Current Kelowna Real Estate & Lifestyle Information

Aug. 25, 2017

Cap Rates for Income Properties

The term cap rate is thrown around quite a bit in the real estate industry especially when dealing with your investment or commercial properties.  If you hear it you are likely listening to people talk about a income generating property.
Cap rate is simply the ratio in percentage between the Net Operating Income and the Current Market Value of a property.  Whole market value is easily understood as what it means NOI required to be defined.
NOI or Net operating Income is how much the property creates after all reasonable expenses.  This assumes the property has no financing or tax advantages etc.  But it includes things like property taxes, maintenance costs, vacancy.
Income Property Cap Rates in Kelowna
So let's see how this works:
Let's say the building were looking at is presently worth - 800,000 and it's NOI is 75,000.  This represents a cap rate of 9.4% (NOI / Property Value x 100)
This is a useful number if we want to compare the returns of 2 differently prices properties.  An example of a property worth 300,000 with a NOI of 45,000 would have a Cap rate of 15%.  Meaning it's return on the properties value would be higher however the return would be a lesser dollar amount.
Take everything with a grain of salt!  As you've guessed by now this is only one metric when comparing income properties and makes up a small piece of a big lie to decide if it's a good investment for you.

If you'd like to talk about Kelowna Cap rates or Real Estate, text or call me at 250-300-6506 I'm always eager to help people in our community reach their goals. 
Posted in Income Property
Aug. 22, 2017

Codfather's Seafood Market

Codfather's Seafood Market is located on the corner of Guisachan Rd and Gordon at the Guisachan Village Centre in the lower mission area of Kelowna.  Open till 6pm everyday except Sunday you can be 100% sure every product is ethically sourced from our oceans.  They have one of the largest and best selections of seafood in the valley.  My personal favourite is the fresh scallops.

If you’re outside having a BBQ this week I highly recommend checking them out!

Posted in Restaurants
July 22, 2017

How to make money flipping houses in Canada

I have received a lot of feedback recently about how the financials work with house flipping so I hope the following can be of help to you pursuing your dreams.
First question I usually get asked is how the market is? or can you can still make money flipping houses?  The answer lies in the recent sales data.  House flipping can be profitable in both a down market and an up market providing there are still active sales occurring.  Market is also a subjective term as one market for instance the single family homes could be slow however the condo market could be booming!  Getting creative and exploring all your options when choosing which market to participate in will keep you pointed for success.
So how do the financials work?
Simply we must purchase a house and after all fees, renovations to add value, sell the house for a profit that is inline with your goals.
Here’s a quick look at a recent flip we did:
Purchase Price $430,000
Closing Costs $12,000
Total $442,000
Renovation Costs $72,000
Total Investment $514,000
Sale Price $580,000
Closing Costs $2500
Total Profit $63,500
$63,500!!  This flip turned out great, we purchased in a good neighbourhood with a decent floor plan and updated the entire house.  We had the only product on the market that was turn key so it was easy to show and sell.  This could be done in both a buyers or sellers market as you will typically get a discount on one side of the sale.
Best of all this was done with 5% down and a total investment of about $40,000: $22,000 Down and $18,000 Cash with about $54000 financed.
This example omitted your potential tax liability as well as any carrying costs if you didn’t live in the home during the flip.
Posted in Renovations
Oct. 1, 2016

Income Suite - How it can help you SAVE!

You may have seen an income suite on HGTV or maybe a friend has one which has sparked your interest to how this can launch you into the black in very short order!

An income suite is very simply a separate living area of your home where you can rent to offset your living expenses.  These can be purchased in new and used homes, can be added to your existing home, or can be tailored to a new home purchase.

Adding an income suite has some serious financial benefits, let’s explore these below;

 

  1.  Income suite’s generate income!  With current rental vacancy rates in town hovering around 2% there are many renter’s looking for a clean, safe updated place to call home, and they’ll pay you!
  2. Adding an income suite to your current or future home will boost its value.  New home owners are constantly looking for ways to make life cheaper to enter the real estate market.  Adding an income suite will add value to your home for some buyers.
  3. Start your rental property portfolio.  Once your income suite is up and running, you may wish to consider renting your primary living area and then purchase a new home.  This process can be repeated until you have a nice rental portfolio setting you up for the future.

