BC HOME Partnership program – the effect to the Vancouver housing market

Thanks for everyone support there was a massive increase in views on my last article of the BC Home Partnership program. I even see people shared my linked on Revscene.net and quoted and discussed my post which is kinda shocking to me as I thought they are only about cars (apparently they have a “Vancouver’s Real Estate Market” forum).

This is a follow-up blog on my earlier post this week (you can view it here):

https://colinngblog.wordpress.com/2017/01/14/bc-home-partnership-program-the-true-cost-of-the-program/

Anyways, just to illustrate how fast government can move the goal posts to mortgage lending, the day after people can apply the BC Home Partnership program in which CMHC insurance is a requirement, CMHC announced they are increasing premium by up to 92%!!! Look for a rush of buyers trying to close just before Mar 2017.

I have pasted the table here and the link from CMHC for your easy reference. I am sure government will hide this under the radar until last minute then media and your mortgage experts will come out in full force discussing this.

https://www.cmhc-schl.gc.ca/en/corp/nero/nere/2017/2017-01-17-0830.cfm

cmhc-increase-2

So the rules of the game are out, how should we play this as a savvy condo investor or for homeowners who wants to maximize the capital appreciation on their condo purchase in the next few years?

First of all, by reading my blog you are already getting the latest news before others, you are already ahead of the game.

All else equal, this BC HOME Partnership program will drive up demand for housing for sure. Despite the fact that Colin showed you in my previous blog how paying for CMHC insurance is not a good deal, most people will not see my blog and already submitted their applications.  Also note this program will end Mar 31, 2020. From now until Mar 2020 there will be more people trying to save up and leverage their way to their first home ownership. The majority of these people will be targeting at the more affordable range of the condo market as they are likely tight on downpayment savings and do not have sufficient income to qualify for a large mortgage. When they are condo hunting they will focus on one bedroom between $300k-$400k, or two bedrooms up to $500k. This program will put upward pressure on prices for these units and they likely will experience above average price appreciation in the next 3 years until 2020.

Also if you are buying presale looking to resale at completion, make sure the completion date is before Mar 2020 as there will be a rush of buyers trying to beat the Mar 2020 deadline while driving up prices. Typical highrise condo takes 2.5-3 years to complete so your window of opportunity to buy pre-construction pre sale is for the next 6 months only. Typical lowrise condo could take 1.5-2 years to complete so your window of opportunity is longer however lowrise appreciation is always lower than that of highrise, all else equal, so please keep this in mind.

So Colin what if I don’t plan to flip, I want to buy and hold (rent out)?

All else equal, once the program ended in Mar 2020 and with the higher CMHC insurance premium still in affect, there will be more renters that will stay put as renters. Look for a strong rental market after Mar 2020 with upward pressure on rents. In this case, you do not have to worry so much about pre sale condo completing before Mar 2020. However if you are planning to rent your condo long term, make sure you choose a condo that will maximize cashflow. I’ll write a blog in the future on how to choose a condo specifically for rental purposes (ie ideal size, number of bedrooms, level in the building, amenities etc).

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**Disclaimer: Any comments on this site are my personal opinion only. Always consult professional when making buying decision. Writer is not responsible for any errors or omissions, nor responsible for any financial losses that anyone might experienced as a result, deemed directly or indirectly, from any recommendations in any articles in this blog.**

 

 

BC HOME Partnership program – the full cost of the program (to the purchaser)

**Updated on Jan 17, 2017**

CMHC just announced they will increase premium as per table below:

increases are pretty substantial with one category increased by almost 100% (from 1.25% to 2.4%)

cmhc-increase-2

*************************************************************

I am sure at this point, either you are into real estate or not, you have been brain washed by the Liberal government via various media channels like TV airtimes, newspaper ads, cool looking websites (using our own tax payers money of course) about this program.

