Good evening everyone;
The Toronto real estate market is heating up and bidding wars are simply matter of fact.
The Thursday before last a large Victorian home for sale on Markham St. (“Little Italy” – College and Bathurst St Area) had an ask price of $1.499.000. I showed the property to my clients and we were overrun with other buyers during our appointment time. Offers were to be submitted on Feb 4th. My clients and I were fans of the home but it needed a complete top to bottom overhaul. We decided to sit out of the bidding process. I had forecasted during our walk through that the home would fetch over $1.7 million (for a home with great potential but needed at least $500k in renos.) The home drew over 16 offers and the final sale price was… wait for it… $2,110,000!
6 months earlier a very, very similar home on a slightly smaller lot but in much better condition sold for $1.8 million.
Last Sunday a relatively new semi-detached home (Built 2002) in the Danforth neighborhood was being offered for sale at 849k. My clients (different than those in the first scenario) and I were overrun during the open house.
The home showed lovely and hit many of all the check marks that buyers are looking for. There was a laneway In back that had a strip of row homes on the other side that were older and my client did not feel comfortable with their proximity to the subject home. As such he was not prepared to be competitive and submit an offer. I followed the sale as none the less. My predicted price during the visit was just over $1.1 million. The home received 12 offers and sold for $1.161.000
Inventory is low and buyers are being very aggressive. Keep in mind these homes are selling firm without any conditions in their offers.
GTA REALTORS® RELEASE MONTHLY RESALE HOUSING FIGURES (See full report)
Video Link https://www.youtube.com/watch?v=Ov6BLFg3BWA&feature=youtu.be
TORONTO, Feb. 3, 2016 – Toronto Real Estate Board President Mark McLean announced Greater Toronto Area REALTORS® reported 4,672 residential transactions
through TREB’s MLS® System in January 2016. This result represented an 8.2 per cent increase compared to January 2015.
“It is clear that the handoff from 2015 to 2016 was a strong one. This is not surprising given that recent polling conducted for TREB by Ipsos suggested 12 per cent of GTA households were seriously considering the purchase of a home in 2016. Buying intentions are strong for this year as households continue to see home ownership as an affordable long-term investment,” said McLean. The MLS® Home Price Index Composite Benchmark Price for January 2015 was up by 11.2 per cent on a year-over-year basis. The average selling price over the same period was up by 14.1 per cent.
The difference in the annual growth rates for the MLS® HPI and average price was largely due to a greater share of high-end detached homes sold in the regions surrounding the City of Toronto this year compared to last. The MLS® HPI removes the impact of shifts in the share of different property types sold from one year to the next. “Market conditions in January were tighter compared to a year earlier, with an annual increase in sales up against a decline in listings. This is why growth in the MLS® HPI benchmarks continued to be strong, especially for singles, semis and townhouses, where there has been a persistent lack of inventory,” said Jason Mercer, TREB’s Director of Market Analysis.
- Average Detached Price in the 416 Area / $1,061 ,789
- Average Detached Price in 905 Area / $783,565
Where can you buy a mansion for $400,000? Detroit
Erica MacKinnon and Bill Sneed have lived all over the world and spent a couple of years in a rented Los Angeles duplex considering whether to move to Miami or Seattle, Oakland or Portland, Maine.
Instead, nearly a year ago, the business and life partners packed up and headed to Detroit, which they had visited months earlier in search of computer coders for their small commercial digital-animation company.
“We spent three days in Detroit and we just fell in love with the city,” said MacKinnon, 38. “We couldn’t believe the mix of the location and the water and the people.” They also appreciated the expansive 90-year-old brick homes priced below most nondescript L.A. bungalows.
Those homes, in Detroit neighborhoods filled with 4,000- to 7,000-square-foot beauties, are in hot demand, both by newcomers to Michigan and Detroit suburbanites.
New residents have come to Detroit from Paris, Panama, New York, Washington and San Francisco, lured to the city by its creative vibe, sense of urban adventure and affordable homes — even when they buy abodes with a butler’s pantry and third-floor servants’ quarters.
