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Coming out on top. Improve your chances, and reduce your stress, in a multiple offer situation.

As seen in the Metro Vancouver New Home Guide   .

Whether you are a first time buyer, looking at buying a bigger house or downsizing, if you are looking at buying an investment property it is important to be prepared. This spring a sellers’ market is in full swing, which is more noticeable in certain areas of the Lower Mainland. With historically low interest rates, buyers are making the jump into homeownership, because for many, their mortgage payments will be less than what they are paying in rent. It is certainly a great time to get into the market. However, in a sellers’ market buyers find themselves in competition with other buyers to purchase a home.

House in the hands of the man on a background of blue skyBuying a home can be exciting but having to compete for a home can add a bit more stress. In this case, a property’s asking price and what the property will sell for is quite different, and in most cases the selling price will be well above and beyond the listed price.

When a homebuyer goes into a multiple offer situation, they are less in control. As a buyer, you need to prepare yourself in doing work upfront and with the understanding that you might not get the property in the end.

During multiple offer situations, the seller is not obligated to negotiate or accept any of the offers. The seller has the liberty to choose the best offer to negotiate and they will accept the offer that best reflects their needs. While price is important, that will not be the only factor they consider. They will also look at things such as subject conditions, completion and possession dates.

Here are some things you can consider and help you feel more in control of the situation when going into multiple offer situations:

  • Get pre-qualified by a Mortgage Expert – One of the most imortgage_pre_approval_300mportant aspects of buying a home is knowing how much you qualify for. You will know what you are comfortable paying on a monthly basis but also what is the highest amount you can offer. While you might have been qualified, the lender still have to approve the property you are buying.
  • Prepare and have all your documentation ready – It is important that you provide your Mortgage Expert will all the documentation the lender is going to require upfront. Especially since time will be of essence, you don’t want the added stress of getting documentation when you are in the middle of negotiations and during the subject condition period.
  • Having the right real estate agent – It is critical that you have an agent that has your best interest in mind. As a buyer it is not your job to seal the deal, it’s your agent’s responsibility to know what is your limit and respect that. Don’t let your agent try to upsell you on the price and encourage you to go above your budget. It’s their job to research comparable properties in the area and advise you, but you are the one that makes the final decision. After all, it’s your money.
  • Set your boundaries – Onhome & calclatorce you set your budget, stick to it. Determine how exactly how much you can go over if you end up in multiple offers. Don’t get sucked in by emotion and peer pressure because in the end it can end up costing you a lot more money.
  • Consider doing a home inspection ahead of time – The buyer could consider your offer more readily if it doesn’t include a “subject to inspection” clause.
  • Be flexible – Winning a multiple offer situation might be as easy as agreeing to the seller’s conditions such as closing dates, buying the property “as is” or even tightening the subject removal dates. This is important if the seller has already bought another property and is anxious to moving on. By agreeing to make the transaction as easy as possible could mean winning over a more generous offer. When buying a property “as is” and limiting the subject conditions (such as requesting that a missing knob or floor tile be replaced) might work in your favour too. If your agent is aware of any information about the seller’s situation and if you can be flexible in any way, take advantage of this opportunity that might help you get your offer accepted.
  • first_time_buyers_480Write it down – Perhaps you might want to write a quick letter to the seller explaining who you are and why you want to buy their home so much. Buying and selling a home is an emotional time for everyone, especially if the seller has lived in that home for a long time and raised their family there. Sometimes, it’s not about the highest offer but it can certainly also be about an emotional connection. Even though your offer might be lower than the others, some sellers might feel a strong connection to your story and decide that it’s not about the money but about someone who will really appreciate a great home!
  • Know when it is time to walk away – Multiple offer situations can be stressful and sometimes listing agents strategically set the price of the home below market value to start a multiple offer situation. Make sure you stand firm.

Buying your home is about a great investment and you have to be smart about it. In the end, it’s about being comfortable on what you are paying a month and happy with the decisions you make. After all it’s about finding a home that will be a great place to start building equity and creating memories.