Since any prospective home buyers must already seen all the benefits, I’ll just list them here again without further explanation. (Really, if you want more info about the benefits/advantages of this program, just Google “BC Home Partnership program” and there will be 69,000 sites/articles by government, realtors, mortgage specialist, bankers, and Generate Squeeze talking about this. Not going to waste my time writing status quo stuff.

  • purchase price up to $750,000 and must be owner occupied
  • Up to 5% of purchase price or $37,500
  • interest free!
  • payment free! (first 5 year)

Free money from government right? no interest right? nothing to lose right(if repaid without 5 years) right? everyone should get it right? no brainer right?

If you noticed the last criteria on their official website, which interestingly is also the least talked about point (I wonder why), says “only available to eligible homebuyers requiring a high-ratio insured first mortgage for the purchase of their home.” Colin what does that mean? This means you need to borrow AT LEAST 80% of the purchase price. If you are a mortgage nerd , which I suppose most of you aren’t, you know there is a premium you need to pay to CMHC (mortgage insurer) to protect the lender in the event you default. Read again, this premium is to protect the lender only, not you. Anyone who borrow more than 80% are deemed higher risk and hence this requirement. This insurance is unlike say ICBC where the premium you pay is to cover you the driver, or is unlike the optional mortgage insurance you hear about which protect you by making your mortgage payment in case you lose your job or payout your mortgage if untimely death.

Note: CMHC minimum down payment requirement is 5% on the first $500,o00 & 10% for the portion between $500,000 to $1,000,000.

Let’s try to find how much is the required premium in order to quality this program. I have to use their sample online qualification/calculator. Only then I can find out the often unspoken-for cost of this program: (I took a screen shot of the calculator, it’s lllloooooooooonnnnnnggggggggg, if you are short of time, skip the screen shots and continue)

home-loan-calculation-1home-loan-calculation-2home-loan-calculation-3a

If your eyes are as bad as mine, I have copied the important point here,

To be eligible for a BC Home Owner Mortgage and Equity Partnership loan, you must first be pre-approved for an insured mortgage from a National Housing Act approved lender for a high-ratio mortgage. ….. Insurance premium rates range from .6% to 3.60% of your mortgage amount. (Actually as per table below this appears to be a typo, should be 3.85%, anyways…)

I have located the CMHC premium rates table here for you (which I guarantee will not be given to you by the Christy):

cmhc-1

Further fine print here says we are only treat them as equity (or down payment) if money is more “non-repayable grant from federal/provincial agency”. As you already know this loan is repayable starting in year 6 so CHMC will view this 5% contribution from government as “non-traditional down payment”. This basically bump you down one row of the table above, putting you in next level of premium bracket.

It’s really interesting that the above online calculator example stopped at the down payment requirement. Let me continue for you here:

Purchase price $750,000

Your downpay $25,000

Government matching $25,000

Total eligible down payment is 3.33% ($25,000/$750,000), which might put in at the 3.85% premium segment.

Total premium required is 3.85% x $700,000 = $26,950!

Sure they are happy to let you roll this into your mortgage, which in this case will increase your mortgage from $700,000 to $725,200. Lender will say to you no big deal, it’s spread-out over 25 years, your payment only increase by like a cup of starbucks a day.

But if I show you how much $26,950 actually is visually this way

100-bills

you might have second thought. (yes I know I am missing a $50 bill here but it’s hard to google a photo with stack of $100s with a single $50 on top you know)

Compare this maximum premium of $26,950 that you might pay, with the maximum benefits you can get from this program (which is max $37,500 interest free for 5 years), assume 4% mortgage interest you don’t have to pay for 5 years is $37,500 x 4% x 5 = $7,500.

In this example they are giving you $7,500 while making you pay $26,950 more to join home ownership.

 

In conclusion:

My personal opinion is that the government should not target this program for high ratio borrowers only as they are subject to a large insurance premium if they want to take advantage of this program. Basically as per example above the interest savings (subsided by tax payer) might all will go to cover the insurance cost of the mortgage.