 

As you can see there are many financial benefits of a home with an income suite.  If this is your cup of tea you can gain financial headway in short order.

Posted in Income Property
Oct. 2, 2015

How to learn DIY Skills for your Home!

We often get asked by our clients how they can learn skills to renovate or improve a property.  This is usually either to increase the enjoyment out of their current home or to sell or flip the home in the future.

Here are some great resources to get you started on the correct track!

 

  1.  YouTube, www.youtube.com  has a whole bunch of great videos on a variety of topics.  If you search for example, laying hardwood floors you will find several how-to’s on the subject.  Be careful of the author of the content, and check a few of the comments to make sure its good information.
  2.  Local hardware stores are great places for information.  We recommend Home Depot as they seem to have the most experienced staff on hand, several of them being ex contractors or tradesman.  Take some pictures on your phone of what you’re trying to do and bring them in!
  3. Google search!  Don’t forget trusty google search.  You may find lots of blogs or websites dedicated to the exact project you are trying to do.
  4. Pintrest, a great photo app on your phone to help you find project ideas.  Often these pictures will link to a website with more information with possible progress photo’s of the renovation!
Posted in Renovations
July 1, 2015

The Smith Manoeuvre – Q&A

Here is another article that is great answer some questions about the Smith Manoeuvre.  It was written by FT over at milliondollarjourney.com  If you haven’t checked it out yet you better say goodbye to your social life!  Hope this helps with your Kelowna real estate investments!

 

The Smith Manoeuvre – Q&A

As a recap, the Smith Manoeuvre is a wealth strategy that converts a non tax deductible Canadian mortgage into a tax deductible investment loan. As promised from Part 1 of this series, I will be going into more detail regarding the Smith Manoeuvre(SM) and some common questions that people have. I am by no means an expert in the SM where I’m not even using it myself. I do, however, plan on implementing this technique in the near future and I’m usually pretty analytical when it comes to big financial decisions.

One popular question I often read about is how a person is supposed to pay for both the mortgage AND the HELOC at the same time?

  • This is a probably among the biggest concerns as the borrower will be responsible for BOTH payments while implementing the SM. This includes your primary mortgage (principle + interest) along with your HELOC (interest only). Seems a bit steep hey? Say you get a $100k HELOC @ 6% (prime), that’s an extra $500/month on top of your existing mortgage payment.
  • I’ve actually emailed Fraser Smith about this issue and he said to “capitalize the interest” on the HELOC. Scratching your head yet? Capitalizing the interest simply means to withdraw the monthly interest due from the HELOC account and redeposit the amount as a payment. Apparently, most credit unions will allow this but some banks will not. You’ll have to check your specific lender for the details.
  • If you capitalize the interest, you will never make the extra interest payments out of your own pocket while your primary mortgage exists.
  • You will only start paying the HELOC interest out of pocket/cashflow when the primary non-deductible mortgage is paid off. So as you can see, using the Smith Manoeuvre, you will always have a payment. It never goes away. However, the payments are now tax deductible.

Another popular question is why would you need 25% 20% down to start the Smith Manoeuvre?

What are some investment options for the Smith Manoeuvre?

  • As you already know, I’m just some obsessive compulsive personal finance guy who is NOT a financial planner. So take my advice at your own risk. However, with that said, when I start using the Smith Manoeuvre I plan on using the money to purchase steadily growing dividendpaying stocks/mutual funds/ETFs.

Why dividend stocks do you ask?

  • I believe that investing in mostly Canadian dividend paying stocks/mutual funds/ETFs is the most efficient way to implement the SM. The reason being is that Canadian dividends of strong companies (like the big banks) have a history of increasing dividends that can be used to pay down the non-deductible mortgage. Why not just buy interest bearing bonds or GICs? Publicly traded companies that pay dividends in Canada are eligible for the enhanced dividend tax credit which results in a substantial tax break for dividends compared to interest bearing income.
  • To summarize, the strong dividend company (if history is any guide), will increase their dividend on a regular basis AND you will receive a tax credit for any dividend income that you receive. Putting the dividend income and the annual tax refund towards the non-deductible mortgage will make the conversion from bad (non-deductible) to good (deductible) debt even quicker.

