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Archive for October, 2012

Pros and cons of rent-to-own

By Robert Hof

Rent-to-own may provide a win-win for both owners and tenants.

By Mark Weisleder | Fri Oct 26 2012  – Reprinted from Moneyville online magazine

The changes to the mortgage rules announced by Finance Minister Jim Flaherty last July are making it more difficult for first time buyers to get approved for a mortgage. Other buyers may have good credit but not enough of a down payment. At the same time, landlords are looking for good tenants to rent their units. Rent-to-own may provide a win-win for both owners and tenants.

Here’s how it works:

A landlord rents the home or condominium under a basic home lease. For an extra payment, the tenant receives an option to buy the home at a later date, for a set price. Let’s say the home is worth $250,000. The parties agree the tenant will have the right, but not the obligation, to buy the house in three years for $280,000.

The fee for this right, or option, is usually 2 or 2 ½ per cent of the final price. In this example, 2 percent of $280,000 would be $5,600. Then, each month, the tenant pays an extra fee, say $200, that also is applied to this option price. At the end of the three-year lease term, the tenant has put up close to 5 per cent towards the purchase price option. In this example, it would be close to $13,000.

If the tenant exercises their right to buy, they can use the $13,000 as the down payment and apply for a mortgage to finance the rest of the purchase.

Here are some of the advantages for the tenant:

•You may not have the down payment now, but you will have it at the end of your lease, as a result of the additional payments;

•If your credit is not good, you can improve it by making timely payments of rent;

•You can try out the neighbourhood and if you change your mind later, you can just cancel the option;

•If the market price of this home is more than $280,000 at the end of your lease, you still get to buy it for the same $280,000.

•If the market collapses and the home is worth less than $280,000, you do not have to go through with your purchase.

Here are some disadvantages:

•There is no guarantee that a bank will give you your financing when you exercise your option. You still have to improve your credit score or find someone to co-sign your application;

•If you don’t go ahead with your purchase, you usually have to forfeit the option payment.

Here are some advantages for the landlord:

•Tenants on rent-to-own typically take better care of the property, thinking that they may own it one day;

•Your profit is fixed at the time of the option.

In all cases, it is important that the parties have legal advice. Some agreements state that if your rent is late once, the tenant forfeits the right to buy the home. This needs to be changed so that as long as the tenant cures any default in a timely manner, they do not lose the right to buy. The tenant should also have the title checked to make sure that the correct owner of the home is giving the option.

Landlords need to make sure that the option payment is covered in a separate agreement, and is not included in the lease. If it is included in the lease and then the tenant defaults, if can be harder to evict the tenant from the property. Landlords also need to conduct a thorough credit and background check, to make sure that the tenant looks like they will have the means to make all of the required payments.

Rent to own can work for landlords and tenants if you are properly prepared in advance.

Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com

www.moneyville.ca


A financial update from Gemma Riley-Laurin

By Robert Hof

As you know, variable rate mortgages, lines of credit and/or student loans are all based on the Prime Rate and as promised, here is your personal update from me on the recent Bank of Canada announcement on changes to their overnight rate. The overnight rate only impacts variable rate mortgages.

At 9:00 am EST, Tuesday October 23rd, 2012, the Bank of Canada again did what we expected them to do… they maintained their overnight rate. What this means to you is that the prime rate on variable rate mortgages, lines of credit or student loans will not change and remains at 3.00%.

As always, I recommend you chat with a financial adviser about a Tax Free Savings Account or some RRSP contributions to trigger a potential income tax refund next year as your payments continue to remain low! If you don’t have a financial adviser, let me know and I’d be happy to recommend one to you.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:

The global economy has unfolded broadly as the Bank projected… “The economic expansion in the United States is progressing at a gradual pace. Europe is in recession and recent indicators point to a continued contraction. In China and other major emerging economies, growth has slowed somewhat more than expected, though there are signs of stabilization around current growth rates. Notwithstanding the slowdown in global economic activity, prices for oil and other commodities produced in Canada have, on average, increased in recent months. Global financial conditions have improved, supported by aggressive policy actions of major central banks, but sentiment remains fragile. In Canada, while global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion”

The overall economic growth in Canada is expected to pick up and return to full capacity by the end of 2013. Based on this outlook, the bank has indicated they are unlikely to increase their rate in the foreseeable future although very much dependent on the continued trend. A change is likely to occur sometime in 2013 but remember any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates haven’t changed much at all since the last announcement, at around 2.97% to 3.19% for a five year fixed term.