Buyers think: “Why not trade a two-bedroom apartment in Manhattan and have an 8,800-square-foot mansion in Detroit for half of that?” said Kenan Bakirci, an agent for Max Broock who for almost 20 years has focused on Palmer Woods and Sherwood Forest, two historic neighborhoods in north-central Detroit.
In a city where homes still can cost less than a beat-up Chevrolet, demand has revved up for luxury residences that look as if a Bentley or vintage Cadillac belongs in their garages. These high-end homes in the city’s historic neighborhoods frequently attract multiple offers and often sell above the listing price, real estate agents say.
Detroit is a city of empty lots and faded or abandoned homes, and the poverty rate is more than twice the national average. Many blue-collar workers live in suburban bungalows, and executives own sprawling homes in the suburban cities of Grosse Pointe or Bloomfield Hills.
Many people are not aware of Detroit’s mansion districts, where auto barons and wealthy business owners spared no expense to build homes from 1900 to 1929. Homes in Detroit’s Palmer Woods neighborhood have living rooms large enough to seat 110 at a jazz concert. Some come with carriage houses and basement bars big enough for 50 guests.
“Homes that are move-in ready get heated action — multiple offers within the first week,” said Ryan Cooley, who leads O’Connor Realty and landed Sneed and MacKinnon their home. Some receive eight or more offers, he said.
In September, MacKinnon and Sneed moved into a stately 1923 brick home with room for an art studio for Sneed, guest rooms for visits by nieces and nephews, and a home office for their Yankee Peddler animation and design company. They beat out several other offers for the home in Indian Village, one of the half-dozen Detroit neighborhoods where mansions and luxury homes or condominiums are found.
Betty J. Warmack has sold homes in Detroit, mainly in Indian Village, for more than 30 years and says she has never seen this much demand and multiple offers. “I sold an attorney from New York a house, a psychiatrist from New York a house and a blogger” from Europe bought in Indian Village, a neighborhood on Detroit’s east side that is on the National Historic Register, she said. “It’s quite a comeback.”
Homes that four years ago rarely sold for more than $200,000 fetch twice that amount if they are ready for their new owners to move in, real estate agents say.
About 15 homes sold for $500,000 or more last year through October, more than double the seven high-end sales for the same period in 2014, according to Realcomp, which runs the city’s multiple-listing service.
A few carry price tags of more than $1 million, a rarefied amount that only one Detroit home has sold for since 2006. That home, the Alfred J. Fisher mansion in Palmer Woods, went for $1.6 million in 2014 — more than homes in the tony suburbs fetched that year, according to Realcomp. It sold again last year, for $1.55 million to General Motors President Daniel Ammann and his wife, Pernilla, a partner in a New York advertising agency. (A high-profile mansion once owned by Motown Records founder Berry Gordy Jr. in the Boston-Edison neighborhood was taken off the market in July.)
Austin Black II, a broker and owner of City Living Detroit, says he is amazed at how many executives have decided that it’s time to live in the city of Detroit, because for years they would house-hunt only in the nicer suburbs, where there were 217 million-dollar homes that sold in 2014 and 229 through October, Realcomp data shows. Inventory in the city has been low for months, Black said, with only a handful of homes for sale in prime neighborhoods. It’s gotten so tight, he said, that he has gone door to door in a few neighborhoods seeking people who are ready to put their homes up for sale.
“I have 20 or so clients who are ready and able to purchase a home right now. Inventory doesn’t exist,” Black said.
Demand in the mansion districts is so high and inventory so low, Black and others say, that some buyers are opting for adjoining neighborhoods, with stately but less elegant homes.
The rising home prices may begin to persuade current homeowners to cash in their mansions and elegant abodes, some of which could fetch record or near-record prices. But “because the market is doing so well lately, some sellers get aggressive with pricing” and those homes sell much slower, Black said.
To many, the influx of new residents is one of several signs that Detroit may finally be on a roll.
Quicken Loans Chairman Dan Gilbert, a Detroit native, is one of the city’s largest commercial landowners, purchasing more than 60 properties downtown for $1.3 billion. And the Kresge and Skillman foundations, JPMorgan Chase and others have committed millions of dollars to revitalization.
