Mortgage Your Own Property - A Different Kind of RRSP Investment

Kody Wilson, CPA, CA

Have you ever considered the possibility of lending yourself money in the form of a mortgage on a property you own? Say you were purchasing a house for $400,000 and you had $150,000 to put down on the property. You would still need to borrow $250,000 from somewhere, traditionally a bank, to pay the rest.

What if you had enough money invested in your Registered Retirement Savings Plan (RRSP) to cover the remaining cost? Legally, an RRSP cannot own a piece of real estate; however, an RRSP can lend money, in the form of a mortgage, for a piece of property.

It just happens that a lot of people are not aware of this option.

The only caveat is you will need to have a self-directed RRSP, which means you are responsible for all of the investments that take place within the account. Alternatively, you could hold a self-directed RRSP for the mortgage investment and a traditional RRSP for other investments.

You will want to discuss this option with your financial advisor.

There are strict guidelines you must follow if you decide to go this route. For instance:

• The mortgage must be administered by an approved lender (not all banks will do this);
• The interest rate must be in line with the standard rates at the time; and
• The mortgage has to be insured by Canada Mortgage and Housing Corporation.

If this just sounds exactly like a regular mortgage, you are right. It is set up like any mortgage from a financial institution would be, with the exception of the fact you make the payments to yourself (through your RRSP) and you get to keep the interest.

As with any financial decisions, there are pros and cons.

Some of the pros include:

• You keep all the interest;
• Protection from rising rates;
• Guaranteed investment return; and
• Interest and principal payments don’t count as RRSP contributions.

Some of the cons include:

• The fees associated with taking out a mortgage against your RRSP;
• The large RRSP holdings requirement; and
• The risk of losing out on other RRSP investment opportunities which may provide a better return over the course of the mortgage period.

There is no question it was more beneficial to hold a mortgage when the interest rates were higher than today. However, it can still be a useful tool if you are taking out a large mortgage or worry about rising rates.

Taxpayers may also wish to provide an RRSP loan to an unrelated third party, as opposed to loaning themselves the money. This option has different risks and restrictions that should be considered prior to implementation.

Speak with your advisor to discuss the advantages and disadvantages of RRSP mortgages as they pertain to your specific situation.

Kody is a supervisor at Westboro accounting firm GGFL. You can follow the firm on Twitter @GGFLCA and visit them online at www.ggfl.ca.

For all your real estate needs visit www.bennettpros.com

Getting Territorial: Should you be looking for a “neighbourhood specialist”?

What really matters when choosing an Ottawa real estate agent? Depth of experience, certainly. Track record, naturally. Professionalism, definitely.

Emotions play into the decision, too: good personal rapport between you and your agent generally translates to a better all-over experience.

But there’s one factor that shouldn’t carry as much weight as it often does. More and more, I’m seeing agents promote themselves as “neighbourhood experts”, suggesting that they have the inside scoop on a given part of the city because it’s their home turf.

I can hear you thinking: “But I’m looking to move to Awesometown! Why wouldn’t I want to hook up with an agent who’s lived in Awesometown for fifteen years?”

Well, if that agent happens to check all the other boxes, by all means. But what exactly is it that a self-appointed “neighbourhood specialist” can offer you?

A good agent, regardless of where they live, will use all possible resources to research the heck out of a neighbourhood. A good agent will understand the trajectory of a neighbourhood: where it’s been and where it’s headed. A good agent will lay the groundwork with the numbers – finding “comparables”, as well as statistics on local schools, demographics and taxes – and build out from there.

True, “neighbourhood experts” may know which diner has the best coffee. But, more to the point, are they able to be objective about market values of homes to which they have an emotional connection? Are they able to steer clients towards alternative, promising neighbourhoods if the numbers just aren’t coming together? On occasion, small playing fields lead to tunnel vision.

Consider this: suppose an agent does possess “insider knowledge” about a certain school, street or neighbour. If that knowledge would discourage a purchase, will it necessarily make it to your ear?

Realistically, all real estate agents have zones where their business is concentrated. However, as a realtor based in downtown Ottawa, I’ve helped clients find and sell properties throughout the region, and far beyond the city limits. I do my homework and we’re off, taking my expertise along with me.

