Financial advice: Say goodbye to family cottage before it's too late

 TORONTO -- After the unforgettable family gatherings, sunbathing on the dock and picture-perfect moments with the kids, it's hard to say goodbye to the cottage you've grown to love.
But financial advisers say that learning when to let go is a fundamental part of ensuring that your lakefront property doesn't become a bad investment.
"There's the romance of it, and there's the reality," said Jason Pereira, a senior financial consultant at Investment Planning Counsel in Toronto.
"The cottage is a place where you escape, but there's also its own series of responsibilities."
For cottage dwellers, that day is inevitable. Eventually you will face the dilemma of either selling the property or passing it down to your children, if you have them.
Neither option is easy and, in many cases, comes down to choosing the best time for the transition which, for tax purposes, will likely be after retirement when your annual income drops.
Financial advisers say one of the biggest mistakes cottage owners make is assuming that somebody else in the family actually loves the place as much as they do.
"A lot of people are quite preoccupied with keeping the property in the family, for some reason," said Christine Van Cauwenberghe, assistant vice president of tax and estate planning at Investors Group.
"People need to look at selling the cottage as a very viable solution."
Several advisers said they've seen instances where transitioning the ownership of the property created powerful rifts within the family. They suggest that cottage owners take a step back and ask themselves whether a few days at the beach should come at the expense of potentially destroying family relationships or shifting a financial burden onto their children's shoulders.
"Often you'll have two kids, and one will be financially successful and one will be not as financially successful," said Greg Rasmussen, an investment adviser at Manulife Financial in Muskoka, Ont., a popular cottage region.
"As soon as you transfer it into their name you're going to have that tax bill."
If one child can't afford the cottage, but the family insists on keeping it, then make special arrangements that are in writing. A promissory note can clearly outline the long-term financial expectations.
"Make sure that child is paying fair market value," Cauwenberghe said.
"Maybe it's not in cash, but in receiving that much less of the estate."
Even in a smooth transition of ownership, there's still years of potential fights ahead as siblings get saddled with the expenses of regular upkeep, taxes, and figuring out a way to share the property without bickering over whose family gets the place each weekend.
That's why advisers suggest that, unlike jewelry or silverware, a cottage shouldn't be treated like a family heirloom because it's not the kind of asset you can store in a drawer and forget about.
"A lot of people can't afford -- even on a divided basis -- to run them," said Tony Layton, chief executive of financial services company PWL Capital.
He said he's seen instances where children will gain possession of a cottage, but don't have time to maintain the property and let it fall into "semi-ruin."
Eventually those children can be forced to sell the cottage and -- depending on how much the value has appreciated over the years -- can be hit with a massive tax bill they can't afford.
In other instances, one child might want to sell the property while other others do not, which can lead to further problems if those situations aren't laid out in writing.
"If anything, you should have agreements in place that say: 'You can buy me out or I can force the sale,"' said Pereira.
"There almost has to be a prenup in place for the cottage to avoid those hazards down the road."
Cash proceeds are easier to divide amongst a group because its a relatively clear-cut process that involves more numbers and less emotion.

by David Friend, The Canadian Press

Nest Egg: The lowdown on low down payments

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Hot markets and cold feet might keep some people out of the housing market, but a lack of upfront cash doesn’t have to be an obstacle. While it’s long been the convention in the industry to start with a 20% down payment, the availability of mortgage default insurance means ownership is still possible with as little as 5% down, as long as the buyer meets industry standards of income and creditworthiness.

“What mortgage insurance allows people to do is to get into the market with today’s prices, with today’s low interest rates, once they have determined that home ownership is right for them,” says Mary Stergiadis, principal for Ontario business development at Canada Mortgage and Housing Corp. The insurance repays lenders if a homeowner defaults on payment.

People with insured mortgages can take advantage of the same interest rates as those taking out conventional mortgages, she says. And the insurance doesn’t cost as much as some people think.

