Toronto Income Property Newsletter: March 2016
The demand for income properties in the Toronto central core continues to outpace supply. January and February saw fewer duplexes and triplexes than I would have liked so hopefully we will see more inventory hit the market this month. The spring market will be upon us soon. Same old, same old: Low interest rates coupled with more people entering the market has been driving prices up and cap rates down. Clients keep asking me when this will stop, but this is our new reality folks, at least for now.
I’d like to wish you all a Happy St. Patrick’s Day and Easter this month.
New CMHC borrowing Guidelines
Starting this past February, CMHC now requires a 10 per cent down payment on the portion of any mortgage it insures over $500,000. The five per cent rule remains the same for the portion up to $500,000.
"We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated," newly appointed Finance Minister Bill Morneau commented, "and we want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home."
With these new rules, someone looking to buy a $750,000 home would need to have a minimum down payment of $50,000, which is what you get when you add five per cent of $500,000 and 10 per cent of the remaining $250,000. Banks are forbidden to provide "high-ratio" mortgages — when the amount being borrowed is more than 80 per cent of the home's purchase price — without taking out insurance for it.
The Importance of Home Inspections
As many of you know we have been in a Sellers’ market for a couple of years now. In multiple offer situations some buyers elect to purchase a home without getting a home inspection. Or they rely on some abridged version provided by the Sellers. Often there is sufficient time for the buyer to do their own inspection in advance of the offer date. It may be a shame to do an inspection on a property that you will not own, but that is better than buying a place without knowing for sure that there aren’t any major deficiencies.
You cannot rely solely on how nice a place appears to have been renovated. It’s the stuff that you don’t see that concerns me. Last year a client of mine almost bought a completely renovated house with a basement suite. The Seller was
hoping for multiple offers so that an inspector wouldn’t walk through the place and find the hidden deficiencies. More than half the house was still wired with knob & tube even though the panel looked completely clean. Also, the flat part of the roof was completely shot. Mind you, the sloped part which was visible to the eye had been replaced. Luckily, we didn’t get caught because we took the time to check things out.
Remember that all due diligence is on the buyer’s shoulders. Don’t trust Sellers or their agents. The Seller isn’t warranting anything when you buy a property so please be careful and get your property inspected so you know precisely what you are dealing with.
Can you charge your tenants for hydro without separate meters?
If you only have one hydro meter coming into your income property you can still charge your tenant an additional sum for hydro and gas each month. You may apportion each suite a share of the overall utility costs based on the overall square footage they occupy within the building. When you have separate meters, hydro can bill your tenants directly. Here is the relevant section of the Residential Tenancies Act which addresses this. 138. (1) A landlord of a building containing not more than six rental units who supplies a utility to each of the rental units in the building may, with the written consent of the tenant, charge the tenant a portion of the cost of the utility in accordance with the prescribed rules if,
(a) the landlord provides adequate notice to the tenant in accordance with the prescribed rules; and
(b) the rent for the rental unit is reduced in accordance with the prescribed rules. 2010, c. 8, s. 39 (1). (2) If a landlord charges a tenant a portion of the cost of a utility in accordance with subsection (1), the utility shall not be considered a service that falls within the definition of “rent” in subsection 2 (1). 2010, c. 8, s. 39 (1).