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i i / : ! i '( : . 24 The Canadian Statesman KtutoUen,, Bowmanville, Saturday, April 10,1993 ■ 1 ■ Investing in a Second Property Housing Starts Show Some Improvements This article is provided by local Realtors and the Ontario Real Estate Association (OREA) for the benefit of consumers in the real estate market. market. If you're thinking about buying a piece of real estate as an investment. property, market conditions are definitely definitely in your favor. While the resale housing market has seen a tremendous tremendous amount of activity from firsttime firsttime buyers in the past year, it's also a perfect time for existing homeowners homeowners to invest in secondary residential properties. With record-low interest rates and significantly lower prices it's hard to go wrong - unless, of course you lack the financial means to make the investment. investment. After all, you have to be ready to meet all the obligations that come with owning more than your principal property. For instance, keep in mind that if you intend to rent out the second property, you'll also have to be prepared prepared to deal with tenants and handle maintenance costs. Leverage Secondary home ownership is an attractive investment option because it gives you even more leverage than you have with your principal residence. residence. Leverage is when a relatively small amount of your money controls a much larger asset - like a property. The more leveraged you are, the greater the financial return on your down payment becomes if the value of your property increases. There are very few other investments which can be purchased with such a small percentage of your own money. For instance, let's say you acquire a second property for $100,000, with a $15,000 down payment, and during the first year that you own it, the property increases by a value of three per cent for a $3,000 gain. As a result, result, the return on your down payment payment of $15,000 is 20 per cent - $3,000 divided by $15,000. By comparison, let's say you were to buy a term investment of $100,000 (in cash) for one year and it increased by $8,000 over the course of the first year. Since it costs you $100,000 in cash to buy it, the return on your investment investment is only eight per cent before taxes. Obviously, leveraging is a powerful way to make your money work for you. Capital Gains You should be aware that while you are allowed an exemption on capital gains - the amount your home increases in value - for your principal residence, you won't be able to claim a capital gains exemption on investment investment or recreation properties purchased purchased after February 1992. (The lifetime capital exemption previously allowed on investment and recreational recreational properties was eliminated in the 1992 federal budget.) This is one disadvantage, but there are some other important factors you should also be aware of and weigh carefully if you're seriously thinking about investing in a second property - for instance, obtaining financing. Getting Financing Many lenders place non-owner occupied occupied deals in the high-risk category and it's not that unusual to find lenders lenders who will not finance rental units at all - or those who will only finance them if they are insured. Obviously, lenders will want to* know whether the property will carry itself. (Is there sufficient rent to cover the mortgage payment?) Don't make the mistake of assuming assuming that a rental income of $500 per month will carry a mortgage payment of $500 per month. Only a portion of the rent is used to pay the mortgage; the remainder must cover taxes, maintenance, vacancy, bad debt and expenses. (Many inexperienced purchasers think that owning rental properties will allow them to "get rich quickly" and when this does not happen, the owner becomes disillusioned and loses loses interest in the property.) GORD and NANCY BARNES Assoc. Broker Sales Associate TRULY UNIQUE $274,000. w^F • 1 "w and nestled on a quiet 2.3 acre wooded lot just north of town. 7 skylights, 2 walkouts, 2 fireplaces, cathedral ceilings, finished rec room - spectacular. Bemax Apple Realty Ltd. Home: 023 686o 80 Athol St., Oshawa Office: 576-31 11 Costs You should also be aware that the cost of obtàining a mortgage (for legal legal and appraisal fees) on a non- owner occupied property can be higher higher than the cost of obtaining a mortgage mortgage on an owner-occupied property, property, when more than one unit - such as a duplex or triplex is involved. Interest rates charged on rental properties might also be higher because because some lenders view these properties properties as being a higher risk. As mentioned above, the main responsibility responsibility of having a second property property is being able to carry it financially. financially. And if you're like most