The spring market in Canada is starting to heat up with record low inventory. Buyers have started to come back, as for the first time in the last few months Bank of Canada has not increased interest rates.

In fact, Royal Lepage has adjusted their national aggregate home price forecast to increase 4.5% year-over-year in Q4 2023. This is an opportune time for home sellers waiting in the sidelines, to finally start getting their home ready for sale and look into renovations.

When selling the place you’ve called home for the past five, 10 or 30 years there is always one question that comes to mind: How do I get the most money back on my home?

How can homeowners increase the ROI, or return on their investment? There are a ton of tricks and tips to increase the ROI when selling a home, but the number one piece of advice is to look into hiring a Real Estate Agent.

The right Real Estate professional can assist in setting an appropriate asking price which is influenced by the season, annual trends, neighbourhood and amenities offered in the area. They can also help with other things like organizing showings, and offering invaluable advice about possible projects that can be completed to upgrade your home and also increase sale price.

Other ways to ensure you are increasing your investment in your home upon selling is by putting some money back into the house before the sale sign is even hung.

Who is buying?

Speaking with your hired professional and by taking note of the demographics in the area can help you determine your target audience. Who will be looking at purchasing your home? A young family? An expanding family? A couple looking to retire? Investors? Perhaps it is some people who are looking to flip the property?

Learning your target demographic can ultimately save you from investing money into big projects that will do nothing to return on your investment. “There are a lot of buyers who just want to buy a home that is turn-key. Updating rooms like the kitchen, will have the greatest impact for them. However, you need to know who your buyer is so the upgrades will align with their wants and needs.” says Terry Osti, award-winning, REALTOR® at StilHavn.

Web appeal is the new curb appeal

Forbes reports that it is just as important, or more so, to have a strong web presence when selling your home as it will bring interested buyers to the door. Senior director of PR at Realtor.com, Julie Renyolds told Forbes that ads featuring walk-through tours are clicked on 150% more than ads without them.

Curb appeal still a good investment

HGTV says that curb appeal is still just as important as ever. After all, you can only make a first impression once.

Ensuring cracks in sidewalks and driveways are patched, windows and doors are caulked and door knobs, locks and hardware are upgraded are low cost ways to boost the return on investment upon selling.

Taking that extra initiative and planting flowers and perennials in the garden can also have a lasting impression and increase the value of the home. Interior designer Brittany Farinas of House of One told Forbes.com that adding some greenery can give the outdoors a whole new look.

New siding, although a little more costly, is reported to rank high on the cost vs. value report according to HGTV. According to Forbes.com, homeowners can expect to pay between $1,000 to $16,000, depending on the size of the home and the type of siding material used, but it will not go unnoticed.

Sound structure is key

Interested buyers aren’t going to be as thrilled about an upgraded kitchen if the basement is flooding due to poor plumbing or cracks in the foundation.

HGTV says that investing that facelift money into ensuring the roof is in good repair, the foundation is sturdy, the furnace is functioning properly and all electric and plumbing is up to code will ensure the asking price won’t plummet in order to compensate for the necessary repairs.

Replacing windows can cost around $15,000 for a 2,000-sq-ft home with new vinyl windows, but RE/MAX predicts a return on investment of 75%.

Focus cash on bathrooms & kitchen

The kitchen and bathrooms are where a lot of time is spent in the home and architect Steve Straughan based out of Los Angeles’ KAA Design Group says they are the areas of the home that interested buyers can tell if money has been well spent.

According to RE/MAX, kitchen renovations such as countertops are one of the top three changes that lead to a high return on investment. Countertops can be expensive, but $3,000 stones such as granite or quartz can make a huge difference. To further elevate your kitchen, spend around $5-10,000 for stainless steel kitchen appliances. Kitchen renovations typically have a return on investment of 75-100%, usually the highest ROI.

Bathrooms can often always use a facelift — and, for certain, a deep clean. Every bathroom is different, but it is one of the main focuses that buyers look for in a home. Renovations can vary, but having a vanity with marble countertops or a frameless glass shower are elements that can draw buyers. A tip recommended by RE/MAX is to analyze your bathroom and figure out the strengths and weaknesses of it. A typical bathroom renovation is between $5-$15,000 and can have a return of 62%.

Updates and remodels should focus on creating open and inviting spaces and one of HGTV’s tips is to skip that soaker tub and put in a grandiose walk-in shower — or steam shower. After all, who really has the time anymore to take lengthy soaks often enough to justify the space the tub takes up.