My advice to all is that the roll out of this program should NOT be a deciding factor to get into home ownership or not. Unless home ownership is absolutely necessary right now, try to save at least 20% down before buying a property to avoid the insurance premium. If you only have 10% down to the place you like, I would recommend buying a cheaper property so that your 10% is actually now 20% of this cheaper property, and go from there. This way you can avoid the insurance premium all together.

Hope you find this information useful. Feel free to message me if you have any questions.

Otherwise k thx bye.

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**Disclaimer: I am not responsible for any errors or omissions. Nor am I responsible for any purchasing decisions that may or may not arise from reading the content here. **

The difference between “Apartments” and “Condos”

I see media often mention these two terms in real estate related articles/news. A lot of people are unsure the differences between the two. However I do not think I saw any mainstream media outlet explain the two definitions. I am here to clarify these two words as they are referring to two mutually exclusive property types and cannot be used interchangeably. As a professional real estate investor, one must know the differences between the two.

My friends always tell me when you are unsure about something, just Google it, because “Google knows”. So I google search “Apartment Vancouver” and “Condo Vancouver”. Here are the results:

Apartment Vancouver:

apartment-wrong

Condo Vancouver:

condos-wrong

Now you know the differences? I bet you can’t, but its okay because google search completely failed in this case. Most of the “apartment Vancouver” photos are actually condos, in fact almost all, if not all, the photos above are condos.

So here are the real photos of typical apartments:

And condo are what most people think they are, they are the 5 buildings in Station Square, 3 buildings in Brentwood, and most of the newer highrises in Coquitlam center are all condos.

To keep the definition really simple, apartments are owned by a single person/entity (single strata), whereby condos ownership are divided into each unit (strata lots). In greater Vancouver, you can usually tell with 99% accuracy which buildings are owned wholly by single ownership. They are typically 2-3 stories walk-up building (meaning no elevator). You will see these buildings all over Metrotown South of the skytrain track. These are the ones developers are buying and turning them into highrise condos. Back in the 1970s government when my parents are still little kids, in an effort to create more affordable housing, provide many incentives for builders/developers to build these types of units. They have since stopped these incentives. This is why you see most of these have similar designs and many of them are in their early 40s.

Only reason I said only 99% accuracy is because there are some high rise buildings that are purpose built rental from the start and typically owned by the developer or REITs (Real Estate Investor Trust) that has lots of money and just buy the whole tower for their portfolio. For example, the 4 older high-rise towers (528 rental units) near Lougheed Mall was sold for $100,000,000 in 2013.

apartment-4

On the other hand, there are those 2-3 stories low rise what was once single ownership but owner “stratified” the building and now sells on MLS as individual units. Units in this building now classified as condos. The only reason apartment owners do this is because they feel they can get more value by selling individual units in the open market than selling them as single unit building.

But recently, there has been movement to “reverse stratified” their condos back to apartment single ownership status near development area (say metrotown). It is because now individual owners bend together hopefully to combine ownership to increase it building’s appeal to be targeted by big developers as it is much easier for developer to deal with single owner on an apartment building than to due to 20 different owners in a “stratified” building.

If you noticed the apartment photos above they are actually sales listing. Yes, if you have the $$$ you can purchase them similar to how can you purchase condo. It’s a whole different investing arena which, if you tried hard enough, can provide higher AND stabler cash flow (rents). Reason being they target the lower end of the rental markets and there’s a much higher demand for these as might notice there’s likely some affordability issue in Vancouver.

If any of you are interested to learn more about investing in apartment buildings, feel free to let me know and maybe I can write another blog on it. It’s not as difficult or the capital requirement are not as high as you think. If you have enough cash to buy (with mortgage) a $2 million east Vancouver house, you can afford to invest to invest in an apartment building that can generate a much higher cash flow.

Until next time!

