British Columbia has recently discussed a few reforms towards real estate consumer protection, primarily using the B.C. Financial Services Authority to establish and implement them. Amid new COVID restrictions, B.C. is also looking at ways to provide homeowners with relief. These recent changes stand to be significant for B.C. residents and all of Canada, as when the B.C. government acts, other provinces are always watching.

Cooling off periods are coming: Regulatory action

This past November, the Ministry of Finance announced their intent to create a regulation implementing cooling off periods in the sale of B.C. homes.[5] The proposed regulation is still developing, but it is similar to rules for pre-construction condos in B.C., which have a 7-days cooling off period. Finance Minister Selina Robinson hopes that the regulation will reduce the current market’s volatility.

Cooling off periods have been instituted in other provinces as well. In Ontario, consumer protection legislation creates a cooling off period for newly built condos. Consumers can rescind their offer to buy without penalty 10 days after receiving the fully signed purchase agreement. Where B.C. differs from most is planning to institute the cooling off period for homes, rather than just condos.[6]

Cooling off periods increase consumer power and allow them to take more time to evaluate their buying decision and decide what is best for them. However, some real estate professionals are skeptical that this proposed regulation will benefit consumers in the long run. B.C. Realtor Alex Dunbar, to Storeys.com, states that such a policy may make sellers solely consider offers on price, rather than thinking lower offers that come from buyers who are less like to back out. By putting everyone on an even playing field, and everyone having the ability to back out, buyers will compete on price even further, causing the market to still be volatile and trend upwards.[7]

Participate in the regulatory consultation process

On the other hand, because cooling off periods have already been used for pre-built condos, perhaps the concerns are overblown. The good news is that the regulation is still in its consultation phase. The BC Financial Services Authority is consulting relevant stakeholders for feedback about the proposed rule. While the BCFSA has already and continues to engage with industry associations and real estate boards, anyone can make their voice heard and provide input to coolingoff@bcfsa.ca. The Ministry of Finance will be reviewing all communications for feedback on the proposed regulation.[8] After the consultation is finished in mid-February, the legislation will begin to solidify, and stakeholders can then properly ascertain the effect of the new legislation.[9]

Consultation for the future, Homeowner Grant for Now

The consultation period for the cooling off period may very well end up being very impactful to the near future of B.C.’s real estate market. However, today, many are looking for help. With the COVID-19 Omicron variant causing provinces to implement new restrictions, the B.C. government has responded by setting their Homer Owner Grant threshold at $1.975 million for 2022.[10] Over 92% of residential properties can now receive assistance for their property taxes.

The grant varies based on location, with those in northern or rural areas eligible for more than those in Metro Vancouver, Fraser Valley and Capital Regional Districts. Homeowners 65 or older, or those with disabilities or who live with a relative with a disability, also qualify for more aid. The “fastest and easiest way to apply” for the grant is on the B.C. government website.

Change is coming, but what change?

B.C. is but one jurisdiction looking at reforms for dealing with the housing market. As the new year continues, we will continue to see pushes for new legislation and consultation periods to let stakeholders be heard. Take advantage of any opportunity to voice your concern or support new regulations. For the right now, for those that need help, it is important to look at the various programs that give homeowners, landlords and renters assistance.

[1] BRCEA: A record Year for the B.C. Housing Market: https://www.bcrea.bc.ca/economics/a-record-year-for-the-bc-housing-market/

[2] REMAX: B.C. Housing Market Projected to Remain Strong in 2022: https://blog.remax.ca/bc-housing-market-projected-to-remain-strong-in-2022/

[3] CBC: B.C.’s urban mayors demand urgent provincial action on complex housing needs: https://www.cbc.ca/news/canada/british-columbia/bc-mayors-housing-call-1.6311158

[4] Business Intelligence for B.C.: Most B.C. residents trust BC NDP to resolve affordable housing issues: poll

[5] CTV NEWS: ‘Cooling off periods’ part of B.C. real estate plan to protect buyers wanting to back out: https://bc.ctvnews.ca/cooling-off-periods-part-of-b-c-real-estate-plan-to-protect-buyers-wanting-to-back-out-1.5652568

[6] RECO:  Do real estate contracts have a cooling off period? https://www.reco.on.ca/ask-joe-question/do-real-estate-contracts-have-a-cooling-off-period/

[7] Storeys: Will BC’s New ‘Cooling Off Period’ Really Turn Down the Heat in its Housing Market? https://storeys.com/british-columbia-housing-market-cooling-off-period-work/

[8] BCFSA: Real Estate Consultations  https://www.bcfsa.ca/about-us/who-we-are/stakeholders#cooling-off-period-and-real-estate-consumer-protection

[9] BCFSA: Real Estate Consultation Launch https://www.bcfsa.ca/about-us/news/news-release/real-estate-consultation-launch

[10] B.C. Gov News: Home Owner Grant helps people with property taxes https://news.gov.bc.ca/releases/2022FIN0001-000004

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In this article, we digest what house hacking is and its advantages and drawbacks. If done right, you could be on the road to living in your home for free.