Creating additional space

Does the home have an attic with dimensions that would allow the creation of an additional bedroom or office space? Can you extend the deck or create an outdoor living area or sunroom? Can the basement be finished and transformed into a cozy living space? Adding more functional spaces in your home can make it look larger and eliminate any unused spaces. Forbes predicts that the average cost to finish your basement is $22,850 in 2023.

HGTV says keep other homes for sale in the area and your target audience in mind because you don’t want to renovate your home to the extent that you price yourself out of your market.

Go Green

Concentrating on making the home energy efficient with better insulation, window and door replacements can not only increase your ROI when you sell the home, but you will also notice instant savings on your energy bills. By making such upgrades, AIC says the ROI is typically between 50-75%.

Plus, as of December 1, 2020, Canada has offered a number of grants for homeowners to make energy-saving upgrades.

At the end of the day, it isn’t always the fun and sexy renovations that add the most value to the home. Sometimes it’s the dirty work that goes the extra mile when selling. But, to make sure you are getting the best return on your investment, be sure to speak with a professional Real Estate Agent who can help answer any questions you may have along the way.

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If you’re looking for an influx of cash, then it may be worthwhile to borrow money that’s secured by your home’s equity, otherwise known as a home equity loan. This method of borrowing can be much cheaper than other borrowing methods. That’s why about 10% of Canadian homeowners took equity out of their home in 2018 to secure a loan. The most common reasons for this loan were to fund investments, renovate their home, consolidate debt, and make purchases.

In this blog post, we’ll look at three of the most popular home equity loans: HELOCs (Home Equity Line of Credit), second mortgages, and reverse mortgages. This piece will outline the benefits and downsides of each and inquire into why they’ve gained so much momentum.

Home Equity Line of Credit

A HELOC works like any other line of credit would, except the debt is secured by your home. Like traditional lines of credit, you have the ability to withdraw what you need, when you need it. The money is also re-advanceable if you pay it back, and you’re not responsible for any interest on unused amounts.

However, they also commonly come with variable interest rates, which can go up as general interest rates rise too.

They’re great for situations where you don’t know how much money you’ll need, and it’s never a bad thing to have cash ready in case of an emergency. But the downside to a HELOC is that lenders usually want to see that you have good credit and income, as well.

A bank or lender can call the debt on a HELOC at any time. That is, they can ask the borrower to pay it back at any time—something most borrowers don’t understand about this line of credit. This isn’t likely, however, because calling the HELOC debt of millions of Canadians can end up hurting the bank’s own profits.

This fact proves something else: Canadians don’t fully understand the terms and conditions of their HELOC—which was also discovered by the Financial Consumer Agency in a survey that found participants usually scored less than 50% when answering questions about their loan. The survey also found that 25% of respondents only made interest payments on their HELOC.

Second Mortgages

A second mortgage is a loan that’s secured with your home’s equity, similar to a HELOC. But, instead of taking out money when you need it, the capital is provided as a lump sum. It’s common that a bank or lender will provide up to 80% of the appraised value of your home minus what you owe on your first mortgage.

This home equity loan is called a second mortgage because it’s ultimately second to your primary mortgage—i.e., in the event of a default, your first mortgage is paid out in advance of the second one. This is why the amount you can borrow depends on the home equity you have.

Unlike a HELOC, second mortgages can accommodate individuals with lower or less stable incomes or individuals with lower credit scores. The interest rate may be higher than a HELOC as a result, and the rate will definitely be higher than your initial mortgage since the second mortgage lender is in a riskier position. On top of this, there will be legal and broker fees to arrange the loan, adding another cost in addition to interest payments.  

It’s important to remember that a second mortgage will mean you now have two mortgages to pay off. If you miss a payment on either, it could result in the lender foreclosing your home.

Reverse Mortgages

A reserve mortgage is a great way for retirees to supplement their retirement savings or government income or to get a large sum of money for renovations, a grandchild’s education, or sudden expenses. To qualify for a reverse mortgage, you and your spouse both need to be over the age of 55.

The loan can come in the form of a lump sum payment or in monthly installments. And, no repayments are required until the home is sold. For this reason, a borrower typically does not need to plan how they’ll repay the loan because it comes out of the future proceeds of the home sale. In a reverse mortgage, you essentially give up equity in exchange for receiving monthly payments—the reserve of what you’d do in a regular mortgage. All the while, the qualifications to borrow this way are much lower than the qualifications required for a HELOC.

