Good morning everyone;
I hope that your week has been great and that your weekend will be even better!
Before I get into this week’s real estate market update I just wanted to share that this year our adult hockey league team were playoff champions! (I’m in the picture second row centre left)
That’s right – we were division D champs (divisions ranked by calibre A-D) where only 6 teams make the playoffs! (Every team makes the playoffs and there were 6 teams J).
We battled back to score the game winner with only 4 minutes left in the 3rd period. It was a fun season!
GREATER TORONTO REALTORS® REPORT MID-MONTH RESALE HOUSING STATISTICS
TORONTO, April 17, 2014 – Toronto Real Estate Board President Dianne Usher announced that the spring market started off on a strong note in the Greater Toronto Area, with a 10.8 per cent year-over-year sales increase reported by Greater Toronto.
REALTORS® during the first two weeks of April. Sales through the TorontoMLS system over this period amounted to 4,541 units. “The robust increase in sales speaks to the fact that home ownership remains
affordable in the GTA. The majority of home buyers purchase a home using a mortgage. A household earning the average income in the GTA can comfortably afford a mortgage on an average priced home,” said Ms. Usher.
“While the persistent listings shortage in the GTA, coupled with strong demand, has led to a brisk pace of price growth, very low advertised mortgage rates have gone a long way to mitigating the effect of upward trending home prices,” continued Ms. Usher. The average selling price for April mid-month sales was $583,697, representing an annual increase of 11 per cent. This increase was due to both tight market conditions
and a change in the mix of homes sold. At month-end, the MLS® HPI benchmark price will provide more insight into price growth attributable solely to the change in market conditions. “The overall average price increase was driven by single-detached, semi-detached and townhouse sales in the City of Toronto. There was a substantial increase in higher-end home sales this year compared to last,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “This time last year, many would-be home buyers and sellers were still on the sidelines due to changes in federal mortgage lending guidelines, including those guideline
changes that removed the government guarantee on mortgage insurance on home sales over one million dollars. However, many of these households have subsequently adjusted to the lending guideline changes and have recently purchased a home,” continued Mercer.
Tax Season and Real Estate – Some Things to think about!
1. Make your mortgage deductible
When it comes to the house they live in, Canadian homeowners don’t enjoy the same mortgage interest deduction as our neighbours to the south.
However, there is a way to reformat non-deductible debt like your mortgage into a deductible investment loan. But you have to be scrupulous in your documentation and should seek professional help when going this route. Called the Smith Manoeuvre, you first need a re-advanceable mortgage. You then sell your non-registered assets (such as stocks held outside of an RRSP) and use the proceeds to pay down a portion of your mortgage, while continuing to make your mortgage payments as you normally would.
As you gradually pay off principal, you then re-borrow that amount using a line of credit and invest this re-borrowed money at a higher rate of return than the interest you’re paying on the line of credit. You then deduct your investment loan interest and use the tax savings to once again reduce your mortgage, repeating the process until your non-deductible mortgage is paid off.
2. Don’t flip too often
It seems natural to take advantage of this attractive tax break by purchasing a home, fixing it up a bit, and then selling it for a profit. And if things subsequently work out, then why wouldn’t you repeat the process?
The trouble is when someone buys a property with the expectation of reselling it at a profit, this “adventure in the nature of trade” is considered a business, so any gain is treated ordinary income, and can’t be sheltered by the principal residence exemption.
The CRA has been known to review land transfer records to identify speculators whose property sales, often referred to as flips, should be treated as business transactions.
One unlucky couple who bought and sold several single-family homes within a six-year period got caught this way.
Since they’d owned each of the properties for just a few months before selling them, the CRA was able to successfully argue that they were actually in the real estate business and therefore not entitled to the principal residence exemption.
3. Shelter gains on your principal residence
Most Canadians are aware of the principal residence exemption, and so believe gains on their home won’t be taxable. And, for the average Canadian family, which owns and lives in a single residence at a time, that’s generally true. You’re entitled to treat a property you live in during the year as your principal residence for each calendar year – but you can’t own two at a time and get the same tax break. When you sell one residence and acquire a new one, you can designate the property sold as your principal residence for all years prior to the year of sale. This ensures that someone owning two residences in the year they move won’t jeopardize the tax-free status of their homes.
Families with multiple residences, such as recreational properties, or parents who own properties occupied by their children, have to choose which property to designate. It can’t be both
4. Watch out when renting the basement
Thinking of renting out your basement? Aside from being sure to declare the income, you can run into trouble if you’re not careful.
If you rent out too much of your home, for instance, you could jeopardize your principal residence exemption. You’re the person who’s supposed to be living there, not a stack of tenants.
While renting out a basement would likely be ok, going much beyond could possibly attract the CRA’s attention.
The other possible hazard is lies in claiming capital cost allowance on the portion of your home that’s being rented. By claiming CCA this way, you’re effectively telling the CRA that the property is really being used to produce income, not as your principal residence.
Thinking about buying a building with a few units and living in one of them while renting out the others? You should be ok, providing you document what portion is for personal use and what portion is rental
5. Hand off the cottage delicately
Many parents consider gifting the family cottage by adding their adult kids to the title in order to avoid probate and other taxes – but tread carefully here.