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Personal Finance Series 1 of X – Importance of checking your own credit and how to do it yourself

***Disclaimers: I am not responsible for any errors or omissions in my content. Nor am I responsible for any potential negative effect on your credit for following this process which I am currently not aware of. Everything here is to the best of my knowledge only. All I can tell you is I follow this process to self check my credit once a year for many years already.***

 

Before I begin, I just want to say I didn’t just make up the location of Colinville in my last post. Colinville is a real place and is located right here in Canada. I have proof from multiple legit sources:

It’s a small down in Ontario and it’s quite cold there in the winter as you can see, hence my example I only used only 10 families live there and homes are only $100,000 each.

Today I want to talk about something very important and relevant to everyone that everybody should know about, it is the status of your own personal credit. Why do I want to know the current status of my own credit you ask? As a professional in the finance industry I have pulled/reviewed/granted credits to many clients from people with low net worth to ultra high net worth. I think I have seen almost every possible scenarios there is. I am sure you have heard about the health of your credit status plays a very important role in lender’s decision to weather or not to grant you credit (ie credit cards, car loans, mortgages, etc), and at what rate. With so many sub-lenders out there nowadays, while the old saying “as long as you have a pulse, anyone can get approval for credit cards and car loans” still applies, most likely they will just charge you a much higher interest rate for it.

Being this is the very first of many blogs of personal finance, I’ll just show you step-by-step on how to obtain your complete credit profile. Unlike most things in life, you have nothing to lose in this process, but everything to gain. And this is why:

  • it’s completely FREE!!! (just like salt in Fire Stations in Vancouver on Jan 4 & 5)
  • it does not hurt your credit score*
  • it only count as a “soft” credit search request* (what this basically means is that next time a lender pull your credit, they will not see someone (yourself in this case) tried to look at your credit) But lets be honest, even if it shows as a credit search request, it will show as yourself did it, and lender will know this was not a credit-seeking request.

*This is to the best of my knowledge only

Just want to point out this report will only show all your personal credit items (called “trades”) but will not show your credit score. This is unlike some company offers out there that say “it’s free and easy to find out your credit score”. I have not personally used their methods so I cannot comment on them. But the process I will show you now is directly from one of biggest credit agency in Canada called Equifax (not from third parties which eliminates any potential bias as Equifax is not in the business of selling you a loan).

Here is the direct link to the one page PDF form that you will need to fill out and fax to their number. It will take about a couple weeks and they will mail to your address. It’s super old fashion way of doing things I know, like who does fax and snail-mail nowadays right?, but it’s free so I am not going to compliant, just like most people didn’t complaint about long wait times for free salt (the ones that eventually got the salt I mean).

http://www.equifax.com/ecm/canada/EFXCreditReportRequestForm.pdf

And here is the screenshot of the webpage of where this link is located so you know I am not giving you a secret link and steal your personal info. I have to say this is kinda hidden on their website as I feel they want to you buy their monthly credit monitor products or premium credit report which I feel is unnecessary.

equifax

Once the letter arrives, you will see a full copy of your current credit history with all your current and historical trades (aka credit items). Even some of the trades that are closed it could still be showing on your report up to many years after.

You might say hey Colin I am fully aware of all the trades I currently have and I know all is up-to-date so there’s no benefit for me to pull my credit right? waste of time in this case right? I can tell you from my personal AND professional experiences, more often than not you will find some surprises in your report. For example, most people will know they currently have a mortgage, and a car loan, two credit cards and a line of credit which is cool. But how certain are you about those department store credit credits that you opened in back in 1990s in store and used once so that you got that 10% or $10 off your first purchase that you didn’t bother to cancel? or that time in 2011 you have a statement dispute with a cell phone company and you end up not paying and they closed your account, or 3 years ago you have an unpaid parking ticket that you just assume you got away with it because they never follow up for payments again? Or sometimes bad comments are added to your report by error.