So that’s my strategy for my next home. Sell off my non-registered portfolio, put >20% down, obtain a re-advanceable mortgage, take the HELOC money and invest in dividend paying stocks (mostly Canadian).

If you are currently using the Smith Manoeuvre, I would appreciate any comments that you may have regarding your experiences and if my strategy is sound.

Posted in Mortgage Free
June 1, 2015

The Smith Manoeuvre – Canadian Tax Deductible Mortgage

Here is an article that is great explaining the Smith Manoeuvre.  It was written by FT over at milliondollarjourney.com  If you haven’t checked it out yet you better say goodbye to your social life!

The Smith Manoeuvre – Canadian Tax Deductible Mortgage (2016)

Have you guys heard of the Smith Manoeuvre (SM)? For those who don’t know what it is, it’s a Canadian wealth strategy to structure your mortgage so that it’s tax deductible. Our U.S. neighbors already get the luxury of claiming their mortgage interest and now there is a way for us Canadians to do the same.

There’s a tax rule in Canada where if you borrow money to invest in an income producing investment (like a dividend paying stock or investment property), you can deduct the annual interest paid on the investment loan from your income tax. Kinda wordy I know, in layman’s terms, if you get a loan with x amount of interest / year, you can claim that x interest during income tax season if you use the loan towards stocks or rental properties. If you’re still confused, please read on below where I will eventually explain everything step by step.

So, who came up with this idea and how does this apply to making a mortgage tax deductible? Mr. Fraser Smith has all the answers and he has written a book on the topic which explains how to do this properly. To summarize the Smith Manoeuvre in a nutshell, it’s where you borrow against the equity in your home, invest it in income producing entities, and use the tax return to further pay down the mortgage. Repeat until your mortgage is completely paid off leaving you with a large portfolio and an investment loan. Voila! Your mortgage is now an investment loan which is tax deductible and hopefully, your portfolio is larger than your loan.

While I have a tendency to optimize, here is a is a slightly modified version of the Smith Manoeuvre (SM):

1. Sell all existing stock from non-registered investment accounts and use it towards a down payment for step 2.

2. Obtain a readvanceable mortgage. This is a mortgage that has 2 entities, the home equity line of credit (HELOC) and the regular mortgage. Nothing unique about this setup EXCEPT that as you pay down the mortgage, the credit limit on the HELOC increases. This is a key feature that is needed when implementing the SM. Note that you usually require at least 25% 20% equity/down payment before you can obtain a readvanceable mortgage. Some financial institutions that offer these mortgages are:

  • RBC – The Homeline Mortgage
  • Firstline – The Matrix Mortgage
  • Manulife – ManulifeONE Mortgage (read my Manulife One Review)
  • BMO – Readiline Mortgage (this is the SM mortgage that I have, email me if you want a referral)
  • For a complete list, check out The Smith Manouevre Resource. Included within the post are mortgage reviews, calculators, taxation issues and strategies related to the SM.

3. Use the HELOC portion of your mortgage to invest in income producing entities like dividend paying stocks or rental property. With every mortgage payment, your HELOC limit will increase. So with every regular mortgage payment, you will invest the new money in your HELOC. Note that you SHOULD NOT use the HELOC money to invest in your RRSP as you will lose the tax deduction on the invested money.  If you don’t already have an investment account, here is a review of the more popular discount brokerages available in Canada.

4. When tax season hits, deduct the annual amount of interest that you paid on your HELOC against your income. So, if you paid $6,000 in interest payments for the year and you have marginal tax rate of 40%, you will get back ~$2,400 of it.

5. Apply the tax return and investment income (dividends etc) against your non-deductible mortgage and invest the new money that’s now in your HELOC.

6. Repeat steps 3-5 until your non-deductible mortgage is paid off.

As you can see, this process will pay down your regular mortgage in a hurry.

The Advantages:

  • You get to build a large investment portfolio without waiting to pay off your mortgage first (the power of compounding).
  • You get to pay down your non-deductible mortgage in a hurry.
  • Your new investment loan is tax deductible.