The takeaway? Any agent worth her salt can help get you the right house in the right part of town. There’s no need to run screaming from those who claim to be neighbourhood experts; just stay clear-eyed, and don’t give that claim more weight than it deserves.

Visit www.bennettpros.com for all your real estate needs!

Start with Your Closet

Guest Blogger - Dean Large, D.I.D. - Astro Design Centre

You’re sitting at your computer, looking at image after image and nothing is catching your eye. One minute you think you’ve nailed it down, but then something else seems better. Finally you just give up and put it off for another year…

Tackling a renovation to your home is a major commitment; you’re deciding to invest tens of thousands of dollars into your dream home. You want to make sure that the decisions you make are the right ones, that they will be both profitable and pleasurable. Instead of going in blind and diving in too deep, here are a few tips that will make the process that much less daunting.

Assess Your Style

                Start with your closet, look at the colours and textures you decide to cover yourself with each and every day. The way you choose to represent yourself to the world is a major hint as to what you are most comfortable with. If you notice that each day you are putting on a strict, tailored uniform of dark denim, a white shirt and a black blazer, it is safe to say that you’re not going to be at one with a room that is frivolous, colourful and whimsical.

Something similar to this contemporary bathroom could be appealing to the persona mentioned above.  It is functional, yet classic and sleek, which in most cases fits their style.

 Consider how you plan to use the space. A family of 5 in a kitchen full of fragile materials such as marble would be a terrible pairing. 

Do not forget to use online resources like Houzz and Pinterest. These are fantastic fountains of ideas, not to mention free. You can enter in the most out of the box concept and something will come up to assist you with your vision.  Once you’ve developed a concept of what you would like, it is time to meet with the professional.

Style Guide

                Working with a designer is a phenomenal way to ensure that you will get a well thought out space that is as functional as it is beautiful. Sometimes the dream of a big prep-island just isn’t feasible given the space, but a designer can help you determine that. It is best to seek out the experts in each field of home renovations. Any of the five designers at Astro Design Centre can help you with this, as they have years of experience working in the kitchen and bath industry. Your designer can help you realize what is feasible with your space, your budget, and your wish list.

                A renovation can be a frightening task, but it needn’t be. Simply step back and evaluate what is a priority. Consider your style, and how you live. Make sure to contact an experienced professional. And most importantly keep in mind that the end result will be worth it!


Here's a great video featuring Dean Large - Trends in Kitchen Design

For all your design needs visit www.astrodesigncentre.com or CLICK HERE TO BOOK YOUR FREE Design Consultation
Don't forget to visit www.bennettpros.com for all your real estate needs.

 

Family Day in Ottawa

With Family Day coming up on Monday February 17th 2014, Ottawa is a hot spot for events! Here is a list of great activities for you and your family to enjoy during this holiday!

1. The final day of Winterlude 2014! You can see a full schedule of the day's events HERE  
       
2. Skate with Mayor Jim Watson at the Rink of Dreams (City Hall) on Monday from 11am - 2pm. And if that doesn't interest you, maybe the free hot chocolate and music will!  
       
3. Some Ottawa museums are open for Family Day including: Canadian Museum of History, National Gallery of Canada, Canadian Aviation & Space Museum,  Canadian War Museum and Canada Science and Technology Museum. Some are even offering free admission for Family Day
   
   
4. The public is invited to celebrate the 4th Annual English Theatre Family Day in the NAC lobby.  Presented by Boston Pizza, this special event features a cornucopia of hands-on activities for children and the people who love them! Join us for a memorable day of stories, songs, games, interactive displays, and special workshops throughout the NAC.
    
5. The final day of "Chill Factor" presented by the Downtown Rideau - a "cool" collection of high fashion, cuisine and culture that takes the edge off winter.    
    
6. For the adults, a number of cozy bars and restaurants on Elgin and in the Byward Market will be open for business throughout the day

IMPORTANT THINGS TO REMEMBER most major shopping centres are closed Monday with the exception of the Rideau Centre which is open from 10am to 6pm. Stores in the Byward Market are also be open for business. Most grocery stores are closed Monday (Loblaws on Rideau is open 9am-6pm), with the Beer Stores and LCBOs closed as well.

 

Have a safe and enjoyable long weekend!