The convenience of reverse mortgages has resulted in its 20% annual growth. Though many criticize the tool for its high-interest rates.

A home equity loan can be a powerful tool. It effectively allows you to borrow money at a lower interest rate or with fewer obstacles by leveraging your home’s equity. This money is perfect when you need capital for home renovations, to pay for a child’s education, or to consolidate debt. The biggest downside is that you put your home at risk.

This blog post went over three kinds of home equity loans: A HELOC, which can provide easy access to capital at a low interest rate; a second mortgage, which can provide a lump sum payment without onerous income or credit score conditions; and a reverse mortgage, which allows retirees to leverage their home equity to supplement their retirement savings. There are others home equity loans out there and lenders are sure to create more.

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What is a vendor take-back mortgage and how does it work?

A VTB is when the seller of a property also becomes the lender. The seller lends money to the buyer to purchase the property that the seller is offering. This provides the buyer with more access to capital and the seller with an easier sale. The seller, in becoming a lender as well, charges an interest rate that is usually more than what a bank charges but less than what a private lender charges.

For example, if a home is $500,000, a 20% down payment would be $100,000. If you only have $50,000, you could get access to another $50,000 through a VTB. The bank would then provide the remaining 80% or $400,000 to the buyer to purchase the property.

There are a few issues with VTBs. First, the bank has the right to prevent a VTB from taking place. The bank is still a lender, and they can choose not to lend if you are already borrowing from someone else. Second, the seller needs to at least own the amount of equity in the home equivalent to what they’re lending you—i.e., if the VTB is for 10% of the purchase price, then the seller must own at least 10% of the home. Additionally, a VTB is still a mortgage. As a result, putting down 10% of the purchase price with your own funds followed by a 10% VTB won’t provide you enough equity in the property to avoid mortgage default insurance, adding another payment to your home purchase expenses. 

Benefits and precautions to the seller

For the seller, the primary benefit of a VTB is to sell your property. Offering buyers a VTB is a great way to sell in a buyer’s market because it can incentivize a purchase without lowering your offering price. However, if you’re selling your primary home, you’ll still need a place to live. And if you’re not planning to downgrade, you’ll likely need the full proceeds from your sale to purchase a new property. But if you decide to lend the money, you’ll be rewarded with some generous interest payments.

If you sell a $7 million commercial property, there are only so many people in the area who can afford it. A VTB can enlarge your pool of buyers by offering them more access to capital. 

By doing this, there are also tax benefits. When you sell a property that isn’t the home you regularly live in, you must pay capital gains tax. With a VTB, you’re paid out over time which means you defer paying this capital gains taxes over the life of the VTB.

Keep in mind that you and the buyer don’t only have a buyer-seller relationship now, but also a lender-borrower relationship. Therefore, you’ll have a second contract to work out the terms of the lending agreement. This requires that you do due diligence on the buyer to make sure that they’re credit worthy. Your loan will be treated as a second mortgage, which is only paid back after the primary loan (likely the bank’s or private lender’s) is paid out in the event of a default.

Additionally, more agreements mean more lawyers. At least lawyer fees, anyways. Make sure to draft a contract with the buyer to set out the terms of the repayment. A lawyer should help revise this contract and read over the terms and conditions.

Benefits and precautions to the buyer

The ultimate benefit for you as a buyer using a VTB is the additional access to capital. Although you’ll likely pay a higher interest rate than if you borrowed it all from a bank, you may have bad credit or other impediments that prevent you from borrowing what you need.

Another scenario is if you’re purchasing a large investment or commercial property and where a bank may not lend you multiple millions of dollars. Without a VTB, you as the buyer would have to find capital through either investors, who would want equity in the property, or from private lenders, who likely charge higher interest rates than what a VTB offers.

But, for the typical residential property, VTBs are not common unless we’re in a buyer’s market—something rare in Canada’s housing markets

As a buyer using a VTB, you need to remember that this is another loan that you need to pay back. Therefore, it’s part of your monthly interest expenses and an additional liability in addition to any other mortgages you have. And as mentioned prior, the interest rate for the VTB will likely be higher than a bank’s interest rates. 