As an experienced lender, I can tell you the above sample situations do show up on people’s credit report more than you think, and this might greatly effect your credit worthiness in the eyes of the lenders.

If you are comfortable you may now go order that report and in my next Personal Finance series2 of X, I’ll show you what action you can take so you will be in best credit shape possible in your next encounter with your lender.

FYI I follow this process for everyone in my family once a year as I felt it is important to know exactly what’s on my credit, and if there are any unfavourable errors on it.

If you have any questions about this, feel free to comment below and I’ll get back to you.

If you feel this article is useful to your friends, please like and share =)

Until next time!

 

 

Property Assessment vs Property Tax Amount – common misconceptions

Disclaimer: All info there are to the best of my knowledge. I am not responsible for any errors or omissions.

Not sure about you guys, the last few days from the moment I roll off my bed until I go to sleep, I have been over hearing people saying things like…

  • “omg, my assessment went up 35%, how can I afford another huge increase to my property taxes”
  • “this is another cash grab by the City”

Words from the street is that no one is happy about their assess value being increased period.

Here is the link to search your BC assessment value:

https://evaluebc.bcassessment.ca/

bcaa

I am here to clarify the most common misconception between the relationship of property assessments & property tax amount.

Your % increase in assessed value will NOT equal to your % increase in property tax year over year.

If I can provide some comfort for recent first time home owners, this is it.

The only two factors that will affect/determines the amount of your property tax are:

  1. The budget that each City determines annually on how much they need, usually slightly more than inflation, unless you live in City of Vancouver where they decided to increase budget to save lives.
  2. The RELATIVE changes of your assessed value between your home and all your neighbours in the City.

Let me give you a simplified example on how this works. Say you live in City of Colinville with 9 other neighbours. In Year 2016 Colin the Mayer decided the budget to run Colinville is $100. And Colin assessment all 10 homes equally at $100,000 each. Each home owners pay 1/10th of the budget, or $10, since all assessed value are same.

In 2017, Colin the Mayer use his sole discretion and decided this year budget will be $200 (a krazy 100% increase!). The past year Colinville experienced a huge housing boom and Michelle Wu sold all 9 of your neighbour houses to foreign buyers and they teared all 9 homes down and build 9 monster homes. Because of the new construction these 9 homes now have assessed value at $500,000 (from $100,000). Any you average Joe still live in that old heritage home that are now assessed at $150,000 (from $100,000) due to the overall market increase.

Now you are thinking, oh crap, Colin the evil Mayer unfairly increase my assessed value increased by 50% year over year so he can charge me 50% more tax in 2017. But when you check you tax bill expecting to pay 50% more in tax and noticed Colin only billed you for $6 (a 40% decrease from last year at $10!!!!) What happened?

Your tax rate in 2017 = City’s budget of $200 * (Assessed value of your home $150,000) /  (total assessed value of all 10 homes in Colinville $4,650,000) = $6.

Here are the findings:

  • The City has zero incentive to over inflat any assessed value (both on an individually basis or on a combined basis). Since everyone is pissed off with high assessed values, I should just call Robbie to reduce everyone assessed value by 50% to make everyone happy, until June 2017 when they found out they still have to pay same amount of tax to cover the full budget. LOL.
  • It is the relative changes in assessed values to your neighbours’ that determines changes to your tax bill
  • (I like this one I’ll put them in bold) Whenever you hear your friends in the same City tell you how they felt their assessed values are too high and want to fight the City to get a lower assessed values (I am guessing is in an attempt to pay lower tax?), if successful, it will be AT THE EXPENSES OF EVERY OTHER HOMEOWNERS IN THE SAME CITY). This is a zero sum game, your City is not going to collect a penny less in tax, as a whole, if they lowered anyone’s assessed value, your tax bill is just a pro-rata share of the budget.

I hope this provide some clarifications out there.

Until next time!

