Can't afford to buy investment real estate? Think again!

We meet people all the time that wish they could get into the lucrative residential rental real estate market but just don’t see how they could ever afford it. After all, you need a minimum of 20% down! That’s a far cry from the 5% needed when buying your personal home. But for most, there is a way. And it’s quite simple…

The first question is “Do you own a home?”. If so, “How long have you owned your home?”. An answer of yes to the first question and more than 2-3 years to the second are the key to unlocking this lucrative investment.

If you are a homeowner with a few years of home ownership under your belt you have built equity in your home. And it is likely that your lender will lend you up to 80% of that equity at a very low interest rate via a Home Equity Line of Credit or HELOC. Unlike a personal home where you cannot borrow the necessary 5% down, when purchasing a rental property you can lend yourself the entire downpayment via a HELOC. That means you can put the equity in your home to work making you more money! It’s really that simple.

And we have done this ourselves. We just closed on our fourth rental property with a tenant moving in next month. What other investment has someone else pay for the whole investment while you reap the rewards? None that we are aware of. The tenant pays for the downpayment, taxes, mortgage payments and any possible condo fees.

The great thing about owning rental properties is that they are building equity as well. And before long you can put HELOCs on these properties as well and use those to buy additional properties. And in no time at all you will have your own little real estate empire. Chances are if you know someone that has accumulated substantial wealth, a large portion of their portfolio will be held in real estate.

If we look at Woodstock as a place to invest in residential real estate, the numbers tell a wonderful story. Looking at numbers from the Woodstock/Ingersoll Real Estate Board, we see that the average sold price in Woodstock in June 2020 was $484,948. That is up 43.6% from June 2017. So, in 2017, the average home price was $337,707. That’s a difference of 147,241. If you are buying a $300,000 condo townhome, a 20% downpayment is $60,000.

And voila, you are in a position to purchase your first rental property.

We recently had a young couple who were first time buyer do exactly this. We sold them their first home three years ago and it took every penny they had worked so hard to save just to get that 5% down. But a few short years later they had a HELOC and purchased their first rental property and are excitedly thinking about when they will be in a position to purchase their second. And it won’t take long!

If this has piqued your interest we are always available to discuss your options. We have experience working with all types of real estate investors and love helping people on the path to building their own empire. We would love to help you get started too!

August was a HOT month!

We kept hearing rumblings that the hot market of the last few years was drawing to a close. The stats for August from the Woodstock & Ingersoll Real Estate Board tell a very different story. The cause for some of the rumours were caused by a select few in the industry. There have been some listings over the last couple of years that were listed for a substantial amount under value. This was done less to spur multiple offers (as a small amount under listing would have had the same effect) and done more as a selling tool to get additional listings. Realtors could go to the next listing appointment and tell stories of how they sold houses for 20, 30, 50 up to 90,000 more than list price. The truth of the matter is that this was a game of smoke and mirrors as most listings were selling  by as little as a few thousand and up to 10-15 thousand over value on average. And the value is what matters!

Now the industry has to dig out from under these stories as sellers are routinely expecting to get tens of thousands of dollars over their homes actual value and the ones that try this approach suffer and sit on the market. Properly priced listings are moving quickly and offer higher year-over-year gains than at any other time over the last few years!

Here are the important stats:

The average residential sale in August 2017 was $325,541.89. In August 2018 that was up to $387,897.78. An increase of just over 18%. The increase from August 2016 to August 2017 was just over 7%.

August of this year is the biggest month since July of 2017.

There were only 113 new residential build permits for 2018 in Oxford County. That is way down. In 2o17 there were 207 and 211 in 2016. Less competition from builders means more buyers for the resale market.

The list to sale ratio (the number of houses listed in a given month compared to the number sold in the same time period) for Woodstock in August was 85%. That is a great number. 65 houses listed and 55 sold. This proves that there are buyers for listings that are properly priced. In Ingersoll the number is even crazier. Their ratio is 140%! 15 houses listed and 21 sold. These are the kinds of numbers driving a seller's market and pushing prices higher.

Numbers like these are what homeowner's want to see. And if you are looking to get into the market, now is the time as the numbers all point to a continuing seller's market meaning the sooner you get in, the sooner you can start making money on your purchase. And if you are looking to move up to a larger home, the time is now. Homes go up in percentages, so the $300,000 and $600,000 homes both went up around 18%. Which means the gap is growing. And the same as a new homebuyer, the sooner you move up to that dream home, the sooner you can be putting the gains on that larger home in your pocket as opposed to paying someone else those gains when you decide to make the move in the future!

If you have any questions about the info in this article, or any other questions you have about buying or selling, please reach out to Tracey or Marshall today.

December a real estate gift

It will come as no surprise that the local housing market has been on a rocket ride for the better part of two years. A large chunk of this was due to buyers from the east travelling down the 401 and 403 in search of the Canadian Dream. And they found it in Oxford County! Cheap housing compared to the markets they were leaving as well as so many of the amenities they had become accustomed to. 

We noticed a significant reduction in the amount of out-of-town buyers that we were seeing in our Open Houses in August and September. There was also a steep decline in requests for home showings from this particular pool of buyers. This can be most readily attributed to uncertainty on the part of buyers and what was going to happen with the Federal governments new mortgage rules. Buyers wanted to make sure that if there was a decline in average home values, that they wouldn't be left holding the bag. What actually did happen was the return of a more balanced market. Home values held and multiple offers became more of an anomaly instead of the norm. 

The Federal stress test, in very simple terms, means that a buyer with less than a 20% downpayment would need to be approved at a mortgage rate about 2% higher than what they would actually be borrowing at. Your lender offers you a mortgage rate of 3.44%, you would need to qualify at roughly 5.44%, even though you would be borrowing the money at the lower rate. The result is that buyers can borrow about 20% less than they could under previous mortgage rules. This is the governments attempt to make sure homeowners can afford the homes they are purchasing when interest rates inevitably rise.

That brings us to the Gift this December appears to be. As of January 1, 2018, the stress test described above will apply to ALL consumers borrowing money for a mortgage (except credit unions and private lenders). There is also a predicted .5% interest rate looming in 2018. To avoid the stress test, buyers just need to have a mortgage deal in place by the 31st of December.

If you are thinking of selling, now is a great time to enter the market, even though traditionally Christmas is a slow market. These looming changes have brought Eastern buyers back to Oxford County at levels not seen in several months. The other upside is sellers can be approved on the purchase of their next home with the current mortgage rules if everything comes together in December. The deals do not need to close in December, they just need to be firm sold deals and can close in 2018.

If you are a new buyer thinking of getting into the market, and you have done all the hard work of saving a 20% deposit, buying in December will allow you to purchase 20% more home than you will be able to purchase under the impending new rules. You still have an opportunity to put those hard earned savings into your new home!

If you have any questions about this article, or any other Real Estate questions, please contact a member of The Sherman Group. We are always here to answer all of your questions and concerns.