Should I buy an investment property?

investment propertyDO YOUR RESEARCH

 

Buying an investment property is a big decision and one that you must do your research into first before saying you want to be a landlord.

Today one of my fans Allyson shares her story of wanting to finish her education and buy an investment property to get her into the real estate market.

Since I was little, I have known that I wanted to move out into my own house. I wanted something that belonged to me that I could sell when I was ready to watch my own family move on.

When I was in high school we had a class that was supposed to prepare me for the future of living away from home.

We had to fill out a sheet with a basic budget format: monthly rent, food, utilities and expenses. I was the only person in the class that crossed out rent and labelled it mortgage.

For some people, renting is a valid option and I can respect that, but for me, renting never made sense in my head. Why would I want to give somebody else my hard-earned money for shelter when I can just buy my own?

Obviously I have a better understanding of that now, as I am currently renting a row house. But it doesn’t sit well with me. I have trouble accepting that once a month, 1/4 of my income is just gone and I will never see it again.

It occurred to me a couple of years ago that I wanted to own a rental property. Maybe a duplex so that I could have a portion of my mortgage covered while I paid significantly less to own my house.

But last week a conversation with a couple of co-workers and a good friend showed me that my dream was just in its infancy.

 

Owning an investment property

 

This is what my pipe-dream has led me to. It is my future and I am determined to make this work for me. When I explained my plan to my parents they were surprised, but as usual showed cautionary support but support none the less.

My father asked me what kind of plan I had set up and I looked at him blankly – I had none! So, I set out as I had been trained to do: make one.

Today, I share with you what I have learned. Much of this is applicable to being a first-time home buyer, but mainly in the field of buying a multi-family property. In my case, my first home will be a 4-plex or if I can find one, a 3-plex with basement suites.

Let’s start with the perspective of a landlord. In my research, I spoke with co-workers, landlords and read as much as I could about being a landlord online.

This was where I really had my “EUREKA!” moment. First and foremost a landlord must consider cash flow. This I felt was fairly obvious – money comes in from the tenants in the form of rental income and you pay your bills and it is done.

I thought about it a while longer and realized I wasn’t quite understanding cash flow in a real estate sense. The main things to consider in regards to cash flow is “does the rents being charged COMPLETELY cover the costs”? I knew that I had to have the mortgage covered, but what other rental property costs are there?

Costs associated with owning a rental property include but are not limited to:

  • Mortgage
  • Property Taxes
  • Insurance
  • Maintenance and repairs
  • Homeowner Associated Utilities
  • Vacancy

All expenses associated in owning a property should be fully subsidized by the tenants that live there, through the rental income. Now the mortgage is fairly straight forward, but I’ll go over that later anyway.

Property taxes are something that is charged every year (or two, four years or not at all depending where you live in Canada). You get a piece of paper in the mail that says you owe your municipal government X amount of money.

With all expenses, you will take the annual total and divide by 12 to see a monthly expense. This example applies to every homeowner. If your property taxes are $2500 a year then you should probably set aside roughly $210 a month to cover them when collection time comes.

Insurance is usually billed monthly, price depends on what you are insuring and often postal code related. Insuring a rental is seen has risky and can be fairly high. Be sure to shop around for a good deal that doesn’t leave anything out.

Insurance can also be mortgage insurance although having life insurance is a route you can also research. As required by law, if you do not have the required 20% down payment to purchase your home, you will need mortgage insurance. This is a cost that you can wrap into your mortgage and in the long run it doesn’t increase your payments by too much, but it does increase them none the less.

Maintenance and repairs can be calculated two different ways but provide vastly different answers. The first example is more applicable to a single family home or apartment.

At least 1-3% of the total purchase price of the home should be set aside each year for maintenance. This provides a large number for a property over $200,000. A more accurate representation for a multi-family home is 10% of the annual gross income from the property.

Utilities that are homeowner associated include garbage and recycling fees, strata (condo) fees, sewer/sanitation and any advertising costs. Unexpected expenses can include an increase in your mortgage interest rate, damage to the property and eviction costs.

