What YOU should not do after BUYING a House or Condo!

Credit-report

I was talking to a fellow Realtor in my mastermind group and once again a Buyer almost jeopardized their deal from closing.

What happened?

Here goes.  A Buyer was pre-approved for a Mortgage with a bank and was CMHC insured.  Everything is good and dandy!  The Realtor advised the Buyer "Not" to purchase anything significant and take on more debt.  The Buyer understood this.

This is where we as Realtors have to be EXPLICIT in our instructions to our Buyers.

What happened next is that the Buyer went to a department store and bought furniture.  The furniture purchased was one of those "Don't pay a dime until..." deals.

Anyways, the department store also offered the Buyer a credit card.  The Buyer accepted and got a credit card with a 10K limit.  The Buyer correctly thought they were not taking on any debt as they didn't have to pay for a long time and thought having another credit card wouldn't hurt.

But a week or so later the Buyer is informed that his home purchase will no longer be insured and the bank refuses to offer the loan.

Why did this happen?

By accepting a credit card (even if you don't use it), you have in effect taken out a "line of credit" - or debt.  In addition, this automatically lowers your FICO credit score.

Why is this a PROBLEM? 

You see... when you qualify for a Mortgage... the amount you qualify for depends on 1. Credit Score  2. Your Income  3. Your Debt 

So if you qualified originally for $200,000.  By accepting another credit card which effectively reduced your credit score you no longer qualify for $200,000 but maybe it is now $190,000.  In order for the deal to close you now have to make up the difference in cash!  Most people can't!  

So you see one lapse of judgement, or simply not knowing how mortgage qualification works; is the difference between you happily moving into your dream home or losing thousands you gave as a deposit.

Fortunately in this situation the Buyer found out more than a month in advance.  The Buyer cancelled the order.  Cancelled the Credit Card.  It takes a month for it to show up on the bureau and affect the credit score and hopefully the Buyer will be able to rectify the problem and get the funds they need to close on the deal.

So folks... what should you not do until you have literally CLOSED on your deal.

1.  NEVER BUY ANYTHING unless you use CASH.
2.  Don't accept ANY CREDIT... credit card, line of credit, etc.  that can affect your credit score and what you are qualified to borrow.

Have a question?  E-mail jas and he'll blog it if its a good one.

Jas Jagpal,BSc. York University Sales Representative
E: jasjagpal@rogers.com Cell: 647-272-6629  W: www.JasJagpal.com

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“Different commission rates, fees and listing and marketing services may be offered by other RE/MAX Franchisees and Sales Associates in Canada.” 
Remax Dynasty Realty Inc. Brokerage  Independently Owned and Operated.  Not Intended To Solicit Buyers / Sellers under contract. 
8 Shadlock St. Markham, ON L3S 3K9   O:905-471-0002

 

© 2010- Jas Jagpal, 

Markham Boxgrove Homes, Morningside Heights Homes, Scarborough Town Centre Condos, Toronto Real Estate: www.JasJagpal.com

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Posted on: www.1stoprealestate.ca : www.LinkToMorningside.com: www.MarkhamBoxgrove.com

 

 

Tagged How Mortgage Qualifications Really Work Jas Jagpal Remax Sales Consultant Never Accept New Credit when Buying a House What Buyers Should Not Do After Buying a Condo or House

Markham Boxgrove: Should you Borrow to Invest or Save First?

Should you Borrow to Invest or Save First?

 

A number of years back I would have said without hesitation save first!  that was before I was introduced to the concept of leveraging.   
Leveraging is: the use of a small initial investment, credit, or borrowed funds to gain a very high return in relation to one's investment, to control a much larger investment, or to reduce one's own liability for any loss.

 

The best way to understand this concept is by using an example.  I’ll use the purchase of a $300K condo since I’m in the real estate investing business.

 

Background Info:  You earn $50K a year and after subtracting taxes and personal living expenses you end up saving $5000 ($5K) for the year.  What could you invest your $5000 in?

 

Well the government would like you, along with millions of others to invest in RRSPs, TFSA (Tax Free Saving Accounts), bonds, etc.  Banks and private companies would like you to choose stocks, commodities, options and variety of mutual funds.  When choosing these options most of us would be happy to get 10% annual rate of return.  I know for many, myself included, that just isn’t the case.  Many are still looking to break even.

 

Now what if you invested in Real Estate.  How can you leverage a $5000 yearly saving and control a much larger investment and make money, while minimizing your liability.

