The term breaking your mortgage often has a negative meaning to it, but that’s not necessarily the case. The main reason why someone might decide to break their mortgage is to get a lower rate with their bank or another lending institution. When the Investor’s Group cut its three-year variable mortgage rate to 1.99% last month, many of my clients wondered if breaking their mortgages and switching would be a wise decision. The question is, do the long-term savings outweigh the initial interest penalties? It is possible, however let’s have a closer look at the various considerations.
The number one factor to consider before breaking your current mortgage is the interest penalty you will incur. The interest penalty depends on the type of mortgage you have (fixed or variable) and which bank or lender you’re with.
You can find mortgage penalty calculators online such as at Ratehub.ca - simply enter in your remaining mortgage balance, the type of mortgage, your mortgage rate and term and the calculator will provide you with an approximate calculation for your mortgage penalty amount. As an example if you are breaking a $200,000 mortgage with TD and have a fixed mortgage rate of 2.99 percent, you would have an interest penalty of approximately $9,800.
With a fixed rate mortgage, the interest penalty is calculated using what’s called “interest rate differential calculation.” The penalties are also different if you have a variable rate mortgage or a cash-back mortgage – check with your financial institution for details and be sure to read and understand the fine print. Some lower rate mortgages may have a provision that the mortgage cannot be broken unless you sell your home.
Once you've determined your penalty, it’s just a matter of working out if the interest savings will be greater than the penalty paid. In general, if the offered rate is greater than two per cent less than your current mortgage rate, it might be worth paying the penalty and switching.
Most people assume that working with an agent who lists a lot of houses (i.e. “to list”, is real estate lingo for the selling side of the transaction) would make for a great buyer agent. In some cases that might be true, but in my experience, agents who focus primarily on listings don’t always make for a great buyer agent.
So, why is that? In general, agents who list a lot of houses, focus just on that… listing houses. They might work with potential buyers that come from these listings, but make no mistake their focus is listings and to service their sellers. The main reason for this is that listings are a great way to promote their name and you guessed it… get more listings. Working with buyers, especially in today’s seller’s market, takes a lot more time, energy, and dedication than servicing a listing.
So where do you think this listing agent is going to be spending the majority of their time and efforts? That’s right, the sellers! To some busy listing agents, buyers often don’t get the attention they deserve. In today’s hot seller’s market, it’s now more important than ever to have an agent who’s dedicated and committed in helping you find your next home. So, when interviewing agents, ask them if they prefer working with sellers or buyers. Also, ask them what their “split” is (working with buyers to sellers). That will give you a good understanding as to what type of business they have and where their dedication lies. I don’t think you should necessarily work with a buyer-only agent, but an experienced agent who works with a healthy mix of both buyer and sellers might be your best approach.
If Buyers drive past a For Sale sign and say “Should I call the listing agent and find out what the price of the home is?” As innocent sounding as this question might be, this may not be in your best interest to do so.
Under agency law, the listing agent’s primary loyalty and duty is to the seller of the home. They have signed a contract and are hired by the seller to represent their interests and are being paid to do so.
So what does this actually mean for you as buyer who has contact with the seller’s agent with either questions or possibly even meeting them while viewing the home?
First of all you need to know what the seller’s agent can and cannot do for any buyer!
I know there may be buyers in today’s marketplace who prefer to act on their own and find the property themselves without the use of a buyer’s agent. When they do eventually find a home, these buyers may also decide to use the seller’s realtor to negotiate a transaction on their home.
One of the ways to calculate the value of a home is by doing what realtors call a comparative market analysis (CMA). Completing a CMA to find out what the home is really worth is the first step to understanding the market value. However the listing agent will prepare a CMA for the buyer only if they request it. They will not do it automatically! Furthermore… if they do prepare this CMA they cannot, by agency law, use that CMA to provide advice on what the purchaser should offer or what the property is really worth!
