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Real estate is the most expensive asset most people will purchase over their lifetime. It's also a major part of a person’s wealth. A newly released Statistics Canada report found that Canadians are getting richer and the key driver of this is an increase in the value of the average Canadian home. Between 2005 and 2012 the increase in value of a primary residence was 52%. This is pretty amazing considering that while you're eating breakfast your home is creating wealth for you. The other great thing about this is that when you sell your principle residence, there's no tax on the increased value! What other means of generating wealth allows you to do this without paying taxes (that's legal of course). The fact that you can buy a bricks and mortar investment and over time it increases in value, is one of the things that attracts people to real estate investing. While I can talk a lot about real estate investing I'll save that for another blog post, but as a home owner, how can you increase the wealth generated by your home?

 

When looking at real estate from an investment perspective, there are a few ways of generating wealth. The first, which we've covered above, is an increase in the property's value over time. I'd call this the icing on the cake, because while it is nice, it may not always be guaranteed and is not always predictable. There's lots of variables to consider to maximize your potential for value increase when purchasing a home, but I won’t go into that here.

 

The second way to generate wealth is cash flow. In this case you're looking to generate a rental income that covers your expenses and produces a "profit" at the end of the month. As a side note, even with positive cash flow, this only increases your wealth if you save it or reinvest. Over time as the tenant pays the mortgage down your cash flow increases, but you've also been building equity each month as the tenant pays down the mortgage principle.

 

As a home owner you probably don't have a tenant contributing to your mortgage, or paying for other expenses unless you have a basement apartment or live in multi-unit property. But there are other ways of building wealth that real estate investors use that any home owner can adopt.

 

I always try to tell my clients buying a home that mortgage rates compared to historic averages are historically low!! (check out this interactive graph to see for yourself http://bit.ly/1pEllvD) And as a buyer and homeowner this offers a unique opportunity to build wealth at an accelerated rate. Every month you make a mortgage payment part of your payment goes to the principle (the original amount you borrowed) and part goes to cover the interest on the loan. When rates are low, more of your payment goes toward paying the principle off than interest and the more principle you pay off, the more your equity grows. In this current interest rate environment you're building equity in your home at a faster rate than ever before. Just ask your parents what their interest rate was!

 

If you've never done it, it's a worthwhile exercise to put your mortgage details into a mortgage calculator and see how much money in interest you pay to the bank over the life of the mortgage. You might be shocked! So this brings us to the first way to increase the wealth in your home:

 

1) Pay your mortgage off faster: how do you do this? There's a couple of ways. The first is to decrease the amortization period. By reducing the amount of time over which the mortgage is calculated, you're payments will be slightly higher, but you'll pay your mortgage off faster and increase the amount of money you're stashing away in equity. Another option is to increase the frequency of payments from monthly to weekly, bi-weekly, or bi-monthly, with the best option being weekly. Again, this results in you paying more of the principle off at a faster rate. Thirdly, you can make lump sum payments. Banks have various ways for you to do this which includes making one time payments annually that amount to a certain percentage of the mortgage or doubling up your monthly mortgage payments over a certain period of time.

 

While all three of these options result in your mortgage being paid off faster, the reality is that option 1 and 2 are likely to be the most practical options. A lot of us start off with the intention of paying a chunk of our mortgage down, but are often derailed by life's expenses and end up finding it easier not to, or putting off making such a payment until the following year. When it comes to building wealth, saving money, etc., we tend to do much better when the "saving" is automatic and done for us. By reducing your amortization, increasing your payment frequency, or setting your payments higher than what they need to be, once you've made the initial arrangements, the money gets taken out of your account automatically and your equity growth plan is put on autopilot.

 

2) The second way to build wealth in your home is via sweat equity. If you've bought a home that is brand new or already renovated, this could be hard to do, but if you live in an older home and have the skills or time to learn how to do the various upgrades you want, then you're able to reap even more of the increase in value to your home as a result of reduced costs. This can be anything from doing the painting yourself to getting a relative with the necessary skills to help you or even working with a professional to complete certain parts of a project while you do others. Over the years I've done everything from painting, demolition (always fun), laying of floors, building a deck, tiling, and landscaping. If I can do these things I'm sure most people can.

