“Iron rust from disuse; water loses its purity from stagnation. Even so does inaction sap the vigor of the mind.” -Leonardo da Vinci

  • Sell In May And Go Away?!
  • Canadian Dollar
  • Those Flipping Taxes Hit Home
  • Toronto Rental Condo Curve Flattening
  • Renting Stratas Only To Seniors: That Might Work
  • Yes, That Is $628k Per Door In Kitsilano!
  • Olympic Village Fiasco Saw Investors Make As Much As $500,000 Profit Per Unit!
  • National MLS Snapshot
  • B-21 Could Have Been Much Worse
  • Weekly Thoughts
  • Plots Of The Week
  • Best Mortgage Rates

HAPPY EASTER

THIS WEEK IN FACTS BY EMAIL:
Making $433,000 in a month! Kitsilano 8-plex sells for over $5 million! Careful flippers, CRA is watching! Sell in May and go away? $190 acres for $350,000 in BC!

TRIP:
Phoenix seminar on May 2 and 3. One full day of tuition. Next day – get familiar with what’s available. Call Lubna at 604-683-1111 to book ($199 tuition.)

HOTLINE: Will be up April 19, 2014 (Lost your password? Call Lubna at 604-683-1111. Best time to call? After 5 or on the weekend).

FACTS BY EMAIL THIS WEEK:

DID YOU KNOW?
Your 52-page outlook issue (on sale at $49 for non-subscriber) is still online and
FREE for you! (1st issue of FBE of the year)

TIP OF THE WEEK?
Book a banner ad on the huge traffic site at: Jurock.com. This month’s special? We’ll include banner design and include rotational exposure on 4 other
websites – FREE! Here for details

C A N A D A: Sell In May And Go Away?!

Some of you noted our comments last week here and on the hotline about the famous quote above. Well, we pointed out for a few years, that out of 8 in 10
years it has been better to leave the stock markets and take the summer off – cash safely in the bank – entering back in the fall. Now some noted
forecasters are also making worrisome sounds. From Michael Levy to Victor Adair to Don Vialloux – countless others – there is a veritable
chorus of ‘sell’.

Good time to take the summer off in stocks?

Canadian Dollar

Our Bank of Canada meddled once again in the value of our dollar. When our governor of the Bank told a press conference that we ‘need’ a
low dollar to stimulate exports it prompted the biggest drop in our dollar of the week. With that in mind, Michael Levy sees the Canadian
dollar likely to hit as low as 85 cents as our governor hinted at lower interest rates.

Major Point: You can’t fight the government

Those Flipping Taxes Hit Home

Canada Revenue Agency
is starting to look more closely at real estate flips, especially in the new condo market. Since last April, just in Toronto, CRA says its “condo project”
crackdown has triggered 579 income tax audits, more than half of which led to penalties for the taxpayers.

CBC News
ran a piece recently about an 84-year-old lady that had purchased a condo prior to it being built. But she ended up
moving to a retirement home instead and the condo was sold at a profit. Two years later, CRA hit the family with a large tax bill on that profit.

Gains made on the sale of one’s primary residence are tax exempt under CRA rules. But there are conditions a residence must meet to
qualify – one of which is that the taxpayer, or the taxpayer’s spouse or children, must have lived there “at some time during the year.”

Which makes flipping new condos a bit tricky, if you are buying a pre-sale with the plan to sell when the building completes.

So … To do:

  1. 1. It’s the intention when you acquire the property
    that is so important when purchasing. If you are purchasing a piece of property and your intention is to sell it for a profit – that is considered business
    income.
  2. 2. It is important also to document all relevant information
    when you acquire a property. Document why and when you’re selling and be consistent in the way that you treat that property going forward.
  3. 3. During the period of time owning rentals
    , it’s not unusual to sell the odd one. Just because you sell the odd one doesn’t make it business income, that’s not the guideline.
  4. 4. It’s very difficult for a CRA auditor
    to look at a piece of paper that’s 5 or 10 years old and argue that it wasn’t your intention.
  5. 5. You must have your ducks in a row

But how about multiple properties?

Kelowna chartered accountant and business advisor Ken Davidson (250- 763-6700) offers some advice:

“Let’s your intention is to buy and hold the property but you happen to do five buy and holds throughout the year that ended up selling. Even though your
documentation says you weren’t going to sell them it is very easy to decipher that the evidence demonstrates your true intention.

