FSBO Video

For those who don't know, FSBO stands for For Sale By Owner 

This is a pretty good resource for Realtors when it comes to talking to people considering doing a FSBO sale. Since it is a news report, one can assume that the information given is unbiased. The video is also being recommended online to people who are looking to sell their homes.

It is easy to understand why people might balk at paying a 4-6% commission when they sell their home. Houses are expensive and so it looks like Realtors are getting quite a bit of money. What always amazes me is that people are willing to shell out $3000 up front, with no protection if the house doesn’t sell. 

When hired, a Realtor uses the money that is part of the commission to fund advertising. They make sure that as many people as possible are aware of your house being for sale. If the house doesn’t sell, they do not get that money back. This means a Realtor is extra motivated to make sure your house sells, and that it sells at a good rate. 

Grapevine and all those other marketing services don’t have that same motivation.

Julie: My Real Estate Story - Part 2

As you may remember, I decided to post my Real Estate story as a mini-series. With that in mind, here is the continuation of last weeks instalment.  

Part 2

I remember it like yesterday, standing in a pink dress with my six-month old baby girl on my hip, armed with a document that I was bound and determined to deliver to the tenants personally. The document stated that anyone conducting criminal activity was going to have the police called and eviction proceedings would begin immediately. While drafting that document I was acutely aware that you can’t back a rabid animal into a corner without giving them an exit. So the document went on to say that if they left the premises with all their belongings within the next 24 hours that I would not hold them to the lease that they signed with the original owner.

The next day I arrived, and there I was with now a nearly vacant building. Three of the four tenants had left with all their things, and kindly left the keys in the mailbox just as I had asked.  Surprisingly, this included the 300 pound prostitute on the second floor who was nice enough to leave her tools of the trade in her apartment for me to clean up.  First, I felt joy.  Then, it donned on me.  I have two babies under the age of two, and the only rental income that I would now be collecting was Bob’s $350 per month for the entire building. Not good.

So I made lemonade, using those lemons I was just handed, and we started renovating. I put together a design plan with a mix of samples and colour chips to show prospective tenants what the units were going to look like in a few weeks. The plan was to install high-end laminate flooring throughout, paint the cabinetry, change the knobs, touch up the bathrooms and paint the entire apartment a nice neutral, trendy color like I had done when I was flipping homes. I placed an ad on Kijiji advertising a newly renovated apartment available the following month and that there would be an open house the following Tuesday night. I had a number of groups through. The place was a disaster and mid-renovation, BUT I had my samples and a sales pitch all ready. As it turns out, I had more than one group who was willing to sign a lease and managed to create a bidding war where I got more monthly rent, and the winning tenant paid rent on the unit the month that I was renovating it so he wouldn’t miss out on the apartment. I proceeded to pull off the very same deal with the balance of the three available units and didn’t lose a dime of rent while I renovated for nearly 4 weeks straight.

What is a Mortgage?

Although lots of people have mortgages, very few people could probably explain to you what is involved in the different types available, or even name all of them. This post won’t be naming all of them, but will be focusing on a select few.

The word mortgage comes from two French words “Mort” and “Gage”. Mort means death, and gage means pledge. No the bank is not asking you to cross your heart and hope to die, rather, the word means that you pledge to pay off the loan until its death (aka it is paid off). On this rather morbid note, let us move on to the various types.

Open Mortgage:

This type of mortgage allows you to make payments above those that are defined as your monthly payment. This means if your monthly payments are $500 a month, you can pay $600 or even a $1000. You may incur a penalty depending on the type of open mortgage you have.

                Types of Open Mortgages:

·         Fully open – you don’t incur a penalty, or give notice

·         Open with flexible penalty or notice

·         Limited Open privilege -  No penalty or notice but a set amount over you are allowed to pay

·         Limited Open privilege with fixed penalty or notice

I love open mortgages for the terms. If you are going to buy a flip property or short term, and you are not sure quite how long you will hold onto it, this is an ideal option. However, you will pay a much higher interest rate for this privilege.