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How to Make Your Mortgage Tax Deductible and Increase Your Net Worth

If you have home equity, there’s a neat method to use it to make investments and write off the mortgage interest. As seen in Rew.ca.

For US homeowners, mortgage interest is automatically tax deductible, but for Canadians, the write-off is not so straightforward. However, there is a way for you to deduct your mortgage interest while increasing your wealth, an approach known as the “Smith Manoeuvre”.

In order to make your mortgage interest tax deductible, homeowners must be able to prove that the money is being reinvested and is not being used for personal expenses.

A properly structured mortgage-centric tax strategy has several key elements – the most important of which is a multi-component, mortgage or home equity line of credit (HELOC). You will need a readvanceable or line-of-credit mortgage that lets you continuously extract equity as you pay your mortgage down.

Every time you make a payment and reduce your principal, you then immediately extract that equity and add it to your investment account. Since you have been able to deduct your mortgage interest, at the end of the year you will generate a tax refund that you can use to make a lump-sum payment on your mortgage –which makes even more funds available for investment.

It’s best to have a single collateral charge with at least two components – usually a fixed-term mortgage and an open line of credit that can track and report interest independently. This is absolutely essential under Canada Revenue Agency (CRA) rules and guidelines. In addition, for the interest payment to be tax deductible on any money borrowed for investment purposes, it must have a reasonable expectation to be able to produce an income.

Second, the strategy must employ conservative leverage-investment techniques – which is why a financial advisor must be involved in order to comply with federal regulations. The financial advisor should be a Certified Financial Planner (CFP) who is experienced in leveraged investing and able to actively monitor a homeowner’s portfolio on an ongoing basis.

Homeowners who opt for a tax-deductible mortgage interest plan make their monthly or bi-monthly mortgage payments the same way they would when making any type of mortgage payment. The payments go towards reducing the principal amount of the mortgage, creating equity; which is subsequently available to be borrowed on the line of credit. From there, the equity available in the line of credit must then be transferred to an investment account, which can be done automatically by your Certified Financial Planner.

Essentially, the homeowner is borrowing from the paid portion of the mortgage for reinvestment purposes.

On average, a typical 25-year mortgage can become fully tax deductible in 22.5 years.

The Ideal Client

Ideal borrowers for an advanced mortgage and tax strategy are typically professionals or other high-income earners who have a conventional mortgage, and have at least 20 per cent of the cost of the home to put towards a down payment, or who have built up substantial equity.

As high-income earners, their total debt-servicing ratio will be quite low and they will have excellent credit (680+ Beacon scores). These borrowers are financially sophisticated homeowners that are keenly interested in establishing a secure financial future and comfortable retirement. They also have good investment knowledge.

The Risks

The financial benefits of tax-deductible mortgage interest are indisputable and justify the risks to the right borrower. That said, a problem can arise if a homeowner spends the funds as opposed to reinvesting them. As well, any tax refunds should be used to pay down the mortgage as quickly as possible – thus making as much of the interest payment as possible tax deductible.

The short-term financial risk is liquidity (sometimes referred to as cash flow risk). Cash flow risk addresses the possibility that interest rates will sharply drive up the cost of borrowing at the same time as markets falter, resulting in a negative client monthly cash flow for a brief period of time.

This short-term risk is typically only prevalent in the first two to four years because, after this period of time, the homeowner has stockpiled enough equity through annual tax refunds that other liquidity options exist and the risk is fully mitigated.

Liquidity risk varies widely based on the balance sheet strength of the homeowner. Highly qualified homeowners are easy to manage as these borrowers have no difficulty meeting the short-term cash flow demand should the need arise.

Combining this tax deductible mortgage with a sound investment strategy can significantly increase your net worth over the long term. Talk to a mortgage expert for a free analysis of how the Smith Manoeuvre can work for you.


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Red Flags for Contractor Fraud

With summer just around the corner, many homeowners are thinking about fixing up or remodelling their homes, it’s always wise to educate yourself on signs of contractor fraud to ensure you don’t end up paying for work that never gets completed.