A VTB is a great tool to add into your real estate purchasing kit. It can help a buyer purchase a property when they can’t otherwise source enough capital to do so. It can help a seller get rid of a property faster, make more money in the long term, and defer capital gains taxes. But, as a buyer, make sure that you can afford what is likely an additional mortgage. And as a seller, double check the borrower’s credit history and make sure you have a contract ready.

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Now with COVID-19 keeping us in our homes, there’s a new exodus, of not only Canadians but people across the world, reconsidering whether living in the city is the right decision. A popular New York Times article noted that between March 15 and April 28 of this year, moves from New York to Connecticut increased 74% from a year ago. Further, moves from New York to New Jersey saw a 38% increase, and from New York to Long Island saw a 48% increase.

So, what is causing these moves to the suburbs? This article reviews how and why COVID-19 is causing more people to move out of the city core. The post also provides insight into the non-COVID-19-related trend towards moving from the city to the suburbs, especially with millennial homebuyers. Lastly, we note some things to consider before actually looking for a home in the suburbs.

How COVID-19 is Pushing People to Reconsider

Many city homeowners and renters have wanted to move to the suburbs for some time. COVID-19 may have pushed this idea forward. After several months of cooping inside the confines of a small apartment or home, many desire more space and greenery. A larger home is also becoming attractive as people work from home and dream of a home office beyond a nook in their kitchen. However, the only way to afford a larger home is to move to the suburbs, where sizable homes are more affordable.

COVID-19 has also instilled fear into people. There’s the fear of crowded parks when you walk your dog or the elevator buttons that you need to press on your way back home. Instead, a suburban home can provide a better ability to distance from neighbours. This is especially important as we don’t know when COVID-19 will end.

A significant downside to suburban living is the longer commute. Office buildings tend to concentrate in downtown cores. TD’s 2019 Spring Homebuying survey found that 45% of respondents found the ability to live close to work was a key purchasing factor. But COVID-19 has also changed how we work. Companies such as Shopify have permanently moved to a work-from-home model, and the demand to social distance has catapulted most organizations into a firmer acceptance of working from home. So, the need for someone to live close to their office is becoming less relevant, making homes in the suburb (with the opportunity to design your own home office) more appealing.

Millennials Making the Move to the Suburbs

TD’s homebuying survey also found that of the 8 out of 10 millennials who aspire to own a home, two-thirds were willing to forego living in the city to meet their home-ownership aspirations. For millennials homebuyers, affordability is on the top of their mind. They also care for the size of their home, the neighbourhood, and the amount of outdoor space. This is why a home in the suburbs may better attract millennials.

As a result of this trend towards suburban living, both city planners and large corporations are taking note. Developers are looking to create city centres that provide millennials with the same benefits as the downtown core, with high-end dining, nightlife, event venues, and more. Multinational corporations are also opening second offices in close-by suburbs in addition to an office in the downtown core. A suburb office can offer less pricey real estate to the company and more convenience to some employees. In Vaughan, Ontario, many of the big accounting firms such as PwC and KPMG have opened a second headquarters, just a 40-minute drive from their downtown office.

What to Consider Before Moving to the Suburbs

Moving from the city to the suburbs is no small task. There are several items to consider before making the move. This includes leaving friends and family and additional costs.

If you decide to move to the suburbs, remember that visiting a friend or family member who also lives in the city is no longer a short walk or subways ride away. The ability to socialize with others ultimately becomes harder, as most places in the suburbs require at least 10 minute or more of driving. This inability to socialize is why some believe suburbs make people miserable. Now, meeting with a friend may involve driving 40 minutes downtown, finding parking, and finally walking to your destination.

Although buying a home in the suburbs is cheaper than in the city, it comes with additional costs. A larger home means more maintenance costs. Suddenly, there’s a lawn to mow, a pool to drain, and snow to shovel. Utility costs also increase as you need heating and air conditioning for a larger space.

Suburbs are less densely packed, so you can’t assume that its transit system is just as fast and reliable as the city’s. So, moving out of the city may mean having to buy or lease a car… maybe even two cars. Oh yeah, and there are also car insurance and car maintenance costs that come with that. If you need to work at an office, it likely means a further commute, which also increases your day-to-day expenses.

Moving from the city to the suburbs can mean more space at a lower cost. Especially with COVID-19 forcing us to stay at home, many people are getting closer to making the move. Moving to the suburbs is also how many millennials are hoping to purchase a home, as city prices are unaffordable. Just remember that moving out of the city may mean leaving friends and family and new expenses.