***Added in May 2017***

One more factor that will affect your property tax due: the changes in numbers of households in your city. This is because the more new residential developments happening in your city, that will mean more people will be there to share some of the costs such as road maintenances, recreation spaces, admin services etc.

How to pick the ideal direction when buying a pre-sale condo.

**Disclaimer: Any comments on this site are my personal opinion only. Always consult professional when making buying decision. Writer is not responsible for any errors or omissions, nor responsible for any financial losses that anyone might experienced as a result, deemed directly or indirectly, from any recommendations in any articles in this blog.**

With the hotness of Vancouver condo pre-sale market, I always advise my clients to do their homework before the scheduled presale date/appointment to ensure they get the best units they want.

Which direction you want your condo to face really depends on your life style and personal preference. In this post I’ll explain which direction you should pick based solely as an investor point of view, with decision based on maximum resale value of your condo.

In my analysis below, I assume the subject condo tower has unobstructed views in all directions located anywhere in Greater Vancouver Area. (because it is obvious if there’s another tower existing or to-be-built in that direction, you will want to avoid that.)

First of all, all condo units in Greater Vancouver Area facing South will get all the sunlight exposure. And all the units facing North will NOT have direct sunlight into their units any time of the year. (You can confirm my findings by checking out any condo on a sunny day at noon) East facing units will get sunlight in the morning and west facing will get sunlight at sunset.

In addition, the largest ethnic group that buys pre sale condos (and the same ethnic group will most likely will buy it off you when you decided to sell your unit) prefers sunlight, particular they like sunlight in the morning. If you go to presentation center on 1st day of selling, you will notice all the south facing units get snapped up first, with SE being the most popular direction and SW being the 2nd most popular direction.

This photo was a live update few hours into 1st day of sales for one of the project. The units are shown clockwise starting from S, S/W, W, W/N, N, N, N/E, E, S/E, S. You will noticed both S facing units (most left and most right columns) are most popular, and the N facing units (the middle few columns) are much less popular.

img_1361

In this case if you came to me before and show me the floor plan and ask for my advise, I would have told you go after the S, S/E, or S/W units as their will be the most popular. Just like anything in life, the most popular an item is, the higher price people are willing to pay for it. From all the pre sale pricing I see, many times I felt the developer did not incorporate the full “south facing premium” in its initial pricing. This has resulted in very similar pricing for an equivalent unit facing either north or south direction.

I can ensure you, all else being equal, all units that has south exposure will fetch high re sale price as it will have higher demand than equivalent north facing units. If you talked to me and picked a south facing unit, you are already at least thousands ahead than the investor who chose the north facing unit.

So you might want to ask, hey Colin if both SE and SW facing condo units are same plan/price, which side should I choose? I’ll say if the tower has air conditioning, go with SW. If no air conditioning, I’ll recommend SE as SW might get too hot in the afternoon. Some of my clients told me they could not even nap during the day and some has to put up cardboard to block the sunlight!! (which is against strata bylaw btw)

Word of caution, I always tell my clients to think twice before buy units that facings main road or, even worse, skytrain track. Nowadays I felt units that should be very tough to sale are snapped up by buyers almost instantly for fear of missing out. I always remind my clients the market will eventually cool down and those facing the “wrong” directions will take that much longer to sale and also at a lower price, a double whammy. The perfect example of this was all the towers near Joyce station. Back it the days I was shopping for a unit there when the market was still normal. Those north facing units took forever to sell as they have no sunlight exposure AND face the skytrain track. On the other hand the south facing units are selling much faster and at a higher price too.

Another benefits of south facing units is that statistics have shown units that face south incur lower energy cost which I suppose is due to above average sunlight.

For those who haven’t seen, this is the view of my little condo facing SE, which tons of sunlight which I like very much.

img_8242

I hope you like my first ever post on my first ever blog of my life. Any feedback is welcome.

Happy belated New Year!!

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