So why is the listing agent not allowed to do this? Well… it might give the buyer a negotiating edge and violate the listing agent’s duty to put the interest of the seller first!
As a buyer in this active real estate market you want to ensure you have a real estate agent working for you. To ensure they are advocating for your best interests and giving you all the information so you can make the most informed decision. Quite often buying a home is the single largest financial transaction most people complete and it’s imperative to have someone representing your best interests at all times.
The rules of the marketing game change all the time. With the advent of the internet, email and social networking, the competition for your attention has never been greater. Marketers need to differentiate themselves from others or risk becoming irrelevant.
Think of what you’re doing to market your house, your product or your services. It needs to be different to capture the attention of others… how does your customer distinguish your product from all the others that you’re competing against? Think outside the box!
Not too long ago, I had the thought to try something different with one of my rental properties: re-rent the property using a high quality video tour.
The results were startling.
I’ve used professional videos with many of my client’s homes for sale and achieved great success… so why not use the same blueprint with my rental property?
In the end, I rented the property at a higher rental amount, my property rented significantly faster and I had to spend a lot less time marketing the property to qualified tenants.
For a property I plan to own for many years, I now have a high quality marketing video that I will be able to re-use every time I have a vacancy! Well worth the initial cost and effort in my opinion.
With my real estate brokerage, I’m also constantly looking to stay ahead of the marketing curve. One strategy I follow is to borrow marketing best practices from other industries and apply these to my real estate brokerage.
Today, I will leave you with this to think about… Have you considered borrowing marketing ideas from other industries and applying them to your business?
One of the most common questions I get from clients is how do I get more cash flow from my real estate investments in Toronto? Toronto is so expensive how do I invest in this market and not just break even every month?
If cash flow is what you’re looking for… you might want to invest a few minutes and read this post.
For those of you who do not know, amongst my real estate portfolio, I own two condos that I rent out, fully furnished, to what I call the “Bay Street executive”. My target market is the expat or the executive who is looking for a temporary place to call home (and does not want to live in a hotel room).
My experience to date has been fantastic and I’ve had some great tenants… Which include large multinational companies such as Kinross, Price Waterhouse, Scotiabank and Rogers Communications.
Actually, my best tenant is a national television celebrity and she loves living in the unit… so much so, she’s extended her lease three times already! She still lives in the unit and the best part is that her television studio is paying the rent!
Having rented my units out for more than the last year and a half, I thought it would be best to summarize what’s involved for you as an investor:
Increased cash flow: The “market rent” for a 1BR+Den unit is about $2,900 per month and a 2BR unit can fetch almost $4,000 a month. If your unit has a parking spot, that can add another $200-$300 in income each month.
To give you an idea what kind of cash flow that brings in for an investor today, it is about $550 a month (for a 1BR + Den) or over a $850 a month for a 2BR unit. (These awesome cash flow numbers are based on properties you can buy right now!).
Corporations are paying the rent (not individuals): Your rent is paid each month by a large Canadian or multinational corporations, making your rent that much more secure.
Demand for furnished units is high: I actually have a waiting list for my units and have had to turn people away. There simply isn’t enough supply of quality furnished units available downtown Toronto. To give you some perspective, one of my units is coming vacant this coming July and I already had a tenant commit to take the unit two months before it’s actually vacant.
Easy management: Managing my condo unit is easy now that I have built my team. Since my condos are less than 2 years old, I never get calls for broken toilets or things of that nature.
Last week was a real eye opener when I sat down with a client who was ready to dismiss the idea based on five false assumptions.
[Assumption #1] Executive tenants are hard to find: They actually aren’t – Toronto has the epicenter of corporate Canada and as I said before quality furnished units are in short supply. The team and relationships I’ve built has made locating these types of tenants surprisingly quite easy.
[Assumption #2] $4,000 a month rent isn’t realistic! (I’m going to let you in on a little secret - one of my 2BR units currently rents for $5,400 a month). Location and type of unit play a large role in the demand for furnished rentals, but you have to remember the market for these is less-price sensitive than other type of rentals. The corporation (your customer) want their top-end employees to be happy in their move to Toronto and often lifestyle is the more determining factor over price.