Based on this recent announcement, the anticipation is that the prime rate will remain low for a while now. The next announcement on any change to the prime rate is December 4th, 2012 at which time I’ll be in touch again.

Gemma Riley-Laurin
(613)238-3521 ext 312


Building a better Condominium Act: Current issues and suggested amendments

By Robert Hof

Interesting video presentation on the crafting on the new Condominium Act that is currently in the works.

Thanks to Condo Business magazine.

http://www.condobusiness.ca/VReportforOctober2012.aspx


A good time to look for investment property

By Robert Hof

Now is a good time to enter the rental property market for both residential and commercial buildings.

If the real estate market is headed for a correction, then it presents a historic opportunity for buyers of investment properties. The main reason is that interest rates should continue to remain at historic low levels, even as prices fall. The key thing to remember is that the property must have positive cash flow.

What I mean by positive cash flow is that after you make your down payment, the income you receive from tenants is more than what it costs for your mortgage payment, property taxes, maintenance and utilities (if not paid by your tenants). Budget an additional 10 per cent for unanticipated repairs, as these always come up.

If you’re going to take a dip into commercial real estate, make sure, you must have the right team of people working with you. Who do you need? Here are some suggestions:

The right real estate agent: You want to find a real estate agent who specializes in this area and preferably owns investment properties themselves. They can introduce you to their contacts, such as insurance brokers, home inspectors, mortgage brokers and property managers, to protect you when making this investment.

A knowledgeable mortgage broker: You need someone who understands your personal financial situation in advance so that you are aware as to how much you can afford on any mortgage needed to finance any property.

A home inspector: You want a firm that specializes in the type of property that you are interested in. Ask for references and check them out. You need to have an unbiased opinion as to how much you may have to invest in the property itself after taking ownership.

An experienced lawyer: Depending on the type of property, you may need special clauses to protect you regarding verification of income, tenants or even the condition of the property. You will also need advice as to whether to hold title to the property in your own personal name, a partnership or a limited company.

An accountant: Besides tax advice, if there are commercial tenants involved, then you will need to be registered for HST purposes.

Private planner: If you are considering any changes to the property, whether it is an addition, basement apartment, to bring in more income, you need to know before you buy as to whether this is permitted under the local zoning by-laws and what applications may be necessary to get this done.

A building contractor: Renovations to improve your cash flow require someone experienced who can bring any project in on budget. Make sure that you check references and that a proper building permit is applied for in advance on any job. Put everything in writing so that there are no arguments later.

An arborist: Sometimes there are trees on the property that will have to be removed in order to do the renovations that are needed. There are many restrictive tree by-laws out there that may prevent taking down a tree. A lot depends on the diameter of the trunk of the tree. You need an experienced arborist who can advise you in advance how difficult it may be to remove any tree from the property.

A local property manager: You do not want phone calls in the middle of the night to fix something on the property. You need to hire an experienced manager with local ties to where the property is to make sure that your investment is well cared for and that all tenants are properly qualified in advance. Again, ask for references and check them out. Budget approximately an additional 10 per cent of your total expenses to pay for the manager.

By having the right team assembled, you can do the homework you need to do in advance of making such an important investment decision.

– Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com


Fight over 19-ft. bookshelf landed in court

By Robert Hof

If a wall unit is attached by a hook or other device that can be easily removed, then it may not be included with the house.

When there is confusion about what fixtures are to remain in a home after closing, it often ends up in court. The lesson is to be careful and clear when you write up your contract so you don’t have to sue later.

In 2009, Mark and Denise bought a house  in Ajax. The listing said a “built-in” bookcase in the recreation room was included. This bookcase was 19 feet long and 7 feet high.

The couple’s offer said that all “built-in cupboards” and permanent fixtures were included in the price, but when they moved in, the bookcase was gone. The sellers said it was a mistake that it had been included in the listing and since the bookcase was not attached to the wall, it was not a fixture.

The agent admitted that the bookcase was mentioned in the listing by mistake. The buyers complained to the Real Estate Council of Ontario. The council ruled that the error was made by the listing agent, and that the sellers were not properly protected and the buyers were misled by the false advertising. However, the council does not award damages, so the buyers had to sue in small claims court for the cost of the bookcase.