 

The tenants

 

Vacancy is the last landlord associated expense and it is very important. Vacancy is calculated on average at about 5% a year. So 5% of your gross income is gone.

Maybe a tenant stopped paying their rent or moved out unexpectedly. Perhaps there was an accident and the unit needs to be renovated. Any time a unit does not have tenants residing in it is considered vacant and this must be accounted for.

Finding good tenants can be hard, but it is worth passing over many prospective tenants if something does not feel right or they do not pass your tenant background screening and/or credit checks. Even the location of the property can affect who comes and checks it out and that is something to seriously consider.

Now is a good time for me to mention this. Start early! Look at the properties that interest you now so you aren’t way out of the ballpark when it comes to how much you will need to pay. Get an idea of the market for these properties and check what kind of rent you can charge.

If the property is fully rented it usually mentions the monthly income of the property somewhere in the listing or feel free to contact the agent representing the property. These are all things that the bank will be asking you.

Once you have an idea what you will need to pay, you can begin setting up your financing. It is good to get your pre-approval out-of-the-way because if there is a hiccup in securing your financing the property you are after won’t be sold out from under you.

 

The bank

 

From the Bank’s point of view.

They say that they are protecting you when they don’t want to lend you more than a certain amount because it’s all you can afford. In reality they know that if they lend over this amount, you are more likely to default which costs them time and money.

They aren’t really lying, but the banks aren’t really interested in helping you but helping themselves in the easiest, most painless way possible.

This makes the process for you as easy and painless as possible. The first thing the bank will ask you is what kind of property are you looking to buy? Remember where I said look at the market? This is where you can show them a couple of properties you were interested in.

They’ll ask you for your household income (you and your partner) and how much money you have to put down. Next they will look at the potential income of the property and if it is fully rented and put that against the monthly mortgage, but you will need to get signed agreements from the tenants stating that they plan to continue residing there (basically new leases).

  • How long have the tenants resided there?
  • Any plans to evict any of them?

Based on your answers they’ll determine an appropriate lending level and if you need mortgage insurance. They will also ask you if you have a plan in place.

  • What happens if you have a variable rate mortgage and the rate jumps from 3% to 9%?
  • Do you plan on taking advantage of any first-time home buyer grants (if available)?

When banks do calculations for rental unit financing they default to a 5% vacancy estimate and 10% of gross income for expenses. This is why I chose those ratios for my suggested calculations. They also ask if you know what the market rents for the unit are.
There are many costs to consider when purchasing a home. I have summarized the most common ones as best I can:

  • CMHC financing from 80% to 95% ranges from .5% to 3.15% of the total purchase price can be paid up front or absorbed into your mortgage.
  • Many banks have processing fees for mortgages of around $250. Some smaller brokers will not have this.
  • Survey Certificate – To ensure that no buildings cross over the property line. New surveys are around $400 or you can ask the existing homeowner for their survey from purchase. If you are putting less than 20% down this is REQUIRED by the CMHC or you will not get your funding!
  • Property Transfer Tax – Some provinces have this, others don’t. In BC it’s 1% of purchase price up to $200,000 and 2% on anything over. First time home-buyers are exempted from this

If you are buying a rental, confirm with your realtor if you can be exempted if you plan to live in one of the units.

  • Legal Fees- You will need a lawyer to check over your purchase documents to ensure that everything is worded correctly. Ranging from $900-$1200 when purchasing and up to $1700 when selling.
  • Purchase Adjustments- If you purchase your home after Property taxes are paid for the year, you will need to repay the current owner your portion of the taxes. So if you bought your home on August 1st, you would need to pay the equivalent of 11 months of property taxes to the previous owner unless they have opted for some other form other than total payment.
  • Property Inspection – Many lenders these days will not give you financing without a property inspection. Expect it to be roughly $400
  • Strata Fees- Also known as Condo Fees, they are the monthly maintenance fees. A form will need to be filled out to ensure that the previous owners do not owe any strata fees.
  • Fire Insurance – Speaks for itself I think, you pay for what you get, so it can be as high or as low as you would like it to be.
  • Interest Payments – This is a fun option. This determines when your first payment is. Usually persons set their mortgage payments to the first of the month. With how mortgages work and when you purchase your property, your first payment can either be a full payment or just the interest portion. So if you purchased your property 6 days before the 1st of the month you could choose to make a full months payment (pay it down baby!) or pay the interest portion of the payment and begin full payments on the following 1st of the month. (Takes you an additional month to pay off your mortgage in the long run.)