[Assumption #3] I need to buy a fancy million dollar condo: If you’re looking at buying a 2BR unit, you can find good units for $550k to $650k depending on location. You don’t need to buy at the Shangri-La to make this investment work, but you do need to buy in the right building and location. As a matter of fact, there are less than a dozen of condo buildings in all of Toronto where these furnished rentals will actually work.
[Assumption #4] Buying all the furniture myself takes a lot of time that I don’t have! Your time is very valuable and for those of you who don’t want to furnish the units yourself – I have a brilliant designer who will get your rental condo furnished efficiently!
[Assumption #5] This seems like a lot of work! Owning real estate is just like owning a business. The number one mistake I see real estate investors make is not treating their real estate like a business. If you set your business up correctly from the start, it doesn’t have to be a lot of work. Now that I have setup my systems properly I spend less than 1 hour per month on these two units combined.
I know what you’re thinking – this sounds wonderful, but there has to be some risk to this type of real estate investment? Yes, owning real estate carries it’s risk (whether that is buying a condo, duplex or apartment building) and you should always carefully weigh your risk and complete your due diligence.
As always, if you have questions or would like to find out more about these furnished rental opportunities feel free to email me and I’d be happy to share my experience with you.
I recently sat down with a real estate agent who’s new to the business and we were talking about negotiation strategies and some recent interactions I had with other agents. Before I delve into the topic further, I do have a confession to make: I love to negotiate... It’s one of my favorite parts of the business. Not to mention that I’ve had many interesting negotiating tales along the way (some of them shared on this blog!).
So, the question came up as to when do you start negotiating with the other party? I really believe you start negotiating when you have your first interaction with the buying or selling agent. If you start negotiating when the offer is just in front of you, it’s too late to start negotiating in my opinion. Allow me to explain.
Before I write up an offer, I’ll always have a conversation with the selling agent to get as much information I can about the property, the seller and their situation. I call this the “posturing conversation”. I have a set of questions that I always ask, and that gives me a good sense of what their motivation levels are like and what they would be looking for in an offer. Once I’ve had this conversation with the agent, I relay the information to my clients and give them my read on the situation. At that point, I listen for my client’s feedback on how they would like to proceed.
First impressions are critical in any negotiations. When I represent buyers, I don’t like to reveal anything about my clients until an offer is presented. The reason being, I only want to show our intentions when it is appropriate to do so. For instance, if we’re viewing an open house, I’ll tell my clients that they shouldn’t say anything during the viewing since the listing agent is always within an ear-shot of visitors. There is a possibility they may use what we say against us during a negotiation. The same applies if you’re the selling agent at an open house… what you reveal to potential buyers will have material impact on buyers perception and will ultimately be reflected in any offer that might come.
In any negotiation, there will be some “give and take”. In the end, you don’t want to “give” more than you have to. Be aware that the negotiations often begin before any offer is even drawn on paper.
I had an interesting experience last year with a home I sold for my clients who lived in a nice Central Toronto neighbourhood. My clients were expecting a baby and wanted to move into a larger home. They lived on a choice street and I knew the interest in the home would be high. We decided to list the home for sale on the Wednesday and review offers on the following Tuesday evening.
As anticipated, there was significant amount of traffic and based on conversations with a few buyer agents, I expected a few offers on the following Tuesday.
Fast forward to Tuesday, we had 7 offers on the table for my clients’ consideration. My clients were obviously ecstatic. Getting that many offers to the table is more of an art than a science, something I have learned through facilitating countless offer presentations.
My clients understood that the more offers they received that night, should translate into a higher the sale price.
It’s funny… Usually, before the offers are being presented, Agents often would often ask: “Why are they selling?” I would always repeat the same answer and my answer would almost sound rehearsed: “they are looking to move into a larger home”. Rarely would I get any additional probing questions on this topic.