Here’s how it works: With 5% down, the insurance premium is 2.75% of the mortgage. On a $400,000 property with $20,000 down, the mortgage insurance premium would be $10,450. That would bring the total being borrowed to $390,450. Assuming a five-year closed at 3.75% amortized over 25 years, the monthly payment would be about $2,000, including less than $55 a month for the insurance. The same property with 20% down would have a monthly payment of $1,640.

“What consumers have to ask themselves is what $60,000 means to them in terms of savings,” Ms. Stergiadis says, referring to the amount needed to reach a 20% down payment for this property. “How long would it take to save that additional down payment? Where will home prices be within that time? Where will interest rates be?”
(But note that the tax on the premium — 8% in Ontario — cannot be amortized and is due on closing.)

The insurance rate goes down as the down payment goes up. For buyers with 10% down, for instance, the premium is 2%; with 15% down, it’s 1.75%.

A popular misconception is that this insurance applies only to the primary residence of the borrower. But it is also available for a second property, such as a home or condo in the city to cut a commute or to house an aging parent or a student. CMHC does not, however, insure recreational properties.

Private mortgage insurers, such as Genworth Canada and Canada Guaranty, also insure high-ratio mortgages. The rates offered match those of CMHC; consumers usually aren’t aware of differences, as lenders apply directly to the insurers once an offer has been made and accepted on a property.

Genworth estimates about 30% of Canadian mortgages are insured, down from historical levels of as high as 40%. That percentage tends to be lower in the GTA, says Jason Neziol, Genworth’s regional vice-president of sales for Ontario and the GTA. That’s because higher prices mean more people make larger down payments in order to quality for mortgage loans.

‘What mortgage insurance allows people to do is to get into the market with today’s prices, with today’s low interest rates, once they have determined that home ownership is right for them’

Mr. Neziol says private insurers play an important role in the market by providing more choice for lenders and helping to educate the public about options. “It gives options to consumers,” he says. “It’s good for lenders to have a choice in terms of what insurance providers would do.”

You don’t have to be a first-time buyer in order to qualify. Plus, even conventional mortgages, those with 20% or more down, can be insured. This can happen if a loan is slightly outside of a lender’s usual parameters.
And there can be a rental component. A buyer can purchase a duplex with 5% down, for instance, but must live in one unit. A 10% down payment is the norm for three- and four-unit properties, where one unit is owner-occupied and the others are rented out.

The point, Mr. Neziol says, is to be aware of the many options available.


Susan Smith, Special to National Post | 23/11/13 

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As a buyer, how much detail can I get on a property before making an offer?

It’s up to the property owner as to what specifics they disclose prior to an offer. This holds especially true for information that includes private data, such finances, other offers, etc. Certain questions, both the listing broker and owner have a duty in answering honestly and to the best of their knowledge. For example questions whether a building meets code requirements, past illegal use, in a flight path, etc. should be disclosed without hesitation.

A buyer can uncover some facts by accessing publicly-available information. A visit to the local municipal office could unearth some general information related to property taxes, registered liens and potential work orders. Keep in mind this information will vary from city to city. A simple Internet search may also reveal some information about the property.

Once these avenues for information have been investigated a buyer may consider putting in a conditional offer to the seller. Conditions could include property inspections, review of any documentation and due diligence a buyer may see fit. Moving forward with a deal would only be contingent on these conditions being met to the satisfaction of the buyer.

This approach allows a buyer to move forward with complete confidence and minimal risk. The deal can also be structured that if conditions aren’t met to the satisfaction of the buyer, any deposit money would be returned in full and the agreement of purchase cancelled.

An experienced buyer representative is a trained professional, sensitive to the needs and requirements of the buyer and a definite asset to a buyer in any real estate transaction.

Before you make your next home purchase consider hiring an ABR (Accredited Buyer Representative).

Steven Porter ABR CNE SRES
Broker
RE/ MAX Aboutowne Realty Corp.,
www.PorterRealEstateSystem.com

Realtors. Can we call ourselves professionals?