There are spreadsheet templates available online to help you figure out if this property will be a good buy or a bad buy for you called Real Estate Pro Forma but if you work with a realtor they can help you do this much more quickly.

All in all, if all your expenses cannot be fully subsidized by the rental income then you will not see a profit.

Seeing as profit is the whole point of owning a rental if it doesn’t work, pass it over and wait for the next golden opportunity. And as with all properties, the larger your down payment, the less of the property you need to mortgage, the more your cash can flow!

Do you own an investment property?

What did you learn about it after that you wished you’d known before you purchased?

Post contribution: Allyson is a long-time fan of Canadian Budget Binder who lives in the Sunny Okanagan in beautiful British Columbia. She works for a crown corporation and is saving up to go back to school full-time and finish debt free.

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Is the big house the problem or the price? : PF Friday grab a brew #66

grab-a-brew-online-reviewGO BIG OR GO HOME

 

We all know someone who bought the big house and later found out it was too much to handle or too pricey for their budget.

We may like to browse online at pictures of big houses for sale but for many it’s just a dream or a distant reality.

We have been through some beautiful big houses when we have toured opened houses and although we are being nosey we love for that moment to feel what luxury is all about.

I was having my morning brew while reading Yahoo news and again another Hollywood star is struggling to sell their big house or mansion as we would all call it.

He has the big house that is absolutely stunning on the market for $15.5 million dollars BUT no one has purchased it and he has slowly reduced the price. This is the one and only Bruce Willis which we have learned to love over the years from watching various movies.

The Idaho ranch is now listed at $8.8 million dollars nearly half off the original listing price. If I had $8.8 million dollars and depending on other factors such as location and what the house has to offer I’d say that’s a darn good deal. I would almost feel as if I just won the lottery if I bought that house for nearly half off.

If you are looking for a big house to rent for parties or simply to rent you might just be in luck with some of these sellers who are struggling to sell but need to make cash to pay off the mortgage because they have since left the house to work on other ventures.

The problem?

You may never be able to sell it at $8.8 million down the road let alone the $15.5 million Willis originally had it on the market for. Having a big house is great but we all have to remember there are only a limited amount of people who can whip out a mortgage or pay cash into the millions of dollars to purchase said homes.

Not everyone is looking to buy really big houses even though many of us might dream of having the mansion property with all the bells and whistles. Many homes are becoming less affordable to most people these days.

 

The big house

 

The same goes for houses on a smaller scale and I’m not talking millions I’m talking hundreds of thousands leading up to a million or two dollars. Sure, it’s nice to have all the frosting on a new big house but are you prepared that if the time comes and you need to sell that it might not sell as fast as your neighbours up the street and around the corners house might for $400,000?

We see it all the time in our neighbourhood as some of the homes are in the million dollar range and they sit on the market. It’s not that they are overpriced as we are in a sought after area.

It’s because there is a limited amount of people willing to dish out that kind of money. It’s nice to have a big house but with that mortgage comes bigger expenses as well. Buy a mansion and you’ll likely need staff to help run the property. Sure they eventually sell but not as fast as many anticipated.

Do you remember the post I wrote about the couple a street or so over from us that jumped the gun and bought a pricey house while they still hadn’t sold their house? It took them ages to sell their house on a beautiful street and they had to cover two mortgages at the same time.

Sure the price was reduced over the months and eventually it sold but there’s a reason sticking to a realistic budget is important whether you are rich or not. It’s also important to make sure you can cover the expenses of two properties if you do buy a second home.

Sure most of these celebrities have cash although many of them don’t because we hear of so many of them going bankrupt or the money is tied up in real estate. It’s also because they blow money faster than they make it sometimes because they live on another money planet than most people.