Closed Mortgages are those that do not let you pay any amount in advance of the scheduled monthly payments. They usually have the lowest interest rate, however, if you sell before the term of the mortgage is up you may have to pay a high penalty. The penalty is the interest differential and will be 3-5 times bigger than the monthly interest.

This is normally what your bank will offer you.

Creative Financing Mortgages

These are all more difficult to obtain, but if you come talk to us, we can point you in the right direction.

Wrap Around Mortgages

If the seller of the property has a favourable mortgage, the seller can offer the buyer a wraparound mortgage that includes the smaller amount left. This means the buyer pays the seller the monthly payments and the seller is responsible for paying the bank. If the buyer defaults for any reason, the seller has the option of taking back the property. It is important to have a good lawyer involved on such a transaction to make sure you are well protected.

Keep in mind that wraparound mortgages are illegal in some provinces.

Reverse Annuity Mortgage

This is an option favoured by retirees. Essentially, you take out a mortgage on the equity in your home. In return, the bank sends you monthly payments that are tax free. This option puts you a little more in debt every month.

Double-Up

This type of mortgage lets you double your monthly payments as often as you want with no fee or penalty. Depending on the arrangements, the amount you double up is usually applied directly to the principle.

This type of mortgage is also incomparably flexible. Just because you doubled up one month does not mean you have to the next month. Furthermore, if you double up at some point during the year, you can skip a payment later on in the year, although this depends on the bank.

Umbrella Mortgage

This type of mortgage essentially combines all the various mortgages on various properties and combines them into one. You make one payment. This type of mortgage will often have some type of penalty involved and is not one we would recommend.

Piggy Back Mortgage (Oink)

A piggy back mortgage is where you take out two or more mortgages at the same time for the same property.  The first (or senior) mortgage covers a percentage of the property, and the others cover the rest (or most of the rest). The second and third mortgages piggy back on top of the first. If the second mortgage is registered on title you cannot cover the rest.

Leasehold Mortgage

This is a mortgage on a property where you own the building but not the land.

Julie: My Real Estate Story - Part 1

As I sat down to write my story, I realized I had so much to say that there was no way I would get it done in just one post. My life in Real Estate is a long one, full of funny moments and life lessons. Since this is afterall my blog, I have decided to make my story a mini series. I will post a part of the story regularly, and in the end you will all learn all that I have.

So without further ado!

  Part 1

I have forever been interested in real estate. I have fond memories of admiring a little white house, that couldn’t have been more than 600 square feet when I was about 7 years old, saying to my mom that I would own it someday.

When I was 18, while attending Carleton University, I landed my first construction job; working for 5 years at the Pro Desk at Home Depot examining plans, designing layouts, teaching their how-to seminars, and pricing big renovation jobs for contractors.  I became proficient at my job, to the point that it didn’t take long before most of the 50-something contractors were opting for my help rather than that of the gentlemen at my desk. There I learned the ins and outs of Ontario Building code and how to do pretty much any renovation you can to the interior and exterior of a house.   

A short time later, I managed to finally convince a bank manager, about the tenth one I had met with, to go out on a limb and sign mortgage documents for my very first home, a three bedroom condo in Ottawa’s East End. This was not something that bankers did for 19 year old, full time university students who didn’t have a full time job. I attribute the success partly to a wealthy friend of mine who was sympathetic to my plight and made a phone call on my behalf.  And mostly, to that oops-it-fell box of donuts that happened to land on the bank manager’s desk when I walked in.

It didn’t take long for me to reach for the sledge hammer to make my house a little more ‘open concept’. By the way, please look into your condo rules and regulations before you begin a renovation. I learned that the hard way to say the least. This house turned out to be my very first flip house. Renovating houses I lived in consumed the better part of the next 13 years of my life, completing my last flip in the summer of 2009. The market started to tighten up with less appealing options and minimal returns. As it turned out, I was sick of living in a constant state of renovation. My days of laying tile and drywall, caulking bathtubs and hog-tying and getting rid of resident squirrels were over.

