out grown their current home. Buyer age is also a main factor in deciding the desired home features.

This article focuses on what is hot in the housing market today. Whether you are planning on renovating, selling, or you are looking for a new home, this information will help you make choices that will contribute to both your real estate enjoyment and investment.

Home Exterior

Today, stone and stucco are very popular choices. Brick is the standard material used with mass builders, but the more customized and trendy homebuilders are using stone and stucco on a more frequent basis.

Floor Layout   

Bungalows are hot nowadays. Excessive floor level changes are no longer popular as people desire to live on one or two levels.

Room Sizes

Room sizes have been gradually increasing for a number of years. Buyers tend to place the most importance on three key rooms: the kitchen, family room and master bedroom. You can expect to see these three rooms continue to increase in size over the next 10 years while rooms such as the living and dining room are likely to get smaller or disappear altogether. Many new homes scrap the living room and instead incorporate that space into the family room or the 'Great' room.

Buyers still, ideally, desire four bedrooms in their home and would like, if possible, two living areas. One of the living areas can be the recreation room in the lower level (basement).
A master bedroom on the main floor is ranked very important for buyers 65 and older. A two-car garage with ample storage area and a main floor laundry area is desirable for move-up buyers.

Kitchen and Bathrooms 

The kitchen is becoming the hub of the house. The most desired features for the kitchen include: an abundance of counter space, a butler’s pantry, deep drawers and two sinks. Stainless steel appliances are also very popular today, and in the upper end market, appliances concealed as cabinetry are very chic.

Large kitchens with an island and counter tops made of granite or marble are very desirable for move up buyers. However, this must be matched with stylish kitchen cabinets.

Luxurious bathrooms with a separate tub and multiple shower heads; pedestal sinks and large mirrors; an overall spa like feeling; attached dressing rooms and a place to sit are all desirable features. Master suite soaker tubs and whirlpools are still desirable for many home buyers, but not as important as other features.

Energy Efficiency 

With the green movement becoming more popular, energy efficient appliances, high-efficiency insulation, eco-friendly treatments, and environmentally smart building plans are among the "green" features touted in homes.

Tech-readiness 

Satellite and internet wired along with multiple phone jacks are what people want in today’s technology world. With today’s busy lifestyles relaying heavily on technology, even a day or two without high speed internet could be a major inconvenience.

Home Office 

Today, many people would much rather have home office space than a formal dining room. Many employers are seeing the business advantages of allowing employees to work from home. As well, many people are using work from home opportunities to help supplement income because of work shortage or as an opportunity to make money online.

Outdoor Living Space 

The popularity of outdoor spaces continues to grow. Patios, deck, exterior lights, fenced yard and fire pit extend the outdoor living space at home and make a great extra feature.

Other Notables

Some other notable features that home buyers consider very important when buying a home include central air conditioning, recessed lighting, hardwood flooring, energy efficiency and the potential to turn a profit should they decide to sell their home in the near future.

Today’s buyers are looking for a little luxury and features and treatments that are the highest quality their price range will permit.

Copyright 2014 Canada Realty News
Posted by, Steven Porter, Mortgage Advisor - steven@stevenporter.ca

Home inspection . . . A team approach

It may be difficult for a home inspector to detect issues behind any walls or under floors and only certain specialists may be qualified detect certain flaws in furnaces and fireplaces. In rural properties, it is common to have separate inspections for a home, well and septic systems, as these elements require certain expertise to properly inspect and advise potential buyers.

Expertise in these areas include a fireplace inspection by a qualified wood energy technology transfer (WETT) professional once a year. This is a real safety issue as an improperly working fireplace can cause a fire in your home. Furnaces and HVAC systems should be checked once each year for similar reasons. This not only ensures that your equipment is operating safely, but informs you so you may be able to make changes to your equipment that will make your system operate more efficiently, saving you money in the long term.

Sellers should consider such a pre-inspection prior to putting their home up for sale, to demonstrate to potential buyers that the systems are operating safely.

Mold is becoming an even larger issue especially after flooding and sewage backups. The good news is that there are now companies that can inspect for moisture within wall cavities, with sophisticated infra-red equipment.

When you are about to make one of the largest purchase decisions of your life, it is important to have as much information that you need in advance. A home inspection team may supply the answer.

Meaningful change coming to home inspection industry

Happy Holidays to all of my subscribers. Thank you for all of your emails and good wishes throughout the year. I wish all of you and your families good health and continued success in 2014.

Today anyone can call themselves a home inspector in Ontario. That is a scary proposition since most consumers depend on the opinion of a home inspector before making one of the biggest purchases of their lives. There are over 1500 home inspectors operating in the Province yet there are no mandatory training or technical standards for them to meet. The results are often a leaky roof, cracked foundation or outdated electrical wiring or plumbing that was missed and which ends up costing unwary consumers thousands of dollars to repair after closing. In extreme situations, consumers have lost their homes. Many inspectors do not carry errors and liability insurance, meaning that if they make a mistake, even if you win a lawsuit, you may recover nothing later.

The Ontario Minister of Consumer Services formed a panel of industry experts to make recommendations to change the home inspection industry, which included home inspectors, educators, a Realtor, a lawyer, educators, engineers and an insurance broker.

Their report is aptly titled "A Closer Look: Qualifying Ontario's Home Inspectors".

The main goal of the recommendations is consumer protection. This is proposed to be achieved through the following main principles:

• Home inspectors should be regulated and called "Licensed Home Inspectors";
• There will be minimum qualifications to become a licensed home inspector, including a written exam, a field test and experience requirements. Ongoing professional development and education will also be required so that home inspectors stay up to date;
• Increasing consumer awareness by providing information as to what service is or is not provided by a home inspector; for example, some inspectors may provide additional services such as energy audits, new home warranty inspections, chimneys, well, septic, mold, drainage or termite testing, while others may not. Home inspectors should not be required to enter any area of a home that is unsafe or not readily accessible.
• Access to a centralized registry of licensed home inspectors;
• A code of ethics that outlines expected behavior of home inspectors, including disclosure of any referral fees or incentive programs.
• Mandatory errors and omissions and general liability insurance to be carried by any licensed home inspector;
• A complaint and dispute resolution process for consumers; and
• A delegated administrative authority, similar to the Real Estate Council of Ontario that regulates real estate agents, overseen by the government, to license and regulate home inspectors; For example, the code of ethics referred to above would be written by the government, but the administrative authority would enforce it, with the power to penalize or suspend any home inspector who violates the code of ethics. This authority would pay for itself through the fees charged for licensing and education.

The goal is to move to this new regulatory environment within the next 18 months, to permit home inspectors to become licensed.

I spoke with Graham Clarke, an experienced home inspector with Carson Dunlop who was on the panel. As Graham indicated, almost everyone involved with the home building and selling business, from real estate agents, lawyers, mortgage brokers, lenders, builders and appraisers are all regulated by the government in some manner. It is time for the home inspection industry to become similarly licensed and regulated.

The government is also asking for feedback. If you go to the government website at

http://www.ontariocanada.com/registry/view.do?postingId=14645&language=en

then scroll down, you can get a copy of the form to complete.

If you have your own views on this important issue, send in your feedback to the government now. Change is coming to the home inspection industry, and the consumer should be the winner.

Mark Weisleder, Lawyer, Author

Steven Porter

Real Estate Broker

RE/MAX Aboutowne Realty Corp., Brokerage

www.PorterRealEstateSystem.com