I remember watching a program once where Michael Jackson went shopping. He walked in a store and was just pointing at items and saying he wanted that, and this and so on. Money takes some people to a level most of us will never experience. Some might not want to because money doesn’t equate to happiness. These stars for the most part can afford to do that because they make the big bucks but I still hold true that budgeting your money no matter how much you make is important.

My wife and I had a conversation about buying the big house down the road if we decided to sell our current home. We would like a bit more space, maybe a pool and walkout to a larger property BUT that all comes with more expenses, a new mortgage unless we can pay cash to cover the difference in price for the new home.

We bought our house on one income because we didn’t want to be house poor or stuck if something were to happen to one of our incomes. It’s a tough call and for some risk is better than kicking back like we did. That’s what made us feel comfortable though. We aren’t sure if we are prepared to go bigger as we like the debt free lifestyle and the doors it has opened for us.

If you live in Toronto, $500,000 is nothing for a house but think prices relative to your community so this all makes sense to you. I’m not sure how many millionaires reside in Idaho but I’m sure at one point someone will jump on the 50% reduction on his ranch.

It’s easier to sell a home in the mid-range to buyers and much quicker that the near million dollar home. That doesn’t mean you can’t go out and spend a boat load of cash on buying a big house but if you decide to sell realize that the price you want might not be the price you get.

If you need to move for work or are getting divorced or need to sell fast you might just have to take a price dump to get it off your hands.

I don’t know how much Bruce paid for that big house but like any property it has likely gone up in value. Whether it has gone up enough for him to still make a profit is his business but sometimes people don’t care and just want out profit or no profit.

Do you know someone who bought the big house then struggled to sell it and had to cut the price just to find a buyer?

 

Top recipe

 

marshmallow and white chocolate brownies

If you don’t already know I have a second Facebook page online called The Free Recipe Depot where I share recipes from other Foodie Bloggers from around the world.

Once a week I pick one recipe that has been submitted as my Top Recipe of the week. Trust me when I say this is no easy task as some of these foodies can cook up a storm.

This week that recipe goes to a food blog called “Family Food and Travel” with their Marshmallow White Chocolate Brownies. If you know me I have a thing for brownies.

Don’t believe me? Check out my Brownie board on Pinterest with well over 1000 pins and over a 1000 followers on that one board alone. I’m not the only fan of brownies of all kinds and I can understand why. They are delicious no matter what you stuff or layer them with.

Weekly CBB posts

 

If you missed any CBB posts from the week here is the list of posts you can catch up on reading!

 

Weekly reads

 

Every week I share a few of the best personal finance blog posts that I read online over the past week with all of you so please enjoy my top picks.

Well, that’s a wrap for this PF Friday’s Grab a brew #66. Happy budgeting and I’ll see you here again next week when I do it all over again.

-Mr.CBB

 

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Buying my first property: Was I too young?

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Minimum Pay For Maximum Workload

I bought my first property at the age of twenty-one even though some of my friends thought I was too young and crazy. I loved to work hard and equally play hard afterwards. It would have been comparable if I were to buy my first condo here in Canada or flat for those of a British background.

I wanted to buy vs rent because with my down-payment I knew that my mortgage would be less than rent. My parents already had a few homes on the go and were renting them out so the mortgage would pay for themselves. It was the best decision they ever made, investing in real estate. They are still enjoying the benefits today of those mortgage-free homes and rental income. Somehow I wanted in on the action early so off I went and I found my first home fresh out of University.

How much do you need to buy a home? More than I bargained for and many people suffer because they fail to plan. I was almost one of those people.

Living pay to pay

Contrary to popular belief, I know what waiting for the next chunk of hard-earned money is like so I can pay the bills. Living pay to pay is not a place anyone wants to be in but for many that is a reality. There are jobs out there but seeing jobs on the job bank is one thing, having the required skills and education is another. Then when you do you are competing for top spot with those fresh out of University, those already working in the field and those still looking for work so it’s a tough world out there.

