26 Jul

THE GREAT REAL ESTATE MIGRATION

General

Posted by: Tracy Price

Living in Centre Wellington today, you have likely either met new people in the community that have ‘migrated’ out of the GTA or other areas in Southern Ontario where real estate values have exploded, or you know people that are ‘migrating’ out of CW to less populated and less expensive areas, due to rapid growth and changes to our local communities. In fact, it’s been cited that the population of CW could explode to up to 100,000 within the next 15 years!!

In a nutshell, here are the top 3 reasons we are seeing for the current migration trend.

Number 1:  The cost of home ownership has become unattainable for many first time buyers in urban and suburban areas. There’s no doubt about it, the cost of real estate in Centre Wellington offers ‘better bang for your buck’ and it’s all about perspective. and this trend is affecting us all in many ways. To someone paying rent in excess of $3000/mo for an 800 sqft condo in downtown Toronto, a price tag of $500,000 for a house in Fergus is very appealing and actually works out to be less expensive on a monthly basis… plus, owning builds equity. (5% down of a $500K purchase price yields a mortgage payment of approximately $2100/mo + taxes & utilities = shelter expenses of about $2700/mo). For those that have the ability to work from home, commute a few days per week, or change jobs to something more local, this is a very attractive option.

Number 2:  A desire for an improved quality of life for families is driving people to more rural areas. Let’s face it, raising kids in heavily populated urban areas often comes with many limitations. Lack of personal dwelling space, competitive and limited access to extra-circular programs for kids, strict school catchments, etc can be difficult for families. Smaller communities are appealing for many reasons, and CW is certainly attracting many families. There are several reasons why year after year it’s continuously ranked amongst the most desirable places to live in Canada.

Number 3:  Many folks are cashing out, moving to more remote areas and retiring. We are seeing a trend of cash purchases in the CW area, resulting in people living mortgage-free, and often with a nest egg derived from their real estate profit.

These trends don’t only apply for people moving into Centre Wellington; they also mirror the reasons many are moving out of CW as well. Everywhere, first-time buyers are being pushed out by high prices, especially the ‘stress test’… in fact, the benchmark qualifying rate for high-ratio mortgages just climbed from 4.64% to 4.84% without warning. Growth in CW comes with increased density and congestion. For those averse to this, the desire for space and solitude is driving them further away as well.

Change is inevitable and it’s constant. If you’re thinking of making a move, contact us to explore your financial options. We’re here to help!

24 Jul

RENTING-TO-OWN? CONTACT US ASAP!

General

Posted by: Tracy Price

The rent-to-own concept soared in popularity several years ago. Recently, we’ve had many rent-to-owners who entered into contracts 3-5 years ago coming to us for help.

When properly executed, this type of arrangement can be a wonderful thing. For renters who aim to become owners, yet need time to repair credit, establish consistent income or acquire a down payment, this arrangement affords them that time. For owners of properties who experience difficulties selling for the price they want, this solution allows them to earn income from quality renters with the end goal of selling for a pre-negotiated higher price than they could sell for at the time the agreement is signed. Most rent-to-own contracts come with a 3-5 year term.

The exponential increase in market values has skewed the mutual benefits of the rent-to-own arrangements that were conceived of 3+ years ago. We are seeing the effects first-hand.

For instance, in 2014, Ryan and Janine owned a home in Elora that they tried to sell for $300,000. At that time, they had trouble finding buyers, but they knew the house was in a great location and would only appreciate in value. They decided to hang onto it and rent it out, with the option to own at the end of the term. This attracted several quality renters and ultimately, they selected a young couple that needed time to build solid income and down payment. Knowing they had some ‘skin in the game’, they offered a deal whereby Mark and Mandy would rent for three years for $2000/month. Over the next 3 years, $500 from the $2000 monthly rent was to go towards their down payment. (This equates to $18,000 which is roughly 5% of the purchase price, the minimum entry to home-ownership). So, instead of purchasing the home for $355K, Mark & Mandy’s purchase price would be $337,000 in 2017.

Three years ago, a return of $55K, or 18% seemed like a great return on investment to owners Ryan and Janine. The renters, Mark and Mandy were thrilled that a portion of their monthly rent was helping them build equity and a “down payment” over the next three years.

Fast-forward to present day, 2017. Enter, the rent-to-own conundrum as we’ve never seen it. Both couples know that property values have risen exponentially. Mark and Mandy want desperately to make good on the purchase. Ryan and Janine know they can sell for more than the pre-negotiated $337K.

When renter Mark contacted us for help to execute on the purchase, the first question we asked was “where is the down payment coming from”? Apparently, the owners didn’t hold onto the down payment portion of the rent. It was not placed in trust with a lawyer, and it could not be produced to the renters. After three years of paying inflated rent, Mark and Mandy could not produce a down payment to buy this home. They were devastated at the thought of losing their home and having to try to rent elsewhere. (This is happening all too often).

We came up with a solution for Mark and Mandy, which enabled them to stay put and graduate from renters to owners. And, they happen to be sitting on over $130K in equity, as their home was appraised at $475,000!

If you or anyone you know is in a rent-to-own, or considering getting into one, contact us ASAP.

12 Jul

CO-SIGNER BEWARE: HAVE AN EXIT STRATEGY

General

Posted by: Tracy Price

We’ve all needed a little help in our lives and those of us who have been fortunate to receive it are (or at least should be) forever grateful. Helping a child, sibling or parent by co-signing for a mortgage or other type of loan can change the trajectory of your loved one’s life. However, it doesn’t come without risks or possible consequences. Before you co-sign, be aware of what the impact could be to your financial health and understand what the risks are. Above all else, have an exit strategy.

If we had a dollar for every time we’ve heard “but I only co-signed, my son/daughter makes the payments” we’d have a nice slush fund by now.

Too many times, we see parents whose debt-service ratios are crippled because they have co-signed for their children to help them purchase something. Even though their child makes all the payments, the co-signer is still 100% liable in case of default. It reports on both of your credit bureaus and it is treated as though it’s 100% your monthly payment (even if it’s serviced by someone else).

Co-signing for a mortgage can produce a miracle for a loved one. It gives them a chance to get into home-ownership, which can truly set them up for their future in many ways. It comes with risks and these risks aren’t to be taken lightly. Co-signing should be treated as a short-term solution… a means to an end. We can help you plan for an exit strategy.

Marion was happily in a relationship and living in a house owned by her partner. Her son Jeff, was purchasing a new condo and discovered some issues on his credit that required him to have a co-signer. Marion happily co-signed for Jeff for his 5-year fixed rate bank. She had strong income, great credit and no debt. Tragically, a couple of years later, Marion’s partner passed and she found herself evicted from her home. When she came to us for a mortgage, we discovered Jeff’s credit had become even worse, and penalties to break the bank mortgage were astronomical. There was no way we could refinance Jeff and remove Marion from title at that time. We found another solution for Marion and are working with them to get them both into a prime mortgage within a couple of years.

Richard was preparing to co-sign on a mortgage for his daughter Bailey, when his son Bobby’s car died. Richard happily co-signed for a new lease for Bobby, not realizing the impact it would have on his ability to co-sign for Bailey. We had to find Bailey a new strategy to enable her to purchase her first home. Richard was just trying to be fair to his two kids, but the timing of everything was a disaster.

Always look at the big picture and consider the options you’d like to have available to you down the road. If co-signing might impact you negatively and remove your options, consider saying no. Be sure to consult with a professional that has your best interest in mind; one that will look at all of the factors in your life help you plan for the future. We are just a phone call, email or walk-in away and we’re here to help!