In court, the seller’s daughter testified she was present when the buyers toured the property and were told explicitly that the basement bookcase did not go with the house. The buyers admitted they did not closely examine the bookcase to see whether it was attached to the wall. In a decision on September 2, 2011, Justice Albert Cooper accepted the daughter’s evidence and noted that the buyers offered no evidence to contradict her story. He ruled that the buyers were not entitled to the bookcase.

I had a situation where the offer said “built-in microwave.” The microwave was not built-in so the sellers took it with them. The buyer complained after closing. When I asked the sellers whether there was another microwave in the kitchen, they said no. So I asked them, what did you think the words built-in microwave meant? They could not answer and eventually agreed to give back the microwave.

When you are buying any home, you can never get too detailed about what you expect to be included. Ordinarily, the rule is that if it is attached to the house, it is a fixture and it stays with the house. If it is not attached, then it is considered a chattel, and it doesn’t stay with the house unless the buyer includes it in the contract.

Try to avoid general statements such as “built-in.” They may not be built in after all and may only be attached by a hook or other device that can be easily removed. Instead, be careful to list the make and model number of all appliances, and also note the colour and location of any drapes, carpeting, closet organizers, cabinets, bookcases, mirrors, pool equipment, satellite dishes, barbecues, sheds, garage door openers and anything else that you expect to be on the property after you move in.

Take pictures of the items during your home inspection so that you have proof in case the seller tries to replace anything with cheaper items.

By being careful and clear when you write your contract, you can avoid aggravation after closing.

– Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com


Should your home’s selling price be made public?

By Robert Hof

Should you care whether someone knows how much you paid for your home?

Some people think that information should be made public, while others believe that constitutes an invasion of privacy. Why should a stranger have access to that kind of information?

This issue is a big bone of contention and now the basis of a lawsuit launched by Ottawa’s Commissioner of Competition against the Toronto Real Estate Board. The commissioner holds that anyone should be able to go onto a real estate brokerage’s website and see any price of a recently sold home in their neighbourhood. In Ontario, real estate agents can view prices through their local MLS system, but members of the public cannot. In Canada, only Nova Scotia lets everyone see this information, while in the United States, access is for the most part universal.

More of my clients are asking if there is a way to keep the price they paid for their home off the title records that are accessible by anyone. It can be done if you make arrangements to pay the land transfer tax before closing. This way you keep the price you paid off the title.

The competition commissioner believes that if sold prices were publicly available, buyers could figure out what to offer on a home themselves and would not need to employ a real estate agent. In my view, it wouldn’t change anything because there are many varied reasons why a home sells for a particular price. For example:

  • Two houses on the same street, the same size, built by the same builder, may have different views and layouts, which can make a big difference in their curb appeal.
  • The price is affected by seller motivations. One vendor may have to sell quickly because she has bought a house, or has had a change of life circumstance, whether through death, marriage breakup, or job relocation.
  • A history of sewage backups could affect a selling price, or whether the house backs onto a park or ravine, or is close to a hydro tower.
  • What about a wind farm that has just been announced as coming to your area, a crazy neighbour, or a halfway house located on the same block?

In the U.S., sold prices have been available for years. A study compiled by the National Association of Realtors found that 89 per cent of deals done in 2011 were handled by real estate agents. This figure was much higher than it had been before the Internet came into common use.

Before the lawyers make too much money fighting over privacy, my hope is that this issue can be settled amicably and that buyers and sellers continue to receive all the information they need, whichever way they might try to buy or sell a home.

– Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com


Buyers get ready!

By Robert Hof

There hasn’t been an opportunity like this in Ottawa for ages. There is an oversupply of listings, meaning plenty of choice, prices are sliding a bit and the mortgage situation is as good as ever. Yes, there have been some changes in mortgage rules but if they don’t affect you, this is the time to get out there and take advantage of this buyer’s market. Who knows how long it will last?


A statement from Ottawa Real Estate Board President, Ansel Clarke

By Robert Hof

September sales historically on track in Ottawa

“There has been a lot of attention recently on the need to “cool” the real estate market across the country,” said Ottawa Real Estate Board President, Ansel Clarke.  “While there may be a need in some areas, we emphasize that real estate is local, and conditions and prospects will vary among major market areas and indeed within market areas.  Historically the Ottawa housing market has not experienced volatility in prices or number of units sold.”