 

Step 1.  You need a source of money you can borrow.  Either a low interest HELOC or a line of credit.
Step 2.  You would borrow the deposit money on your line of credit.
Step 3.  You would make interest payments with your yearly "savings” which become a tax deduction.
Step 4.  Wait until your condo gets built (3-4 years)
Step 5.  Assign / Sell your condo and bank the appreciation.

 

So a $300K Condo with a 20% deposit structure would require a $60K deposit.
The interest at 5% would be $3,000 a year.
Conservative appreciation at 5% would be: $15,000 a year.
Total Interest in 4 years is $12K and appreciation is $60K
So your return on $10K investment is ($60K-$12K) = $48K or 133% per year over 4 years.

 

What are the numbers of a traditional investment?
Suppose we are lucky and get 10% interest.
$5000 savings at 10% would give you $500 a year interest
Over 4 years you would gain a little over $2000. 
Invest $10K you would get about $4000 or so.

 

As you can see the difference in the gain on your investment of $48K or $4K is like night and day.  Even if you were ultra conservative and saw gains of $25K on your real estate investment you are far better than the market.  So what would you want your money invested in?
As you can see by leveraging your money and holding a much larger investment you can vastly grow your money than if you were to invest using your own savings.  In addition you did not tie up all your savings and are able to use it to invest in another condo or use it for emergency expenses.  

 

Are you still confused?  Give Jas a call and he will be happy to sit down with you and provide you a no obligation consultation and help you create your real estate investment strategy.

 

By the way… email me at jasjagpal@rogers.com and stay updated to VIP condo investment opportunities.  Also if you are looking to buy or sell your condo, or assign your condo, call me and I’ll be happy to assist you.

 

Jas Jagpal,  Sales Representative, 647-272-6629
Remax Dynasty Realty Inc. Brokerage
Tagged Borrow or Save to invest? Condo Investment Numbers Encore at Equinox Monarch Condos Jas Jagpal Remax Sales Consultant Learn how to invest in real estate Leveraging your investment money Markham Boxgrove Toronto Real Estate Investments preconstruction condo investing

HST (TAX)- What Sellers Need to Know today!

April 8, 2010 by 1stoprealestate.ca

I just finished writing the blog and my computer froze… I should have known better to write straight in the blog program without saving it.  Anyways… having vented, let me tell you how HST will affect Sellers of Real Estate and in another post I’ll mention the affects on Buyers.

So What is HST? – 13% Tax (Harmonizing of GST (5%) and PST (8%) – hence HST

When does it take affect? – July 1st, 2010

HST will apply on all current services you pay GST on.  So you will pay on Realtor commissions, Lawyer fees, Inspections, Maintenance, Moving Costs, etc.

Transitional Rules:

1.  If you list May 1st and close July 5th.  As long as 90% of the services related to your Real Estate transaction (open houses, getting mortgages, inspections, title search, etc.) occured prior to July 1st… then you won’t have to pay HST just the GST.

2.  If you list May 1st and close Aug 1st.  Since the 90% rule won’t apply you will now pay on a weighted scale.  2 months (2/3) GST and 1 month (1/3) of HST on all your closing cost (commission, lawyer fees, etc.).  All costs incurred prior to July 1st would only have incurred GST.  Movers would have charged entire HST.

How much will you be paying extra?

Lets calculate using an average GTA price of $400,000 for a single family house.

Seller would pay: 
1.  Commission 3.5% – 5% = $1120 to $1600 more
2.  Lawyer ($1000 – $2000) = $80- $160 more
3.  Moving ($1000-$2000)=  $80 – $160 more
4.  Pre-inspection ($300-$500) = up to $40 more

So Sellers are looking at around $2000 added to closing costs.  Nothing too significant that will cause a dent in the Toronto market.  The Toronto Land Transfer Tax was significantly more expensive and had no affect.  I think surrounding municipalities will probably add their own form on Land Transfer Tax in the upcoming 3-5 years.

In my next post I will talk about how GST affects  Buyers.

Jas Jagpal, Remax Real Estate Consultant – 647-272-6629  jasjagpal@rogers.com

Have real estate questions or thinking of investing in Condos, email me and get VIP discounts and 1st choice with new condos.

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Tagged Average HST paid by Sellers on sale of Home Calculating HST on Home Sales HST HST Transitional Rules HST on real estate services HST- July 1st Harmonized Sales Tax How HST affects Sellers in real estate transactions Jas Jagpal Remax Sales Consultant What is HST?
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