A number of years before I finished my last flip, I began a teaching career and found myself with two babies needing to go to daycare and an insufficient salary to cover the expense. I was on a mission to find a way to supplement my income.  My first impulse was to get back into Formula One car racing, which had helped me pay for my elementary school education.  However, the lack of room for child seats and the my wanting to stay in teaching had me again turning to real estate, where in 2007 I purchased my first buy and hold multi-unit to generate some ‘passive’ income.  If by passive income I mean very active income to help me feed my family.  Back then, believe it or not, cash-flowing properties in Ottawa were the norm.

Fortunately, more gusto than brains was how I proceeded with my first purchase. If I had thought about it, it’s likely I might not have jumped into the single best investment I have ever made. It was a fourplex in one of the roughest areas in town. I just couldn’t turn it down, even if it was a crack house, everyone in the neighbourhood greeted each other using a sideways gangster grip handshake, and the reason I was getting it cheap was because the Seller happened to be a Realtor who was scared of the pantless, crack-dealing tenants.  The lesson to be learned?  One man’s wrong-side-of-the-tracks is one woman’s alternative to race car driving.

Funny YouTube Video about Realtors

We have all had experiences with pushy sales people like the man in this video, although hopefully not quite this bad. I would just like to take this opportunity to say, this is NOT the Team Jamieson Experience. Our team is devoted to giving you exactly what you want and need. We will "ask you" and we will listen too. 

The Power of Equity?

Canadian Real Estate magazine released an article entitled “The Power of Equity” in their November 2011 edition.  On the outset, the title of this article is misleading. One would expect this article to explain the various ways in which equity can be employed for investment purposes. The article in question, however, does not actually discuss potential uses but rather guides on how to achieve the highest bank loan. If anything, the article should be called: Things you didn’t know about how a bank calculates risk. 

The article offers various tips and little known information with regards to how risk and yield are calculated by banks when taking into account the possible rates offered. For example, in the past, a bank would consider only if credit cards were paid off, or how much of the balance was owed. Now, however, most banks take the total credit limit as their amount for debt calculation. So even if you owe nothing on your card that has a limit of $5000, the bank will still treat you as though you have a five thousand dollar debt. They suggest that the best way to mitigate this is to cancel, or lower the limit on your various cards. They also suggest consolidating your debt into one account, and so owe the amount on one card rather than spread out across several. 

Another suggestion made by this article, is not to consolidate your investment profile, but spread it out through various institutions. In contrast, you are encouraged to consolidate all of your personal debts, and to keep all of your personal debts and investments at separate institutions.  

What the article doesn’t explain is why this is a good idea. When you diversify your investments, you limit the impact that one fund mismanagement has on your total investment yield. If your investments are spread out across five banks, and one of the banks makes a mistake, you still have four others that are giving you better yields. This is why I encourage clients to start off with small investment properties that are easy to sell. Once you have a strong foundation, then you can invest in the large multi-unit buildings that bring all your investments under one roof. It is the monopoly investment principle explained by Kiyosaki: “Four Green Houses and One Red Hotel”.

The other thing the article doesn’t explain is that if you consolidate your debt, the bank can give you a better overall rate. For example instead of having 5 cards with 5 different banks all at 20% interest, you can have a line of credit from one bank at Prime plus 1%, if you have a good credit score and payment history. 

The article in the end explains not the power you gain, but how to get the greatest yield for your equity, out of the bank. 

How to Create a Twitter Account

How to Create a Twitter Account:

•  Go To: www.twitter.com
•  In the lower right corner will be a form “New to Twitter” that asks for your name, email, and a password. Enter this information and it will take you to a new page.
•  On this new page, you will see the name and email as you have entered it. The fourth information box from the top is your Username. This is the name that will be visible to the public so choose carefully. If you cannot think of something, choose an interim one and you can change it again later.
• Click on “Create Account”.
• You now have a Twitter account.