people, you'll probably have to rent it to someone as a result. This is also a great deal of responsibility responsibility because you will have to maintain the property in addition to your own principal residence, and you'll be responsible for finding tenants tenants you trust and feel comfortable with. Some parents with grown children children ready to go off to university or college choose to purchase secondary properties for their offspring to live in while they attend school. This gives them an excellent investment and they are assured that the occupants occupants will take good care of the home. If you'd like more information about purchasing a second property, consult a Realtor. National housing starts rose six per cent in February to 150,800 units at a seasonally adjusted annual rate (SAAR) from the revised January level of 142,600 units, according to Canada Mortgage and Housing Corporation. Corporation. Starts of both single-detached and multiple housing units experienced increases in February. In urban areas, starts of single-detached dwellings rose to 64,500 units SAAR from 62,800 units, while starts of multiple dwellings saw a larger jump to 60,300 from 53,800 units SAAR. "While the overall level of starts is still relatively weak, it is consistent with our forecast of 177,000 units for 1993," said Rita Daniel, Director of CMHC's Market Analysis Centre. "As the economy shows strength and consumer confidence improves, housing starts will continue to climb." The strength of the housing market market continues to vary across the country, country, with the western provinces showing showing more strength than those in the east. British Columbia starts, at 34,400 units SAAR, were only marginally lower than last month's level. Single- detached starts rose significantly, while construction of rental housing declined. The prairie provinces posted the: largest increase in starts, rising 83 per cent to 26,000 units SAAR from 14.200 units in January. Saskatchewan Saskatchewan starts soared by over 300 per cent and Alberta went up by 80 per cent. Most of the increase in Alberta was in condominiums, although singles singles also were higher. In Saskatchewan, Saskatchewan, both singles and multiples increased. increased. Manitoba starts were down slightly. Ontario's starts increased by 20 per cent to 38,500 in February from 32.200 units SAAR in January. The increase was due to a large rise in condominium starts, which more than offset a slight decline in singles. Ontario's Ontario's housing market will only strengthen when the province's economy economy improves. Quebec starts fell to 22,100 units in February from 28,800 units SAAR in January. The majority of the decline decline was in condominiums, but single single and semi-detached housing starts were also down. The over supply of housing in Quebec will keep starts at a lower level for the next few months. The Atlantic provinces saw a large decline in starts, dropping from 6,500 units SAAR to 3,800 units in February. All four provinces had declines, declines, however, the largest were in Newfoundland and Prince Edward Island. Island. fitANK REALTOR OFFICE SPACE- FABULOUS DEAL!! $285. per month. Clean professional space. Good parking. This is a deal you can't beat. Bowmanville. John Shewchuk*, 623-3393 or 623-5927. SPOTLESS MOBILE HOME 2 bedrooms. .Just east of Newcastle Village. Parking for three vehicles. Overlooking Graham Creek. Asking $36,900. Terry Witherspoon*, 623-3393 or 983-8296. ÉWÈm HERITAGE HOME- BOWMANVILLE Completely finished Century doll's house. $127,900. Charlie Reid*, 623-3393 or 983-5914. brick 234 King Street East, Bowmanville Telephone 623-3393 Toronto Line 686-1035 REALTOR Over 30 Years Quality Real Estate Service EXECUTIVE HOME $166,900. Large rooms - spacious foyer. Main floor family room with fireplace, fireplace, 4 bedrooms, master ensuite ensuite and much more. Bowmanville. Arleen Handley*, 623-3393 or 416-797-2306. HORSES, HORSES-$179,900. Custom built 1700 sq. ft. home, 4 bedrooms, double car paved drive. 2 barns, 3/4 acre. Newcastle. Charlie Reid*, 623-3393 or 983-5914. 18.6 ACRES - NEWCASTLE Super view of Lake Ontario. Bungalow, double car garage, 2 road frontages. Priced to sell. $234,900. Charlie Reid*, 623-3393 or 983-5914. FIRST CLASS APARTMENT $750.00 monthly. Gorgeous 3 bedroom unit with two 4 pc. baths, air conditioned. Bowmanville, central location, parking. John Shewchuk* 623-3393 or 623-5927. V wS' "••AW . NATURE LOVER'S PARADISE East of Orono. 1 acre pond. Private 3 bedroom home on 10.8 acres. Trees, wildlife. $199,900. Charlie Reid*, 623-3393 or 983-5914. CENTURY HOME - HWY. COMMERCIAL Excellent value. Super 4 bedroom brick home, family room, large kitchen, Pride of ownership, plus superb 3000 sq. ft. shop, heated, Insulated, drlve-ln door, finished office. Must be sold. $195,000, Nestleton. John Shewchuk* 623-3393 or 623-5927.