So, I was a single homeowner, fresh out of school barely with wings and working a full-time job for just above minimum pay to start. It got to the point where I had to really make sacrifices to make ends meet and only because I didn’t plan for the unexpected like I should have. My parents warned me about it so I knew it was bound to creep up on me.

It was probably the first time in my life that I started to feel the congestion of living pay to pay and I didn’t like it very much. I don’t even remember what the minimum hourly rate was but back then and still today we can’t be picky, a job is a job.

Bachelor cooking

Although I loved to cook, grocery shopping wasn’t my top priority and eating consisted of the pretty much the same menu plan for the first year. I was so busy that eating the same, quick, frugal meals seemed like the way to go. Let’s just say the tortellini and I were good friends in the kitchen. I later learned how much I enjoyed cooking through my travels around the world which I carried back into my kitchen.

Less than rent

I put a nice down-payment on the one bedroom one bath property which left me paying less monthly mortgage than I was if I rented in that area of the UK. In a way sometimes I feel like I had tunnel vision yet I was mature enough to say, hey I want to own my own home.

My parents were my money guides growing up and it carried me through into University. I was very aware and watched everything they did and I listened. My parents like many had to struggle to get where they are today but they are living the good life, but it came with sweat and a vehemence to succeed.

After University

Like many other students I thought that after school I would find a high-paying job and life would be towering, especially since I had no school loans to pay back. As you can imagine those pipe dreams did not happen and after University I had to settle for any job that I could find. The market was saturated and competition was fierce for jobs.

I later learned that it wasn’t my calling so I went on to take various jobs, some of which I stayed in for many years and progressed through the company into management roles. You learn a lot about yourself as you move up in a company, especially how much harder it is when you have one foot on the ground and your hands reaching for the stars.

Asking for a raise

It was clear that I needed to cut back on some expenses to make sure that I was saving money and that surfaced shortly after moving into my flat. No, I didn’t have an actual budget like we do today, the thought never crossed my mind as odd as that may be.

Like many other first time home owners we don’t always think of all the “needs” of a home year after year. Home maintenance wasn’t given high enough supremacy in the mathematical process of purchasing the home and that’s why when my wife and I bought our home things were different.

The thought of inquiring for a raise entered my mind, alternatively I needed to make more money or get a second job. How do I ask for a pay raise though? Not everyone is comfortable saying that they feel they deserve a raise in income. Sometimes we have to do what we have to do just to make ends meet but when more money is needed the same applies.

I decided to ask for a raise by setting up a meeting with my boss and simply asking for more cash but professionally. I prepared a pay raise letter at home and then I pretended I was talking to my boss to impel myself to get in and get what I felt I had earned. Sometimes it doesn’t work out, but if you don’t try then you are no better off than when you didn’t ask.

First I went over my accomplishments, my long and short-term goals for the company and why I deserve a raise. He must have liked my presentation because I received a raise and a promotion shortly after. I learned that having fear in our lives sets us back but remembering that we are only here once sometimes gives me the acceleration I need to move forward. I guess it’s just my way of being a positive guy, along with smiling and being friendly. Miserable is not me.

Living on one income

When you are living on one income as a single person everything matters and somehow you learn to make time to earn extra money. I gave high priority to making extra money on the side whether it was landscaping, cutting lawns, watching the kids for my siblings or working for my parents. I was always on the go but I also made time for myself to chill out and relax. When you know you have to rely on yourself you do what you can to keep the kingdom operative.  You also know that you have to take care of your health because there is only you, and no one else.

Emergency savings

It took some time but little by little I kept stashing away a few bucks here and there to build up what I like to think was a comfortable emergency savings. I had used all of my money to put a down-payment on my first home so I needed some sort of cushion just in case something were to happen. I had a credit card with a high limit but I was never one for paying by credit. If I couldn’t afford to pay cash I never purchased the item.

To be realistic I knew I needed some money in the bank though, just in case. Even though I may have only added in a fiver one week and more the next over time the bank account grew. That was the positive reinforcement I needed just like when I was a child with my paper route. I loved watching my savings grow and it transferred into an adulthood expedition towards my achieving my dreams.