Interestingly though, that night one agent took a completely different approach and asked me: “Is this sale a result of a positive occurrence or negative occurrence?” I was a little surprised by her question, but it was the first time I got this kind of question before. I told her that they’re planning on having another child and needed a home with an additional bedroom. It’s a brilliant way of asking the same question: Why are they selling?
Fast forward a few hours later, when this same Agent presented her offer... Because I had shared with her that this move was a “positive one”, she was very upbeat, positive and full of energy. She did a wonderful job at presenting the offer in the appropriate tone, her offer stood out the most against all of the other offers. In the end my clients ended up accepting her client’s offer.
It’s interesting, because if I had told this same Agent my clients were getting a divorce and this is was the reason why they are selling, I am sure her presentation style would have been much different.
So now before I present any offer, I always ask the same question, “Is this sale a result of a positive occurrence or a negative occurrence?” Some would argue it’s the same as asking: “Why are they selling”, although I believe it provides a little more insight than that. Sometimes, that insight might be enough to distinguish your offer from being accepted or rejected. In this competitive market, that simple question might be enough to give you that edge.
I hope everyone enjoyed the last few weeks of summer! I recently had a coffee with a friend of mine who was thinking about opening up his own business. I told him about my first business venture and thought that the lessons I learned then were just as applicable to my real estate business today.
My first official foray into small business came at the ripe age of 13… when I sold hockey cards at a sports card convention. At the time, I got together with 3 of my buddies and we decided to rent a booth at a local community center for a 1 day convention. The cost to rent the booth was $40 and we agreed to split it 4 ways. It sounds strange to say this now, but back then the $10 investment to rent the booth seemed steep to each of us.
I remembered when we first arrived at the convention center to setup our display many of the other vendors came by to see what hockey cards “these kids” were selling. I distinctly remember this seasoned vendor came to our table and offering me ridiculously low prices on some of my cards. I politely said “no thanks, in no hurry to sell” and off he went mumbling some rude remark under his beard.
The doors opened to the public shortly thereafter and I made my first sale about 45 minutes later. Overall the day was a success and I had sold a couple of hundred dollars of inventory and easily covered the cost of the booth. I really enjoyed the experience and I knew that this wouldn’t be my last entrepreneurial venture.
So here are 5 lessons that I learned that day:
1. Don’t be afraid to take calculated risks: The old saying rings true: Nothing ventured, nothing gained. I remember doing a pros/cons list before signing up for the convention and after that I felt that a $10 investment was worth the risk. In hindsight, the experience I received from this 1-day venture was by far the most valuable asset I gained.
2. Know your market: As nerdy as this might sound, I made it a hobby of mine to memorize the “Beckett’s Hockey Card Price Guide Book” (it’s very similar to the stock tables found in newspapers today). At the end of the day, I knew the market value of my inventory inside out.
3. Be patient: If I accepted the first offer I got for any of my hockey cards that day, I probably would have made half of what I actually did. Being patient and knowing when to accept a good offer was key.
4. Be professional: That summer, my grandfather and I built a wooden display case for the purposes of this sports card show. It looked very professional and made it easy to prominently display my inventory to customers. I also think our potential customers might have taken us more seriously as well.
5. Love what you do: At the time, I loved hockey cards, so that was a great business for me to be involved in. Since that time I’ve been involved as an owner in a number of businesses, with my real estate brokerage being my latest which was opened almost 3 years ago (although I was a real estate salesperson for more than 3 years before that point). I really do love operating the real estate brokerage and without a doubt has been my favorite business to date. Probably because it is the most emotionally rewarding business I have ever been a part of.
It’s amazing… the lessons I learned that day are just as applicable today than they were back then. Hope you enjoyed reading this blog post as much as I did writing it!