To Set Up Mobile Notifications and to Follow Us:

Notifications:

• In the top right hand corner, you can see your name. Click on it and scroll down to “settings”. 
• When it brings you to the new page, click on the tab called “Mobile”. 
• Enter your country and your phone number. Once you have done this, it will ask you to text a message (GO) to a certain number (21212). Text this message to this number, it may take a minute, but the account should show that your phone is now linked with the account.
• Congratulations, you can now choose to receive texts when something new is posted.

To Follow Us:

•  In the Search box at the top left, type in TEAMJAMIESON.
• On the right hand side you will see a list of people, who fall under this category.
• Click on the one featuring our logo. This will take you to Team Jamieson’s twitter page.
• Underneath the picture is a green addition symbol with the words “follow” next to it. Click on this arrow. You are now following us.
•  A few icons will pop up next to the following button. The first one on the right hand side is the mobile icon. Click on this icon.
• You will now receive mobile notifications for our tweets.
• Congratulations, you are now following Team Jamieson on Twitter. We hope you will enjoy our various tips and quotes.

Is Saving for Suckers?

Maclean’s magazine has an interesting article regarding the plight of “savers” in Canada after years of ultra-low interest rates. In their efforts to stimulate the economy through spending, the Bank of Canada has created an environment where it pays to spend but costs to save. For example, due to the low-interest rates, $10,000 in a five-year GIC, assuming inflation rates hold steady, will shrink to $9,670 in 2016.  You had $10,000 and have LOST $330. Alternately, I predict that that same $10,000 invested in Real Estate, could lead to a yield of approximately $40,000.

On the other hand, this environment has encouraged Canadians to live well outside their means. Canadian’s now have so much debt that an increase in rates would cause a second national financial crisis.

Although the article highlights the paradox now faced by Canadians, go into debt or lose your money, the author neglects to mention a solution.  An examination of the market suggests that the wisest thing to do is to spend in some areas and save in others. Use any extra money that would have otherwise been used for savings and invest it, in Real Estate for example, but forgo extravagant spending on non-essential items that don’t yield any investment gains. In other words, rather than buying a sports car that will lose its value immediately after purchase, use the money to purchase a rental home that will generate added income and reduce the debt load. 

An interesting thing to consider is that when you save money in a bank account, what you are actually doing is giving the bank money with which to invest. The bank takes that $100,000 in your savings account and loans it to someone buying a house. You receive an extra $10 monthly to compensate for the risk, while the bank makes back over $1000 monthly on that same investment. Smart investing in this market means doing exactly what the bank is doing, but making sure that your pockets sees the high returns rather than the Bank President’s. 

A Penny Saved is a Penny Earned

It is a common concept, saving money makes you rich. If you drive five minutes out of your way for gas that is a few pennies cheaper, then you have earned a dollar that you wouldn’t have had otherwise.

Sounds smart right? 

It does, until you realize that you saved the dollar but lost ten minutes. Ten minutes that could have otherwise been used for something more productive.

Time is Money.

Consider this. Minimum wage in Ontario is $10.25 per hour. If you work ten minutes you have made $1.71. This means that the ten minutes you spent driving to the other gas station actually lost you $0.71.  

Most of us make more than minimum wage, which means that for many of us the amount of money lost is actually quite a bit higher. Even if you wouldn’t use those few minutes to work, there are much more valuable thins one can be doing; spending time with your family, relaxing, inventing a new product or service. Any and all of these are worth more than that one dollar would have been.

But it’s on sale!

Another way that this attitude of saving often backfires is during store sales. We have all seen those deals at grocery stores: 2 for $5, 3 for $10, buy on get the second half price. These sales usually don’t actually save you money, but rather make you spend more. 

If you go to the store to buy one can of soup but see that you save 5 cents a can if you buy 5, then you actually just spent 5 times more than you meant to.  

Robert Kiyosaki discusses this idea in his learning series “You Can Choose to Be Rich” that I got after taking one of his classes.  I highly recommend his book “Rich Dad, Poor Dad”.