Buying a house what to do- Investigate

Don’t be in such a surge when buying a home whether you are young like I was or if you are well into your career and ready to make the step into home ownership. Investigate all avenues related to home buying and talk to those that are living it.

Tips for buying a home when you are young

  • Save as much as you can for a healthy down-payment
  • Do your research
  • Plan for the unexpected
  • Save for the unexpected
  • Be open to making extra money
  • Don’t be shy to ask for a raise
  • Do maintain your home consistently
  • Be realistic and set goals

What did I learn from owning my first flat at such a young age? 

I learned that although we have these ideals about where we want to go, what we want and how fast we want to get there, we must plan. If we don’t do our legwork before we jump into big investments the joy it brings us when we make the purchase can be the demise of our happiness. If we aren’t properly educated on what we need to keep the motor running, we may lapse under money pressures if and when they arise.

When I sold my first property and bought my second home a few years later plus a few years wiser things were much different for me as a homeowner. Buying my first house so young may have come with challenges but I overcame them with pursuance.

Was I crazy to buy my first property at 21? Na, I’d do it again if I could because the best lessons in life are the one’s we create and learn from on our own. I’m still young, so if taking risk means I’m young and crazy I guess you can call me bonkers!

How old were you when you bought your first home?

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Market Value, Appraisal Value, Assessed Value….How did they Value my Home?

house for sale Canada

Undoubtedly, one of, the most important considerations when deciding to sell your home, is its’ value! Home-owners want to know the market value, assessed value and the appraised value.

Some questions a home-owner may want to know and these are all relevant questions are:

  • Has my equity increased?
  • Has the neighborhood’s value increased?
  • Is my valuation, in line with industry professionals?
  • How much is my home worth?

Ultimately the market value of your home is whatever someone is willing to pay you for it. An appraisal value is a value determined by the study of comparable properties and local market conditions. It is, in reality, an educated guess about what the market value may be. The assessed value of homes in Ontario is done by MPAC and is a (CVA) Current Value Assessment which is a common standard used for property assessment jurisdictions in North America. MPAC uses 3-5 years of open-market sales in the area to determine the current assessed value of surrounding properties. Assessed values often come in at a lower evaluation than market value or an appraised value. It is almost as if MPAC is a year or two behind in their evaluations.

Here are the steps I take to appraise the value of a home. Hopefully, this will give you an insight into a process that sometimes seems clouded in inconsistencies.

I will break it down into sections; the first section is the background information. All of this research is now completed online. By completing this study it gives me a solid base, for when I actually visit the property in person.

Note:This background information is gathered from Ontario’s Electronic Land Registration System, known as Geowarehouse and my local realtor resource site, known as Filogix (this is the Realtor version of Realtor.ca). These sites, will not only allow me to look up the comparable properties and sales history, but will also allow me to find more details on the home and neighbourhood.

Background Information

History of the Home: I will check to see who owns the home and the history of sales. I am also looking for more details that will lead me to a value, such as, old pictures, previous descriptions, notes on any upgrades and updates.

History of the Neighbourhood: I will generally have a look for homes that have sold in the last year. These homes should obviously be located within the same neighbourhood or geographic area. This will give me a general “ballpark idea” of the value of homes in any given neighbourhood  Keeping the comparison search relevant is a must. For instance, a 5 bedroom, 2 storey home won’t help me evaluate a 2 bedroom ranch. I am also looking for expired and cancelled listings. These listings will let me know if homes are being overpriced in the area.

Current Neighbourhood Activity: Checking the currently active listings in a neighbourhood is like scouting your opponents. These are the homes that you are going to be competing against if you decide to sell. If there is an open house, make sure you check it out. You need to have this current information to make an accurate evaluation of a property. Along with the information I gather when researching the “History of the Neighborhood”, I am trying to compile all relevant information to justify my pricing and to make sure that I am inline with market conditions.

This completes the background stage; the next stage is to actually visit the property and those around it.