“While average price information does not indicate the value of a specific property, it is useful to identify trends,” continued Mr. Clarke. “Since 1956 the average price in the Ottawa area has decreased only five times year over year and has increased by 15 per cent or more only five times as well.  The Ottawa market can be characterized as stable and steady although there are pockets of our market area where we see larger increases in price.”

“As for the number of sales, we are on track this year to match historical levels of activity.  Since 1999 the number of sales through the MLS® System in Ottawa has ranged from a low of 11,329 to a high of 14,783.  Sales for the first nine months of the year are just under 11,700.”

New mortgage rules and continuing uncertainty about job losses in the public service may have contributed to recent decreases in the number of sales through the MLS® System of the Ottawa Real Estate Board.  Members sold 993 units in September 2012, down from a near record high of 1,201 in September 2011.  The average price of properties sold for the month was $351,585, up from $347,236 last month and $335,623 in September 2011.

“Some buyers are deferring their decision to purchase until their employment status is clearer.  Meanwhile, sellers will want to ensure that their properties are priced appropriately.  We encourage buyers and sellers to talk to their Ottawa and area REALTOR® for more information about the housing market outlook where they live, or want to live,” concluded Mr. Clarke.


My tenant wrecked the place — now what?

By Robert Hof

More about landlord and tenant headaches and how to protect yourself. Robert.

Steven from Toronto writes:

“I successfully evicted a tenant on September 5, 2012 at 8:40 AM by Sheriff but they destroyed the apartment. They broke the bathroom sink, the toilet, the doors, windows, light switches, put peanut butter everywhere, put ketchup on the ceilings, walls, everything they could break they did break. They even poured dried rice down the sink to clog it and opening the water would cause the rice to expand and make it worse.”

Alice from Waterloo writes about how her daughter was told by her landlord to leave the premises early and then sent a bill for $800 for clean-up costs. The landlord also threatened that if the amount wasn’t paid immediately, the bill would be sent to a collection agency and it would ruin her daughter’s credit rating. Her daughter indicated that there was nothing wrong with the apartment when she left.

These emails raise all kinds of issues as to what to do to protect yourself when a lease comes to an end. Here are some things to consider:

• Landlords will have to prove that damage was done. Landlords and tenants should prepare and sign a form called a rental unit condition statement, which is similar to what you sign before you rent a car. You go through the apartment and make a list of everything; whether there are any damages and confirming that everything is working. Then you should do the same thing at the end of the tenancy, to both agree on any damages that may have been caused by the tenant.

• Landlords should regularly inspect the unit during the lease, to make sure that it is being properly cared for by the tenant. You have to give 24 hours’ notice and can get in during the hours of 8 a.m. to 8 p.m. to do it. If you notice any damage, you can immediately demand that it be fixed, or consider an application to the Board to get the tenant to fix it.

• Landlords should respond to requests by the tenant to fix things that break down in a timely manner.

• Tenants should also take pictures of the unit when they leave as additional proof that they left the place in similar shape to what they got in the first place.

Once the tenant leaves, you will have to go to Small Claims Court to sue for any damages. You can sue for any amount up to $25,000 in Ontario, which usually is enough for most of these types of claims. When deciding whether to bring a claim, ask whether you are going to collect anything if you win. If the tenant has disappeared, it may just be a further waste of money to sue. However, if you know where the tenant is working, it may be worth your while. Consult with a lawyer or paralegal before making these types of decisions.

Landlords cannot threaten to ruin a tenant’s credit over these types of issues. In my experience, the Ontario Ministry of Consumer Services would probably consider this type of claim to be an unliquidated damage, meaning it is just an accusation and has not yet been proven. As such, if the landlord or their agent reports you to the credit bureaus over this, in my opinion, you can report the landlord to the Ministry by calling (416) 326-8800. Do not let someone bully you into paying for any damage that you did not cause.

In my experience, when landlords do more during the lease to be appreciative of their tenants and proactively try to work things out, it will reduce the risk of any damage being done to the unit when the tenant vacates.

Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com


The Ontario Ministry of Consumer Services wants to hear from us.

By Robert Hof

Since 1998, condos in Ontario have been governed by the Condominium Act. Changing times and changing types of condominiums have led to the Ministry instigating a review of the Act and they are calling for input from the public. To find out more and have your say, follow the link below. Condominium Act review