Still, those efforts are not enough to jump-start the real estate market and undo the prolonged structural decline of Detroit’s housing stock. So city officials have introduced efforts to either raze or auction abandoned houses. And a community bank is experimenting with a program to renovate vacant houses and, if necessary, absorb a loss to sell them to buyers who may not qualify for traditional loans.
Detroit has neighborhoods that have been ravaged by years of neglect and middle-class flight. It’s a city where dozens of homes are purchased at auction for as little as $1,000 to $7,000. That helps explain why in Detroit and three adjoining cities, homes sold for a median price of $20,183 last year, which is up from the $15,011 median in 2014 and more than double the median price of 2012, according to Realcomp.
Despite an influx of entrepreneurs, artists and hipsters, Detroit’s population fell from 951,000 in 2000 to about 680,250 in 2014. So new residents are moving into a city full of contrasts: Population and employment bases have declined for decades; crime and insurance for home and auto are high. Yet new restaurants and art galleries are opening, and high-end shops are starting to show up from New York, Germany and elsewhere.
Demand for larger luxurious homes may be an indication of Detroit’s comeback; buying has heated up since the city filed for bankruptcy in July 2013 (it emerged about 17 months later). Tech start-ups and boutiques have opened, and investors from China and Europe started buying commercial properties or blocks of homes, many in marginal neighborhoods.
Sneed and MacKinnon said they knew that the market was competitive and that they wanted a home in Indian Village, citing its architectural beauty and proximity to the Detroit River and Belle Isle, a city park in the middle of the river.
So they moved to Detroit in frigid February and rented a loft near downtown. “I wanted . . . to be ready when spring hit for any houses on the market,” MacKinnon said. “We wanted a beautiful, craftsman, old historic home.”
They looked at eight homes and then saw the one they bought: a 4,878-square-foot property on a double lot filled this past summer with peonies, hostas and wind chimes. The Georgian revival has a big homey kitchen and a beautiful fireplace in the living room, four bedrooms on the second floor, and a third-floor office and fifth bedroom. It was spacious without being grand and just felt right from the moment they walked in, MacKinnon said.
So they were aggressive and offered $430,000 — well above the $395,000 asking price. The owner accepted in two days. They have learned about their home’s history from him: It was built in 1923 at a cost of $12,750 for W.J. Davidson, who worked in General Motors’ executive offices, and was said to be a wedding present.
Despite being self-employed, Sneed and MacKinnon had pre-qualified for a larger loan, so they landed a mortgage quickly using a local lender. Home insurance was a bit trickier, but after shopping around, they are satisfied with the policy’s $2,400 annual premium.
Their new home requires some improvements — paint and hardwood floors, electrical and fire- and security-alarm upgrades — but basically it was ready for them to move in, except for cleaning out items left in the basement and a few small repairs. “We have had personal invites to join Thanksgiving parties and 100-year house parties, which is something that never happened in Los Angeles. Back there we never knew our neighbors,” MacKinnon said.
Family members have come for visits, including MacKinnon’s mother and sister, who have shown up three times, she said. Other guests say they were misinformed about Detroit, from negative headlines, and appreciated the food culture, parks and how easy it is to get downtown.
For some higher-priced deals, buyers need to put down more cash because their homes may not appraise at the prices they are paying, some agents said. Some offer all-cash purchases — an easy choice for New Yorkers who sell their $3 million apartment and buy a $500,000 mansion. About 40 percent of high-end purchases are all-cash sales, Cooley estimates. Nationwide, 27 percent of housing purchases were all cash in November, often by investors, according to the National Association of Realtors.
Valrie Honablue, a psychiatrist who grew up in Panama, paid cash for her first Detroit home in 2010. She was living in Atlanta when she read about Motown’s real estate opportunities. “The prices are so low; something is wrong,” she said. So she drove to the city to see for herself. She bought one in Indian Village. Shortly after moving to Detroit, she left for “the job of a lifetime” but bounced back within two years, drawn by “the people and the possibilities” and the beautiful homes.