In recent years, from many quarters, concerns have been expressed about the continuing decline in professionalism. This includes medical doctors, lawyers, accountants, other professions and certainly Realtors, assuming that we who transact in real estate as agents for sellers and buyers could be considered as a profession in the first place. 

That all Realtors can legitimately call themselves “professional” is questionable, because many of the basic canons of a profession seem to be lacking. One only has to follow the blogs and opinion pieces in real estate publications to prove the point. The public is very cynical about this. Some place Realtors in the same category as used car salesmen and politicians. In the real estate industry there appears to be less focus by Realtors on the needs of clients and more on making that sale or getting that listing. It is suggested that many have forsaken their professional roots and regard their agency solely as a business, and professionalism is a lesser priority. This creates the need to inform the public more by deed than word that Realtors are indeed professionals. We as Realtors must demonstrate by high standards of ethical behaviour, service and conduct that we live up to the tenets of professionalism and the Codes of Ethics we and the public so often hear preached.

Professionalism is best described as a relationship between a person who has a high level of expertise and discipline in a chosen field and who is a member of an organized group of like-minded individuals with the same expertise and discipline in the same field, and the relationship they have with their clientele. The building blocks of professionalism are being well educated in the chosen discipline, integrity, honour, leadership, independence, pride, collegiality and service, all balanced with commercialism.

This includes the relationship between a Realtor and a client and the unwritten contract between the Realtor and society. An essential attribute is the ability to provide sound advice, competent service and to quote the medical profession, “Do no harm.” Real professionalism involves a pride in one’s work, a commitment to quality, a dedication to the interests of the client and a sincere desire to help. Professional success is about attitudes and about character. These are demonstrated by energy, drive, initiative, commitment, involvement, enthusiasm and the ability to provide sound advice.

Professionalism does not mean wearing a suit, carrying a briefcase, driving a high-priced automobile or always having your cell phone at the ready, just in case. Nor is it having a collection of meaningless (to the public) designations and diplomas, which many associations and commercial diploma mills are far too anxious to hand out. It is not one, but a combination of qualities; not a skill but a blending and integration of a variety of skills and attributes.

In real estate brokerage there are many very competent, very conscientious and very honest Realtors who could justifiably call themselves “professional”. They demonstrate all the mandatory characteristics just referred to. However, this is not the majority. In so many areas of the real estate brokerage industry commercialism and old-fashioned greed has taken over. To earn a good living is a common goal and a necessity, yet many are given over to avarice. Fundamental ethical behaviour, which often is in competition with increased revenue and profit, is losing.

Realtors win prizes and in-house recognition, not for doing a good job, not for advancing the acceptance of the industry, not for assisting the less knowledgeable or for high-quality professionalism, but for making the most sales, getting the most listings or earning the most commissions.

The real estate brokerage industry is a fractured commercial system comprised of largely poorly trained, ill-fitted candidates who were initially attracted by romantic notions of what selling real estate is all about and anticipation of high earnings, but for whom the starvation rate is high and the retention rate low. Although the pre-licensing courses have reduced the revolving door concept to a degree, the high failure rate persists. No other industry or profession would tolerate such seduction of the innocent and this waste of human resources as does the real estate brokerage industry.

There is a philosophy, not spoken about but certainly practiced by the real estate brokerages. If at the beginning of a fiscal quarter you hire 10 new sales agents and if at the end of the quarter two remain, your real estate brokerage has done well.

Professionalism must start with the Realtors themselves, insisting that all practitioners uphold the tenets of true professionalism and eliminate from their ranks those who do not. Until this occurs, acceptance by society will never be attained. The greatest challenge will be the elimination of unprofessional conduct from all unethical and incompetent Realtors. This is to consider the interests of real estate clients and the public as the No. 1 priority. This will demonstrate care and concern of the real estate client’s welfare in all of Realtors actions, not by giving only lip service or obtaining continuing education credits for having taken an ethics course, but a genuine commitment.

Inspired by an editorial by Lloyd R. Manning AACI, FRI, CCRA, PApp