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If you’re a real estate investor or just have a child heading off to university, buying a property in a “university town”, where prices are often lower than major cities like Toronto or Vancouver, can be enticing. While the average price of a home in Toronto is roughly $920,000, an average home in London, Ontario (home to Western University) is almost 1/3rd of that at $344,815.

In this blog post, we explain the benefits and downfalls of investing in student housing. This post clarifies some myths of the opportunity, and explains what to keep in mind when investing in a property targeted at student tenants.

The benefits of student housing investments

Student tenants. You’re effectively renting to someone with no credit history, plenty of debt, and no full-time income. Or are you? Although this profile is common for students, it’s also common that the student’s parents pay most or all of their rent and expenses. And with a parental guarantee that rent will be paid, this tenant turns into a secure source of income, even less risky than someone who may have a full-time job. This is why a risk-averse investor such as the Canadian Pension Plan is willing to invest in it.

A property close to a university may also mean guaranteed tenants. One article found that only 3% of Canadian students lived in university-provided housing, with the remaining 97% commonly living with parents or at nearby rental units.

There’s no shortage of university students. In recent years, international students have enrolled in Canadian universities at an increasing rate. Other countries that were once popular for international students such as the U.S. and the U.K. have had unfavourable attitudes towards immigrants in recent years, which has resulted in more interest in Canada. This is why among new Canadian non-permanent residents, international students were the largest contributor.  The best part is that each of these students needs a place to live. Thus the growing number of international students has made student housing more popular with real estate investors.

As mentioned prior, student housing often has a lower barrier to entry than a condo investment in downtown Toronto. Although cities such as Waterloo, Ontario, or London, Ontario, are seeing real estate values appreciate, they’re still much more reasonable than what you would find in Toronto.

The pitfalls of investing in student housing

Student housing isn’t all rainbows and sunshine. Although it’s a secure investment for the most part, some aspects of it can make it particularly tough. Students may not care about the property as much as a tenant who is older and more mature. University house parties run rampant as part of the school culture, dirty dishes are usually left in the sink for weeks, and there’s often plenty of alcohol and drunk students around. This could result in damage to the house or other issues like mould or vermin.

And if you’ve purchased a property that’s in a different city that’s an hour or more away, common tenant issues are even more difficult. Toilets and drains get clogged, heating systems might break, or a window can crack. These all require your immediate attention. To prevent a 2-hour drive in the evening to fix a clogged toilet, it’s a good idea to keep some local plumbers or repair people in mind. Better yet, you could simply pay a property management company to take care of everything for you (but you remember that this would eat into your cash flow).

What to keep in mind when you purchase a property targeted at student tenants

Students are a different but similar ball game to regular tenants. You often hear investors mention the number of “beds” they own, which refers to how many tenants they can accommodate. To maximize your returns on a student housing investment, you want to maximize the number of students living there (within reason). This doesn’t mean covering every square inch with a bunk bed. However, a 3-bedroom house could be made into a 5-bedroom by adding two rooms to the basement.

Students may be cheap, but they still desire good living accommodations. In fact, student rentals are more often going towards the luxury-end now. Well-off international students who can afford to study abroad want high-end living accommodations, and as more of these international students choose Canada as their next educational venture, this demand increases.  It’s all about finding a balance between maximizing tenants while having a luxurious living space.

If you plan to renovate a property before listing it for tenants, there are a few items to keep in mind so that the space is suitable for students. This includes using quality, but not particularly high-end, installations like sinks or toilets. Most of the cost for renovations comes from the cost of labour, so why cheap out on a few hundred dollars on a sink that lasts longer? Materials such as laminate or vinyl tiled flooring are also solid and cost effective.

Do your renovations during the summertime when students aren’t around. You can even stagger them year to year. If you have a renovation that requires clearing the whole house, you could list your property for an 8-month lease instead of 12. Although you’re losing out on 4 months of rent, you can charge more during those 8 months, since 8-month leases are typically more desired by students.

Students are great tenants to have. Although they lack credit scores or full-time incomes, it’s usually their parents paying the monthly rent. The increasing number of international students also means that there’s no shortage of students looking for housing accommodations. Although partying and managing a property in a different city may be difficult, it can be worth the stability. Make sure to find a balance between creating a great living space for students while also maximizing how many tenants you can have in a house.

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