Her second Detroit home had been vacant for 17 years when she bought it in June 2014. She got it for a bargain price but expects to spend five or six years renovating it, partly to spread out the improvement costs.
Warmack, her agent, calls her “the pied piper of Detroit.” A dozen people have followed Honablue to the city and bought homes.
Many who move to Detroit bring their jobs or businesses with them. Sneed and MacKinnon are among them.
“We just couldn’t get ahead” in Los Angeles, Sneed said. Now after nearly a year in Detroit, they operate their Yankee Peddler animation company from a loft, own a huge home with oversize gardens, and have made new friends who clue them into culture, festivals, dog parks and more.
“We know we’re taking a gamble. . . . But there’s a passion here,” Sneed said. They have turned into Detroit boosters and are eager to celebrate their home’s 100th birthday in seven years. Said MacKinnon: “I can’t believe I live on this street. It blows me away how beautiful these streets are.”
How to get tax deductions on a home renovation?
Q: My husband is retiring from teaching and will receive a large lump sum payment, but if he doesn’t put it into a retirement specific account he’ll have to pay about 30% in tax on this sum. Problem is: Our house is in dire need of renovation. Any work we do would go a long way to boosting the value of our home (primarily we need to update our kitchen, two bathrooms and all the floors on the main floor and upstairs). Is there any way that we can use these funds or some of these funds without paying excessive tax? For example could we say that it was an “investment” in our home and thereby get some tax back from this claim? — The Browns, Mississauga, Ont.
Answer No. 1: First, the 30% may be a touch low for an estimate of the taxes owing on a lump sum payment which is not otherwise eligible or contributed to a registered investment account. Instead, it simply could be the initial estimated withholding taxes. The final tax amount would be dependent on the taxable income for the year. For example, if the total taxable income for the year is approximately $85,000 in Ontario, the marginal tax rate (the rate of tax on the next dollar of income earned) would be approximately 40% for 2015. Thus, you may need to plan for a little more in taxes.
The Canada Revenue Agency (CRA) provides little room in considering deductible “investments” in a home to the nature I expect that you are thinking. In fairness, they provide the ability for taxpayers to sell their personal homes on a tax-free basis provided certain conditions are met. But CRA does not permit the deduction of renovation/improvement costs for the most part.
Exceptions exist though:
- Medically-oriented tax credits (and in some cases separate provincial credits for seniors) for certain expenses related to improving the accessibility of a home (and would not typically increase the value of the home),
- Repairs and maintenance for an eligible home office,
- Repairs and maintenance for a portion of the home that is rented out
In 2009 there was a home renovation tax credit, but essentially it was only good for approximately that one year. The federal Conservative party were to introduce a credit provided that they won the 2015 election. That said, in the last federal budget, the Home Accessibility Tax Credit was introduced. But this focuses on medical needs, applies only to 2016, and only to someone 65 years of age and older. Also, someone eligible for the Disability Tax Credit may receive a 15% non-refundable tax credit for qualifying expenses to a maximum of $1,500.
Overall, while some help is available to you, not nearly to the degree to give you offsetting deductions to the lump sum benefits. You can consider other deductions, such as flow through investments. But you have to use extreme caution in assuring that the investments/deductions are good for you overall and fit into your total financial plan as compared to simply investing for the sake of getting a deduction. Deductions for lost money are far less desirable than the original investment amount itself. Putting some money within any available registered investments or “retirement specific accounts” can reduce the tax burden but I expect there is little room available and this or other investments will not directly help with fixing up the house.
George E. Dube, CPA, CA is a veteran real estate investor and accountant. He is a speaker who has written various articles and co-authored two books on real estate accounting. (georgedube@georgedube.com, @georgeEdube)
Answer No. 2: Since your home is considered your principal residence you cannot deduct the renovations. The best way to offset that lump sum is to request they split the payment over two tax years. If there is no immediate need for the money, an RRSP contribution would also make sense.
Ayana Forward is a real estate investor who also holds the Certified Financial Planner (CFP®) designation. Ayana is fee-based Financial Planner with Ryan Lamontagne Inc in Ottawa, ON.
Enjoy the remainder of the weekend and have an amazing week,
Anthony!