For all your real estate needs visit www.bennettpros.com

The Downsizers Dilemma

by Zoe Van Wyck, Sales Representative with the Bennett Property Shop Realty

               Do you ever wonder what it would be like to live a simpler life? Although it may require some lifestyle tweaking  to get there, do you realize how attainable it really is? This seems to be the mindset of the majority of Canadians as the flock of baby boomers have been contemplating the low maintenance lifestyle of condo living. With this ongoing trend and new condo’s popping up all over the city, the appeal and possibility is there. However, for a lot of these downsizers, even with this seemingly simple solution at hand, something is blocking the path to making the final decision to move forward and ‘make the change’.
               Certainly ‘making the change’ will require some effort to adjust; especially after dealing with the same routine for years and years. The idea of a lifestyle adjustment may present itself as an overwhelming feat requiring a great deal of energy and effort. It may be this notion of change alone that seems to instill in them the most fear. But fear has always been the greatest enemy in our decision making ability, as it does a fantastic job of holding us back.
               One of the main factors instilling this sense of fear is the conflict between the desire for zero maintenance versus the sacrifice of ‘space and things’. “Where will I put my 12 Rubbermaid containers of yarn?” one asks, “Where am I going to put those magazines I’ve been accumulating since 1965?”, says another. Well, the response to these concerns is nowhere. And that this is the whole point. The intention of downsizing is just that: downsizing. 
               Evidently there are adjustments to be made. It is a huge lifestyle change, without a doubt. But when a lifestyle change offers so many benefits, and the ability to alleviate so many of your burdens, why put it off any longer? Why not enjoy that ‘lock and leave lifestyle’ everyone is talking about right now! Don’t spend one more winter shoveling your 4 car driveway, tending to your lawn that never seems to stay green, or paying to air condition all ten rooms in your home…when you use only three of them.
               While the majority of baby boomers are still in their “contemplation stage” there are many that have benefitted from this lifestyle leap already – the downsizing dilemma is on its way out. It’s only a matter of time until this demographic fully accepts and adjusts to this trend and begins to wholeheartedly embrace the change. With Ottawa having the largest baby boomer population per capita, you can be assured that once the acceptance of condo living for downsizers truly hits, and all that fear subsides, there will be a shift in the market. All of those large, family homes will be scattering the market and the competition will be fierce. You don’t want to be caught trying to sell your house in a buyers’ market, especially if you’re nearing retirement. Don’t you want to get top dollar for your home?!
                Don’t get left behind! Get started now and contact the Bennett Property Shop today! Be a front runner and you will benefit far greater than those who sit back and let their fear affect their future.
                 You can thank me later.


Visit www.bennettpros.com for all your real estate needs.

Don't Buy the Doom and Gloom - New Reports Challenge the Myth of the Condo Bubble

 

You may be familiar with this gem from the great American humourist Mark Twain: “The reports of my death have been greatly exaggerated.”

 

I can’t imagine a more suitable quote to sum up recent media coverage of the Canadian condo market. Story after story perpetuates the negative message that the market can’t be sustained.

 

Frankly, these pieces are grossly distorting the facts, and misleading the public in the process.

 

To help set the record straight, I wanted to share the gist of the CMHC’s 2013 annual report. Spoiler alert: it’s good news.

  

The condo market has certainly grown quickly. Between 1981 and 2011, the growth rate for owner-occupied condos in Canada outstripped that of other homes by over nine times. By 2011, we had a total of 1,615,000 occupied condos, with most new construction occurring in urban centres.

 

While past numbers are solid, how can we be sure the trend will hold?

 

Let’s consider who’s buying condos. Quick answer: all kinds of people. To distill the numbers, in 2011, 29 per cent of condo owners were seniors, while nearly one-fifth were under 35. Close to half of condo owner-occupiers lived alone, while over a quarter were couples without children.

 

Are these demographic groups likely to grow? Fascinatingly, CMHC found that people living alone – let’s call them solo dwellers – are expected to become the most common household type by the 2020s. In another growing trend, couples with children account for fewer households than ever. For many seniors, young singles and urban couples, condos’ affordability, security and worry-free lifestyle makes them a natural choice. (At the same time, in large urban centres, more growing families are turning to condo living, à la Manhattan.)

 

But what about all those empty high-rise suites we keep hearing about? Let’s add some perspective. According to a December report released by BMO Capital Markets senior economist Sal Guatieri, “The number of newly built, unoccupied condos is not high when normalized for population growth.”