Do not try to make documentation that is false.

If you are doing multiple transactions, it becomes less and less likely that the transaction is a capital disposal.

How do you document your intention?
First, you start with creating a real estate business plan that clearly outlines your intentions and what exactly your business is. For
example, if I am in the rental business, I would show how it makes sense for me to buy the property, hold it and rent it because it creates positive cash
flow. It makes business sense to buy and hold so I’m going to buy 5 properties using this particular model, for sake of example.

Major Point:
As a general rule of thumb, the more times you sell a property, the more times that you’re going to have the potential that it will be considered income
vs. capital.

Toronto Rental Condo Curve Flattening

Fueled by investors, the high-flying new condo market in Toronto will lose steam this year because rental incomes are flattening while prices keep rising.
We expect the resulting cash flow crunch to cool the market, especially in the one-bedroom sector that makes up 60% of all condo rentals.

Total condo sales were up 9% in the first three months of this year over last, with 70% of the 4,454 transactions taking place in the City of Toronto, according to the Toronto Real Estate Board. Prices in the first quarter were up 5.6%, year over year, to
an average of $351,213 across the GTA and $376,226 in the City of Toronto. It all sounds good, but higher supply is already cutting into rental returns.

The total number of condo listings rose 27.7% as more investor-owned condos came to the market. Meanwhile, condo rentals increased 17.8%, compared to a
year earlier. As a result, the rent for a one-bedroom unit in the GTA declined by 1.6%, to $1,573 per month.

Major Point:
With all the foreign investors crowding into Canadian major markets, forecasts remain cloudy, BUT there are about 20,000 new condos under development in
Greater Toronto. That fact alone will help keep a lid on price increases.

Renting Stratas Only To Seniors: That Might Work

There is a niche market emerging in the B.C. rental housing market: buying strata units in age-restricted developments and renting only to
seniors.

We took a look at one such project the Coldstream area of Vernon and it pencils out. This project is a unique, family-run affair but the
concept is sound and it could spread.

Coldstream Meadows
is an existing freehold 23-acre retirement community that was originally sold as a mix of investor and owner-occupied condo units. But the Borden family,
which owns it, found that most of the elderly residents preferred to rent rather than own. So, they are developing the next phases asinvestor-only stratas and are guaranteeing the rent, under a lease-back agreement for 10 years, explains Bjorn Edblad of Royal LePage Vernon (250-308-7134). “This can be a care-free, cash-flow investment,” Edblad said.

The new units are all in stand-alone six-plexes. The first 12 are complete and sold and 18 more are under construction and for sale. Here is how the deal works:

The average purchase price is $208,333 per unit or $1.25 million for all six units in one building. Investors must buy at least two units.

The lease back, based on current rents, guarantees at least $1,143 per month per unit on one-bedroom suites ($2,286 per month for 2 units) The lease back
includes all strata fees and all maintenance and repairs, but does not include property taxes. The Vantage Credit Union in Vernon is
offering investors 80% financing at 3.6% on five-year terms. (Or around $945 per month per unit.)

Major Point:
At such financing, the equity return works out to 15%; it is less if the investor comes in with all cash.

The developer pays rent to the investor and is responsible for finding tenants (they can upcharge by offering a multitude of services, from parking to
meals). The 10-year lease back can be extended, but investors also have the option at selling at any time.

Yes, That Is $628k Per Door In Kitsilano!

Last week we noted that sales of apartment buildings are slowing in Vancouver due to the high costs and low cap rates. A recent sale gives an indication of
how bizarre the prices has become.

NAI Commercial
sold an older 8-unit (all two bedroom) apartment building on Cornwall Avenue in Kitsilano this month for $5,025,000. Yes, that works out to $628,125 per
suite. Granted, Cornwall is a great location, but it will take some hefty rents to cover those costs. The capitalization rate is estimated at 3%.

Terry Harding
of NAI said he was not surprised at the price. He recently sold an even older 20-unit rental building on Cornwall for $425,000 per door and a“needs a total reno”. Also a 9-unit on Point Grey Road sold for $588,000 per door. NAI is just closing on a 14-unit building in New Westminster at $140,000 per door, which is also high for that market.

Major Point: Harding argues that the only reason that apartment building sales have slowed down is “no one wants to sell.” We suggest that at these prices every
landlord should consider selling.

