Key success to building wealth

I am going to first say, I am not an economist, nor an Investment analyst.  I am a realist!  I am going to write about wealth. What is wealth and how can we create it using real estate investment principals.  The last thing I want people to look at this and say, wow, its another Tommy Vu commercial.  So I will start off by saying that the economy we live in is very “fragile.”  Regardless of the TSX, or the Canadian Dollar, or even the price of oil, we should be able to build wealth. 

The focus of a fragile economy is beyond what I can summarise in a few paragraphs.  However, I can first say the reasoning behind my rant because of what I see on a daily basis.  I see the average person struggling to get in the market, putting a foothold in the wild west real estate market of the GTA. In order for the average person to get in they have to submit 5-10% down payment, a novel of paperwork, and a sample of DNA.  For the ones that are currently in the market, it’s a great feeling, give yourself a pat on the back.

So now, how does this relate to wealth creation.  The first idea behind my grandiose method is the principal residence tax free exemption.  This is one of the major keys behind wealth creation, people have been accumulating wealth by living in their house.  Its that simple, and also complicated.  I am not going to get in the details of the actual CRA exemptions or legalities, but I will say that the gain created from living in your principal residence can be tax free.  The average individual takes years to save a few bucks, but, by utilizing this exemption you can see that gain immediately.

Another method that has been proven is by using real estate as an investment.  Rental income, can be generated from many sources of real estate such as commercial, industrial and most ideally the average home or condo.  Many individuals I know have personally moved their market investments into real estate due to the fact they now want to see and feel what they have invested in.  Long term investment into real estate can start small, there are options available where you can invest 5% in a new condo and the rent is guaranteed.

General appreciation of the property is one of the most common ways of building real estate wealth.  Within the GTA we have seen over a 30 + year average of 5% appreciation of wealth.  These numbers fluctuate annually and over the last few years have been in the 10% range.    The latest figure of the average detached homeowner in the 416 is getting $8500 richer every month.

If you have the means, get yourself wet.  This is not a sales pitch nor something that needs to be sold, I am only writing this because of amount of potential wealth being lost.  I will continue with the other three methods that I live by in the next blog post. 

For now, be smart. 

Omar Ali


To Stage or Not to Stage

I have been consistently asked about staging and its benefits. I can’t even explain in words how much of difference it makes. Lately, I have walked through some “stone cold houses”. What I mean is that either a builder or flipper tried their best to build a nice family home but failed to sell. In this market seeing an expired listing is rare, especially a well priced listing.

One example is that I have seen a brand new build on Rathburn Rd, and it was perfect in every sense. While all the other houses in the area sold, some even at a better price and less perceived value that that particular house. I tried to figure out what was the case behind this, why it wasn’t moving.

Trying to figure this out was a bit of a boondoggle, but I really blame the expired listing on staging. The house felt a little undefined. It was an open concept build, the kitchen was merged into the living and there was no definition. The master bedroom was not clearly defined and in some cases the little things matter, the house was not turned into home. This is where, I have to recite the benefits of staging.

Staging a home is beneficial in most scenarios. In most cases it can be done with the existing layout and furniture. Even a couple linens and drapery can make the biggest difference. Showcasing the home to the fullest potential will build on its strengths and minimize its weakness. Showing the best use of space is another benefit that potential buyers can realize by easily seeing how they can fit in that space.

Here are a few studies that show the difference between the two.

Coldwell Banker Survey (2722 homes in 8 cities); Staged homes sold twice as fast as un-staged homes

National Association of Realtors Survey; Homes that sold after 4 weeks on the market sold for 6% less than those sold in the first 4 weeks

Maritz Survey –> 63% of buyers will pay more for a move-in-ready house

2008 National Association of Realtors Profile of Home Buyers and Sellers –> 87% of all home buyers and 94% aged 25 – 44 use the internet to search for a property

National Association of Realtors –> 98% of buyers said photos were among the most useful features of real estate websites

Its pretty obvious the difference simple staging can make, but it should be a viable option in our books as Realtors. In that at case with the house on Rathburn, I can guarantee that the seller gained a few gray hairs because of this.


Getting The Most Out Of Your Rental

One aspect of our business it helping our clients obtain proper rental rates and renters. There are a few steps individuals can take to establish renting out your property but its always best to leave it to the professionals.

 

a. Investigate the area prior to purchasing the property.

 

b. Establish an amount that you believe your unit can bring in, sometimes it is worth investing a few thousand dollars to get a higher rate and better renters.  It is also important the unit is in tip top shape – so perform any maintenance or repairs prior to letting the renters see the unit.

 

c. Attract the best renters/leasers by placing your advertising dollars where you’ll get the biggest bang for your buck, services like viewit.ca or Kijiji are good but attract all types of renter (some good some bad).  We recommend using a realtor.  

 

d. Separate all funds from your personal funds, establish a rainy day fund because there will be a time when you need things don’t always go as planned.  Creating a bank account for your rental helps keep track of all expenses – just in case the CRA decides to audit your financials.

 

e. Tenant application forms are almost as important as a tenant interview, make sure all applicants fill out a form and keep it on record for at least the one year.

 

f. Perform a credit check if possible on the individual(s), studies have shown those who have good credit will make their payments on time and without excuses.

 

g. Finally if you’re not living on the same property as your tenant then it is sometimes a good idea to hire a real estate management company to take care of plowing snow/cutting the grass and collecting the rent.