Following are five red flags that may indicate a contractor is not legitimate:

  1. The company does not list a number in the phone book. This may indicate a fly-by-night operation that will be here today and gone tomorrow. They may seem legitimate in the beginning but, as soon as you make your first payment for the job, they may vanish.
  2. Asks you to pay for the entire job up front. This contractor will be long gone well before your project gets underway. Or, worse yet, the contractor may have started the project, leaving you with a ripped up home and depleted funds.
  3. Only accepts cash. A legitimate business should have the appropriate financial accounts in place to accept a variety of payment options from clients, including personal cheques and credit cards. If a contractor only accepts cash, you probably won’t see them again once they receive a payment.
  4. Solicits door-to-door or telemarketers. Most legitimate contractors find enough work through word-of-mouth referrals and advertising. If they need to drum up business by going door to door, they probably are not an established, local operation. Chances are this contractor is running a fly-by-night business.
  5. Offers exceptionally long guarantees. The contractor may be making promises that can’t be kept solely to sucker you into hiring them for the job. The contractor could be inexperienced or may be running a fly-by-night business.

The best way to protect yourself from contractor fraud is to seek referrals from people you trust who can vouch for the contractor including friends, family, colleagues or your mortgage broker or real estate professional. Also, you could select a contractor that belongs to an association such as the Greater Vancouver Home Builder’s Association.

It’s also important to read and understand every word of a contract before signing it. If you don’t understand something, ask for clarification.

Also keep in mind that you should never sign a contract with a service professional who makes promises that sound too good to be true. Chances are, this contractor needs to create these incentives to attract customers. If that’s the case, the contractor’s record can’t speak for itself.

Be especially wary of contractors who try to scare you into signing for repairs that they say are “urgent”. Before agreeing to any additional costly repairs, seek a second opinion.

If you’re thinking of embarking upon some home improvements, feel free to call to discuss your financing options.


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Building your homeownership budget

Making the transition from renter to homeowner is likely one of the biggest decisions you’ll make throughout your lifetime. It can also be a stressful experience if you don’t plan ahead by building a budget and saving prior to embarking upon homeownership.

Budgeting is a core ingredient that helps alleviate the stress associated with money issues that can sometimes arise if you purchase a home without knowing all of the associated costs – including down payment, closing costs, ongoing maintenance, taxes and utilities.

The trouble is, many first-time homeowners fail to carefully think about their finances, plan a budget or set savings aside. And in this society of instant gratification, money problems can quickly escalate.

The key is to create a realistic budget based on your goals. Track your spending and make your dollars go further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula for figuring out how to best save your hard-earned money to invest in homeownership.

Following are three top tips to help you prepare for the purchase of your first home:

  1. Set up a savings account. You can deposit a predetermined amount into this account each pay period that you won’t touch unless it’s absolutely necessary. This will enable you to put money aside for a down payment and cover closing costs, as well as address ongoing homeownership expenses such as maintenance, taxes and utilities.
  2. Save up for big-ticket items. As you accumulate money in your savings account, you will be able to also save for specific purchases to help furnish your home – avoiding the buy now, pay later mentality, which can have a negative impact on your credit when you’re seeking mortgage financing.
  3. Surround yourself with a team of professionals. When you’re getting ready to make your first home purchase, enlist the service of a Licensed Mortgage Expert such as myself  and find a trusted real estate agent. Experts are invaluable as you set out on the road to homeownership because we help first-time buyers through the home purchase and financing processes every day. Experts can answer all of your questions and set your mind at ease. We have access to multiple lenders, and can help you get pre-approved for a mortgage so you know exactly what you can afford to spend on a home before you head out house hunting, while a real estate agent will be able to match your needs with a house you can afford. Both parties will negotiate on your behalf to ensure you get the best bang for your buck. And, best of all, these services are typically free. Experts will also be able to refer you to other reputable professionals you may need for your home purchase, including a real estate lawyer, home appraiser and a home inspector.