The Downside:

  • You need to be comfortable with LEVERAGE and investing in general.
  • You need a plan ‘B’ in the case that you need to move and home values have gone down. If you invested properly, your portfolio should at LEAST cover your loan.
  • Your mortgage is NEVER paid off where you keep the tax-deductible loan (this can be a good thing).

In part 2 of this series, I will talk more about general questions regarding the Smith Manoeuvre. Like, making the extra HELOC interest payment IN ADDITION TO the regular mortgage, different investment options, and ways to optimize the SM even further.

Update May 2013 – Big mortgage rule changes!  The mortgage rules have changed where nationally regulated banks can only allow home owners to borrow up to 65% of their equity towards their “revolving” or home equity line of credit portion (only applies to new applicants – I believe existing HELOCs are grandfathered).  However, homeowners can still borrow up to 80% of their equity in total.  This means that the remaining 15% (80% – 65%) has to be in the form of an instalment mortgage with a regular repayment schedule. Best to talk to a mortgage broker about how it affects you, let me know if you need a recommendation.

What do you guys think of the Smith Manoeuvre?

Posted in Mortgage Free
May 8, 2015

How To Save Money – 28 Ways To Save Money

Here is an article with some great savings ideas.  It was written by FT over at milliondollarjourney.com If you haven’t checked it out yet you better say goodbye to your social life!

 

I’ve written about my saving strategies and frugal living before, but I’ve decided to write an updated post in a numbered list format on how to save money and the various ways to save money on a day to day basis.  This post was inspired by similar posts on FrugalForLife and CashMoneyLife.

Included below are 25 28 ways that I save money:

  1. I use a points or a cash back based credit card that gives me the best return for my spending.  Here’s a post and picture of what’s in my wallet.
  2. When making a big purchase, like a mortgage or a vehicle, I negotiate and shop around for the best rate.  This will save you thousands in the long run.
  3. I drive with gas efficiency in mind.
  4. I arrange my banking so that I don’t pay any fees and use a discount brokerage that minimizes my trading expenses.  The current favorite of Million Dollar Journey readers for a low cost, no frills discount brokerage is Questrade (I have a TFSA and RRSP with them).
  5. In addition to reducing trading fees, I keep our ETF/mutual fund management expense ratios (MER) as low as possible by using indexed ETFs/mutual funds.
  6. I try to save energy around the house with CFL’s, programmable thermostats and proper insulation.
  7. We do laundry once / week (we do more now because of kids, but try to be as efficient as possible).
  8. brown bag my lunch to work.
  9. I prepare my lunches in bulk and store them in individual plastic/glass containers.
  10. I cook at home whenever possible.
  11. I perk my own coffee (or drink the coffee at work).
  12. When buying consumer items, I try to separate my “needs” and my “wants”.
  13. When I find something that I “need”, then I do comparison shopping or wait until it goes on sale.
  14. I don’t smoke, do drugs, or drink (too much). ????
  15. I use basic cable instead of the fancy cable packages.
  16. I combine my cable/internet/telephone with the same provider to take advantage of the discounts available.
  17. I watch movies at home (or use Netflix) instead of going to the movie theatre.
  18. I use term insurance instead of universal life or whole life insurance.
  19. As with anything else, I shop around for my insurance products.
  20. I pay a higher deductible on insurance products to reduce the premiums.
  21. buy with quality in mind in the expectation that it will last a long time.
  22. To please my reading habit, I go to the library (or get publishers to send me free books for review) ????
  23. I make my deposits into my high interest rate savings account and RRSP automatically on a bi-weekly basis.  Basically when I get my paycheck.
  24. When purchasing a home, I save for a large down payment to reduce mortgage insurance fees (CMHC).
  25. I buy clothes when they wear out, not when they go out of style.
  26. I track my spending/budget with Excel or Mint.com (recommend not connecting your bank account, only credit cards).
  27. When my income increases, I aim to keep lifestyle inflation at bay.  Basically, I bank my raises.
  28. To save money on car rentals, I watch the flucuating prices on Expedia and when  a low price shows up, I bid slightly lower on Priceline.

What are some ways that you save money? Do you follow the frugal living lifestyle?

Posted in Mortgage Free