 

CMHC points out that current condo construction rates are in keeping with rising numbers of one-member households, immigration and a general shift towards more compact dwellings. In other words, condos aren’t going anywhere.

 

Where condominiums are concerned, Ottawa is still in its infancy. With such tremendous potential for growth, purchasing a condo in this city is still among the best investments around.

Visit www.bennettpros.com for all your real estate needs.

Women the new ‘wildcard’ in the condo market

Women the new ‘wildcard’ in the condo market

Megan Vickell is a new brand of condominium owner that people predicting a market crash may have forgotten to factor in.

She’s young, single and ready to buy her first home. And, more importantly, she’s female — part of a growing demographic that just might be creating a new paradigm in the housing sector.

A report from Canada Mortgage and Housing Corp. shows women are a growing powerhouse in the Canadian condominium market. Among people who live alone, women made up 65% of owner occupants in 2011.

Condo owners: By the numbers

•19% Percentage of condominium owners under the age of 35; 29% were seniors 65 or older.

•65% Percentage of women among condo owner-occupants who live alone.

•2.5 Average number of people in a household size in 2011, down from 3.5 people in 1971.

•12.6% Percentage of Canadian homeowners who lived in a condo in 2011.

•42% Percentage of condo owners that are one-person households

•35.1% Percentage of Vancouver homeowners who live in a condo, the highest in the country.

•71% Among Canadians with a mortgage, the percentage of people with more than 25% equity.

•7% Percentage of people with less than 10% down.

•31% The percentage of Canadians with a mortgage in arrears, as of June, 2013.

The female factor is even more prevalent among older women with 76% of those 55 and older living alone women. Among lone-parents, women make up 84% of condominium owners.

It’s not just one thing about condos that is pushing Ms. Vickell to look at a high-rise. The public relations manager of eBay Canada says she’s close to putting in an offer this week on a 650 square foot unit.

“When I was looking I was grumbling because a lot of the maintenance fees were so high but then I was walking down the street after a big snowfall, and all these people were snowed in,  I thought ‘for a single female, I’m willing to pay those fees’,” she says. “I don’t even know where to start with half that stuff around the house.”

There are other perks of condominium living that attracts her to the market, including the 24-hour seven-day a week concierge service. “It’s everything you need in one place. There is someone to take my packages when I’m not there, I’ve got a gym. It’s really just all about convenient living,” says Ms. Vickell.

She sees the condominium as a stepping stone to a house. “I think of it as a five-year plan,” she says.

The condominium market shows few signs of slowing down. CMHC said this month November new construction reached 194,014 on a seasonally adjusted annualized basis, well above the number we need based on demographics. Multiples, which includes high-rise condominium units, made up 111,036 of the figure.

Growth in owner-occupied condominiums has exploded over the last three decades, according to the CMHC report. In 1981, there were 171,000 owner-occupied condo units but that figure grew to 1,154,000 by 2011.

Benjamin Tal, deputy chief economist with CIBC World Markets, agrees that women may be the unknown wildcard in determining whether the condominium market can continue its explosive growth.

“One point we’ve made when we’ve said this market is crazy is people need to look at demographics in a different way,” says Mr. Tal. “People buy a house now and don’t marry. Sure there’s the divorce rate being high but many young people in their 30s are not married but busy with careers and buying a home because they have the means. This is a new wave of demand that hasn’t been there before.”

What hasn’t really taken hold, based on the survey, is families considering condominiums. The largest chunk of condo owners are one person households at 42%, followed by couples without children at 28%.

Mr. Tal’s prediction is that in time we will see more families moving into condominiums, it’s just too early to see it any statistics.

“This will be the thing of the future. We are maybe five, six or 10 years from that,” he says.

The condo phenomenon remains mostly a story for Canada’s two most expensive markets with 51% of all new condo starts in 2012 happening in Toronto and Vancouver. Investors continue to drive both markets with 23% of condo apartment units in Toronto rented in 2012 and 26% in Vancouver.

Overall, there seems to be little question that the condominium is going to become a major part of the housing stock in Canada. CMHC noted that in 1981 only 3.3% of homeowners lived in a condo. That percentage grew to 12.6% in 2011.


Source: http://business.financialpost.com/2013/12/18/canada-condo-market/