 

While sweat equity is a great way to build wealth in your home, the real point of this blog post is to emphasize that mortgage rates are at historic lows (which most people know), but they will go up and when they do and it's time to refinance your mortgage, you'll be paying less of your principle and more interest. It's better to pay yourself more now while you can and take advantage of the current interest rate environment, than paying the bank in the future.

 

 

 

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The Real Estate Council of Ontario (RECO) recently published 10 common home buying and selling mistakes that consumers tend to make. I'd hazzard a guess that most people don't know what RECO is (including some agents!!), even though they play an important role in the real estate industry. RECO is responsible for regulating the real estate profession in Ontario;  administering the legislation that governs trading in real estate; and protecting the public interest when it comes to real estate. This list is based on feedback that RECO receives from the home buyiing and selling public. Being aware of these 10 considerations as well as always working with a Professional Realtor, will hopefully help make your buying or selling experience that much better!

 

Top 10 Home Buying and Sell Mistakes:

 

1. Allowing Emotions to Overtake Common Sense


When you fall in love with a property it can be hard to walk away. Know your budget and don’t overpay.
As part of this you shouldn't forego a home inspection just to win a bidding war. (Your willingness to walk away from a deal is an important negotiation tool that your agent needs to have when negotiating on your behalf).
 
2. Hiring the First Salesperson you Meet


Toronto has nearly 40,000 agents, with a broad range of experience and approaches to the buying and selling process (Many of these agents are either part-time or do very little business in a year. You need to take this into account when looking to work with a professional). Meet with a few different representatives before settling on one, and make sure you feel comfortable with them and their approach to the process. Also be sure to get references and contact them to learn about their experience with the salesperson.
 
3. Not Making your Expectations Clear with Your Real Estate Professional


It’s important that you and your representative have a mutual understanding about what you’re looking
for and what services the brokerage will be responsible for and what you expect your agent to provide. Once you've agreed to work with someone, get their committment in writing.
 
4. Failing to Read and Understand Forms and Contracts


It can be tempting to speed the process along by signing forms that you haven’t read. But taking the  time to understand what you’re signing can avoid a lot of problems later on. For example, you don’t want to find out that you’re on the hook for a six month listing agreement to sell your home if you only want your house on the market for three months. Most importantly you should have your agent walk through any documents requiring your signature before you sign and be sure you get a copy of whatever you sign.

 

5. Assuming everything is included


Don’t assume that the furnace, dishwasher or other items are included with the property. The seller may want to take the dishwasher with them to their new home and the furnace might be under a rental contract that you’ll be required to take over. Before making an offer, detail all items, known as chattels, in writing. Your offer can also include a clause stating that the seller will pay out any outstanding leases on the home’s major systems.
 
6. Forgetting about what’s within the walls


Granite countertops and new hardwood floors are appealing, but the insulation, wiring and plumbing are just as important when you’re evaluating a property. Ask your real estate representative to look into the age of the home’s systems and if there have been any upgrades. If extensive renovations have been done, your real estate professional can determine if the appropriate permits were issued.
 
7. Forgetting about what’s outside the walls


When you buy a house you’re also buying a place in a community. Some places are lively, others are
quiet. Some places are filled with kids while others are not. Visit the neighbourhood at different times of
the day to see if it fits your lifestyle. Talk to the neighbours about the community and the locations of
various amenities like grocery stores, schools and transit.
 
8. Not doing your research


If you’re concerned about buying a home with a troubled past, a simple Internet search for the address
can go a long way. This is also something you can ask the neighbours about.
 
9. Making verbal agreements


Verbal agreements aren’t a problem, until they become a problem. Putting everything in writing forces both
parties to be clear about their expectations and provides a record that can prevent disputes later on.
 
10. Underestimating closing costs


From land transfer taxes to title insurance to a home inspection, the costs of a real estate transaction
can add up quickly. Take the time to include estimates and other expenses in the full cost of buying or
selling a property. Your agent should be able to give you an estimate of these costs based on the type of property you're looking to buy and/or sell.

 

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