Even if you give it to the kids during your lifetime, your generosity will be considered a deemed disposition at market value – even though there’s no actual sale – triggering taxes on the full amount. This may not be as bad as it sounds for some people, since all or part of the gain can be sheltered by the principal residence exemption – but not if you also own your home. To mitigate some tax, you might sell the cottage to your children over a period of five years. This enables you to recognize the total gain in smaller increments, approximately 20 per cent per year, potentially reducing the overall tax payable. You could purchase an insurance policy on your life that would pay a tax-free benefit that might cover most, if not all, the potential taxes.
6. You can fight back on property taxes
Property taxes are a fact of life when it comes to real estate and they’re always higher than you’d like. But, if you think they’re simply too high, you can always fight back.
Whether you decide to fly solo or enlist an advocate’s help, the process is essentially the same. Establish that you really have been over assessed, file a grievance, and argue your case before the local assessment board. After that, if you’re still feeling put upon, you can launch an appeal before some sort of tribunal.
Like all tax disputes, the government considers you to be guilty until proven innocent. But, since the appraisal process is based as much on educated opinion as absolute fact, there’s often room for discussion before the fireworks start
7. Keep track of property transfer taxes
In most provinces, buying a house means paying a property transfer tax or fee. This is normally between 0.5 per cent and two per cent of the total property’s value depending on the province. As a result, using the asking price should give you a close estimate. In British Columbia, for instance, if the fair market value of the property is $150,000, then the tax is one per cent of $150,000 or $1,500. Some municipalities apply their own additional tariff as well. Buyers in Toronto, for instance, also pay an additional land transfer tax of up to two per cent.
For someone buying their first property, however, things may be different. In Ontario, you’re actually entitled to an offsetting tax break of up to $2,000, effectively eliminating the tax on properties under $400,000. Certain conditions apply here, however. The buyer must be a Canadian citizen or permanent resident and it must be his or her first property bought anywhere in the world!
9 Things FSBO (FOR SALE BY OWNER) companies don’t want consumers to know
Apr 22, 2014 By Wes Hoover
1. They charge upfront (in most cases thousands). Agents don’t.
When it comes down to it, listing with an agent shouldn’t cost you a cent. I know you probably read that a few times. Agents don’t charge upfront, we only charge when results are provided. This gives you an advantage in more than one way. On the other hand I have heard of individuals paying upwards of $2,000 upfront just for a sign and a spot on a website, only to end up having their house listed and sold by an agent.
2. They aren’t held to any code of ethics.
Real estate agents across Canada are held to a strict code of ethics by CREA. They take the liability if something goes wrong. They are also held to higher standards in advertising and they have duties to you as a client.
3. Just because you’re a real estate professional does not mean you’re rich or overpaid.
This has been the fuel for many slanderous ad campaigns released by popular for sale by owner websites over the years. The truth of the matter is, if it was that easy and they got paid a “small fortune” to sell a house, everyone would get into the business. Selling homes is hard work. Agents often find themselves working for free and hoping to receive a commission.
Consider this situation: A buyer has his agent show him 30 houses over the course a month. The agent spends hours of his time to assist the buyer. The buyer decides not to buy. The agent has worked for free and lost money on expenses. This is a common situation.
4. They can’t put your home on the MLS system.
This system was built by Realtors for Realtors. No one is allowed to list a property on it unless they have a license to trade in real estate. These websites will just refer you to an agent (how ironic), often one from the other side of the country, to put your home on the MLS and nothing else. In most cases the listing won’t even be on your local MLS board, making it sometimes hard to find.
5. They actually petition agents to sell their houses.
After years of bashing the profession, certain for sale by owner websites are now calling on agents to come to their rescue, so they can take credit for selling homes. Tell me another business model where you ask your competition to do the work for you. This is really an admission of one thing – serious buyers go to an agent. Why? Because it will cost you nothing to buy through an agent.
6. They don’t have a real estate license.
This is something a lot of people do not realize. These so called “private sale” websites are just that. They are not licensed to trade in real estate or to give you real estate advice. They can’t even advise you on how to price your property because doing this would fall under an agency relationship and would be considered trading in real estate. That requires a license. These parameters are set in place to protect you, the consumer.
7. You pay them so you can do all the work.
Since these companies are not licensed to trade in real estate they are not permitted to represent you in a real estate transaction. This means they can’t answer buyer inquiries for you, show your home, host open houses, handle paper work, mediate negotiations, advise you on market conditions…and the list goes on and on.
8. Privates sales carry a stigma and uncertainties that make buyers uncomfortable.
Ever gone to view a private sale as a buyer? Then you know it can be extremely uncomfortable and limiting to view someone’s house with them in it. It can be even more uncomfortable to negotiate with them. On top of all this, private sales beg the question, why didn’t they use an agent? Is there something wrong with the house? If they are trying to cut costs now, did they cut costs/corners with repairs?
9. Agents don’t hate for sale by owners.
These companies would have you believe that agents think FSBOs are ignorant. This isn’t the case. We get why you would want to go this route. It can be done, but just because you can do something doesn’t mean you should. Like many DIY projects you are putting yourself at risk. In this case you are taking a risk with the biggest investment of your life. It will not be an easy process.
Just remember that limited service will always equal limited results and if it seems too good to be true, it is more times than not.
Wes Hoover is a sales rep with Moncton Area Homes Team, HomeLife Premier Property Group.
Next Week – I will talk about Realtor Commissions and break down/ explain why a FULL SERVICE realtor is worth it!
Have a wonderful weekend and week, Anthony