It’s fair to say that if you’re buying a house in Toronto today, you are in all likelihood going to be entering into a multiple offer situation. There is just not enough “quality” inventory to satisfy demand… and that is the reality of Toronto real estate today.
Most buyers assume that the highest price always wins the bidding war. That might be true in many cases, however recently I was part of a very interesting negotiation in a multiple offer that demonstrated that price isn’t the only motivator for sellers… Here is what transpired.
I was working with a really nice couple Tom and Anna. They have two great kids, and wanted to move to a bigger house. Being in a good school district was important to them so we narrowed our search to a few select Toronto neighbourhoods. I showed them this nice four bedroom home, close to their school of choice and they instantly fell in love with the house. The problem was though, it was at the top end of their budget… and the house was priced for a bidding war. I could tell Tom and Anna were a little uncomfortable spending much more than the asking price, so later that night we sat down and put together a sound plan for our offer. I really wanted Tom and Anna to stay within their comfort zone and not get carried away with their offer price.
Fast forward to offer night, I was one of two competing offers. I called the listing agent ahead of time to get the rules and how the bidding process was going to work. The listing agent was well respected and a long time agent in the community and said that both offers would only have one shot to present their offer and the seller would choose the best offer.
Anytime I am in a multiple offer situation, I always want to be there in person to present the offer. I want to be able to look at the sellers in the eye and tell my client’s story, why they love the house and why they should accept our offer.
Deep down inside I knew there was a good chance the other offer had a higher price. So, when it was my turn to present our offer, I decided to highlight the “emotional” aspects our offer.
You see, the people who were selling this house… are my clients… only 20 years ago. You can tell from the photos on the wall, this has been their family home for many years with many happy family memories. This home is where their kids learned to ride their bikes, and had hours of fun playing basketball in the driveway… Their kids are now all grown up and out of the house. I can appreciate emotionally speaking, selling a home for the past twenty years might be a difficult one, so I was hoping my client’s story would resonate with them.
I proceeded to tell them how wonderful my clients were and how this would be their family home, just like theirs was for the past twenty years. Their kids are about the same age as theirs were when they moved in…
I could tell that my client’s story struck a cord with the sellers. They loved the idea that a “younger version” of them was buying the house. We proceeded to review our offer and I highlighted many of the positive features. When they looked at the price, I could also tell from their reaction that we were in second position. They wanted our offer so badly to be higher than the other one.
After reviewing the offer, they wanted a couple of minutes to discuss both offers and let us know their final decision. I waited in a separate meeting room, which felt like an eternity. Over twenty minutes go by and the listing agent comes into the meeting room to give me an update... She says: “They’re still mulling it over. They really like you and your clients. Although the other offer is quite a bit higher than yours.”
I was surprised they were taking this long to decide. That meant we still had a shot! I asked the agent if I could go back and say a few final words to the sellers (to help push our offer over the top). She said her sellers really wanted to discuss it privately.
Interestingly the listing agent added: “You’re good. The way you presented that offer was great. It seemed so genuine and sincere.” I replied: “Thank you, I appreciate that… it was genuine and sincere! I really meant everything I said in there.”
The listing agent’s phone buzzes and goes back to see her sellers.
Another 10 minutes go by and the listing agent comes to the meeting room where I am sitting and says: “Great offer. However the sellers are going to accept the other offer.”
My clients were disappointed they didn’t get this house. But, they did make their best offer and were ok with the outcome.
Later that day, I saw the sale price posted… the other offer was almost $30k above ours! I was shocked! I was shocked that the sellers were even considering our offer… $30k is a pretty big difference in my mind. Even though we didn’t get our offer accepted, it just goes to show you sometimes the intangibles can make a difference. Don’t always assume that price is the difference. As in this case, an important part of the decision is the emotional side of the equation. Sellers often have strong emotional ties to their home and knowing that someone feels the same way about their home as they do can go a long way.
So, you’re probably wondering what happened with Tom and Anna? Three weeks later, we found another great home and this time their offer was accepted!