Home Visits

Visiting the Property: When I go to visit a property, I am not only trying to establish the value, I am looking for anything noticeable that may need to be changed. I am thinking about useful tips for the home owners in preparation for listing. I am considering the current condition of the house and how that may change the valuation. I will ask about updates/renovations, upgrades and things that may be excluded (chandeliers etc.).

Visiting Competing Properties: I will try and visit any available open houses for comparable properties, or I will request an appointment to go and visit other homes listed in the neighbourhood. When I am doing this for research purposes, I always let the agent know what I am doing. This way their client knows as well.

Talking with Potential Sellers

The final stage is the conversation with the potential sellers. At this meeting, which usually happens after touring their home, I come prepared with print outs of everything I have researched.

This should include:

  • Comparable homes currently available
  • Comparable recently sold homes (normally within the last year, perhaps longer if only a few homes have sold in the area)
  • Comparable expired and cancelled home listings
  • Similar homes currently available (may have some of the same characteristics, but also some big differences e.g. finished basements, swimming pools, extensions, etc.)
  • Similar Homes Recently Sold(normally within the last year, perhaps longer if only a few homes have sold in the area)

We will look at all this information. I will let them know my observations from visiting other homes. I will give my HONEST impression of their home and the neighbourhood. Based on all of this information I will give them my idea of a listing price. I will normally try and give a range of pricing (for example $274,900 to $279,900). After I have given my evaluation, I should then be able to justify it to the home sellers.

A few other points worth noting in regards to listing your home…..

Price Fixing IS NOT ALLOWED! There is no common place commission %. A number of Realtors may charge the same amount, but that is always negotiable.

We work for you. Do not let yourself be bullied into listing at a lower price. We often list homes a little higher than we recommend. We do this with the full understanding of all parties involved that this isn’t what we suggested. We still try and sell the home to the best of our abilities, and after we have given it a shot, we may look at bringing the price in line with what we recommended. I hope you understand a bit more about the value of your home.

Stewart Blair Realtor photo

Guest Post:  Stewart Blair is a Sales Representative for Prudential family Realty; brokerage. You can also find Stewart on Facebook and Twitter.

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Reader Question:Do I Have To Share My RRSP With My Spouse When I Get Divorced?

Another reader of the Canadian Budget Binder blog asked the question, Do I have to Share my RRSP with my Spouse When I get Divorced”?

In Ontario there is the Family Law Act. In simple terms all property acquired after the date of marriage, up until the time of marriage breakdown is deemed to be the property of both parties. The ownership of the property is not a factor. So in short each person is entitled to 50% of the total family property.

There are certain exceptions like the family home that was brought into the relationship or received as a gift or inheritance. However to keep things simple we will ignore this.

RRSP’s, Stocks, Bonds, Pensions, are all subject to being included under Family Law. So if one spouse had a significant RRSP and the other nothing then the spouse with nothing would be entitled to 50% of the spouse’s RRSP.

Note: the courts adjust the value of the RRSP down, by the amount of withholding tax that would be payable if the RRSP were cashed in. So the figure used is less than fair market value of the RRSP.

To understand this fully the courts ask each person for a statement of assets and liabilities at time of marriage and time of marriage breakdown.

In effect they are doing a net worth statement at two points in time. This is known as net family property (NFP) and the spouse with the RRSP would include it as part of their NFP.

The spouse with the higher NFP would then be required to make an equalization payment to the other spouse so that both share 50-50.

This payment does not have to come from the RRSP or a transfer of the RRSP to settle the payment obligations. It can actually come from any assets owned by the individual with the higher NFP.

Hopefully this gives you some insight on your question about an RRSP and Divorce. To learn more about Family Law, Division of Assets and calculation equalization payments visit Feldstein Family Law Group .

Every attempt has been made to be accurate but Errors and Omissions Excepted.

Have you been through this experience? What did you learn?-Mr.CBB

 Gary Gorr

Guest Post: About Gary Gorr: What kind of written plan do you have for retirement that ensures you won’t outlive your money? I help people answer that question Contact Information: (905) 202-8430 ext.626 ggorr@ifcg.com or you can follow my blog at Gary’s $$$ and Sense 

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