What is house hacking?

The goal of house hacking is to cut your living expenses while you build home equity. The premise is to purchase a larger home than what you need so you can rent out the remaining space and act as a landlord. Your tenants’ rent should cover the full or a substantial amount of your mortgage payments. All the while, it’s you who builds equity in the property.

What goes into house hacking?

Some house hackers opt to purchase a duplex or triplex or a home with a basement apartment. But you can simplify it further. For example, you can rent out an extra room in your house to start your house hacking journey. But keep in mind during the home purchase process that you’ll be house hacking so you can plan.

When buying a home, you’re not only looking for your primary residence but an investment property. Therefore, you want to consider things like your neighbourhood and how you can renovate the property. Areas with post-secondary institutions can potentially reward you with student renters who are often ideal tenants. You’ll also want renovations that aren’t specific to your taste and appeal to the general population.

Unlike BRRRR, house hacking doesn’t require that you find a gem of an undervalued property. Generally, your goal isn’t to be profitable but to reduce your monthly expenses. But, it’s still important not to overpay for a home and to find the best deal available.

Build equity in your property with fewer costs

Whenever you make a mortgage payment, part of the payment goes towards the principal of the loan. By renting out part of your home, you can make this payment with less of your own money, in that you’re using someone else’s money—the rent from your tenant. Thus, you’re effectively building equity in your home for free!

Begin your real estate investment journey

While capital is also an issue, individuals commonly fear real estate investing because of their lack of knowledge. To be a real estate investor and landlord, you need to understand the role’s financial, legal, general contracting, and other aspects.

However, house hacking ignites your learning because you begin to act as a landlord and real estate investor on a small scale. If you continue to invest in real estate, you’ll already know how to find and manage tenants and attend to many legal and financial situations.

Property management is much easier when you live there

Property management can be challenging when you’re far away. Often landlords may live in a city but have investments across the province. If a toilet’s clogged at 2 AM, a landlord often can’t just get out of bed and drive over. Calling a plumber or other professional to remedy the situation may also be expensive or challenging. This issue doesn’t exist when you house hack because you live with your tenant. If there’s an issue at 2 AM, it’s a matter of going downstairs or to the other unit.

Your quality of life may be reduced

If this is your first home, you want to make the house really feel your own. But when you house hack, this may not always be possible. For example, House hacking may mean you have a tenant in the bedroom beside you or that you can’t use your basement because it’s currently a rental apartment.

There are tons of upfront costs and work

Purchasing a home is hard. It’s even harder when you’re trying to buy a larger home so you can house hack. There will be many upfront costs for a down payment, lawyer fees, realtor commissions, and more. Additionally, you’ll likely need to renovate the property to make it desirable to tenants. Renovations will further take time, and it can be a stressful process for some. If you don’t have the necessary time or capital to manage it, house hacking may not be for you.

Being a landlord is a part- or full-time job

The idea of having your mortgage payments primarily covered by a tenant seems nice. However, you want to remember that you’re a landlord now. Despite what some believe, being a landlord is a job and requires attending to particular duties. You need to prepare for finding tenants, drafting leases, and managing ongoing tenant issues and maintenance requests.

Because you’re living with your tenant, the renter selection process is more critical than usual. Remember, this person isn’t only a monthly cheque but someone you’re living with or living beside.

Tax considerations have both pros and cons

There are both tax benefits and disadvantages to house hacking. On the pros side, house hacking lets you deduct the costs of being a landlord, such as property taxes, house maintenance, utilities, and interest payments.

However, the Canadian tax systems won’t allow you to claim the whole property for your principal residence exemption—only for the areas of the home you live in. This is easily calculated if you’re in a duplex, triplex, or renting a basement apartment. But situations such as a tenant that shares a kitchen and bathroom with you make it more complex. It’s best to speak to an accountant or tax professional to understand where your tax liabilities lie.

Final thoughts

House hacking is a great way to build equity in your home while reducing your monthly costs. However, there are many advantages and disadvantages to it, and it’ll depend on your circumstance whether it’s a right fit for you.

The post How House Hacking Can Reduce Your Housing Costs to Zero first appeared on RankMyAgent - Trusted resource about Buying, Selling and Renting.