Olympic Village Fiasco Saw Investors Make As Much As $500,000 Profit Per Unit!

The Province reported that Vancouver’s handling of the sale of the Olympic Village units is highly
questionable. Property document searches of half of the 58 units sold in Canada House revealed five quick flips:

  • In one stunningly profitable sale, a buyer
    purchased a unit for $1.27 million in August 2012 and sold it for $1.7 million
    in September 2012 – a
    $433,840 profit in one month.
  • In another case, a unit bought for $
    2.2 million in October 2012 was sold for $2.6 million five months later.
  • In three other units – each purchased at around $2.2 million in late summer 2012 – investors sold in 2013 for profits of $500,000 in each case.

  • Since initial sales in 2012, many units in Canada House had appreciated by about $300,000 in 2013, according to property assessments.

In that period Vancouver’s overall condo market had been generally flat or down. That raises the question of whether the revenue-rich Canada House
units could have been priced higher when they were sold on behalf of Vancouver taxpayers in 2012.”

The Province also quotes Burnaby property developer and realtor William McCarthy – whose research paper,
The Failed Experiment of Vancouver’s 2010 Olympic Village,
was sharply critical of the city’s handling of the project – “believes taxpayer losses of up to $600 million seem realistic.”

Major Point:
It is always easy to criticize in hindsight … but this seems outrageous. The receiver, the sales agents, the city … someone dropped the ball – seriously!

National MLS Snapshot

From the Canadian Real Estate Association (for March, 2014)

Highlights:

National home sales rose 1.0% from February to March.

Actual (not seasonally adjusted) activity stood 4.9% above March 2013 levels.

The number of newly listed homes edged up 0.5% from February to March.

The Canadian housing market remains in balanced territory.

The national average sale price rose 6.0% on a year-over-year basis in March to $401,419.

 

B-21 Could Have Been Much Worse

We talked about it before … The new federal mortgage insurance rules, B-21, that came into effect last week should not disrupt the
market much, since most of them have already been put in place over the past two years. (The recent increase in mortgage insurance fees are probably a
bigger barrier.)

Here is what is new:

  • Cash-back down payments will soon be extinct on insured mortgages.

    – Credit unions are the only ones left doing this form of 100% financing

    – Borrowed down payments are still allowed, however.

  • B-21 puts heightened focus on the consistency of underwriting decisions.

    – This might lead to fewer underwriting exceptions with insured mortgages.

  • Lenders’ underwriting will be increasingly scrutinized

    – Sample audits of individual files could become more frequent.

    – OSFI says lenders with “proportionately higher levels of delinquencies and claims … ” should be more scrutinized.

    – Repercussions may stiffen for lenders who cut corners when underwriting. B-21 explicitly requires insurers to give them less latitude (e.g., fewer
    exceptions, deal submission limits, etc.). Despite that already being standard practice, B-21 creates even greater incentive for lenders to cross every “t”
    and dot every “i” on insured mortgage applications (and when reviewing borrower documentation).

  • Data disclosure will increase

    – Insurers will now be required to publicly disclose more risk-related statistics every quarter (e.g., the percentage of insured borrowers putting down
    only 5% at the time of origination.)

Says Mortgage ace Kyle Green:
“All in all, no big waves will crash through the markets but heavier pressures from OSFI to minimize exceptions will have an effect on borrowers that are
‘out of the box’. Unfortunately, the box seems to shrink all the time.”

BEST MORTGAGE RATES:

PLOTS OF THE WEEK:

Westbridge
190 acres, partly on the Kettle river. Price: $350,000.

Anyone could have a property featured here, if you think it is a good deal. There is no charge and
absolutely no warranties given either. You have to look it up yourself.

Weekly Thoughts


As a man thinketh…


“Understand that all
thoughts create

and the more

emotion that is present

at the time that a thought is set in motion,

the

faster the creation

will be received –

and as

frequent thought

is given in any direction,

without the hindrance

of negative thought,

there is

certain creation, eventually.”

Abraham

“It is that
you do not allow because you do not believe.

What you believe regarding anything that you want is

extremely important

FOR YOU WILL ALLOW ONLY WITHIN THE BOUNDARIES OF YOUR BELIEFS.

And so, in many cases your beliefs must he altered to harmonize with your intentions.”

Remember … the price of success is BELIEF!

Life Life Large … Have a great week

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While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed

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