Should you care about the Government’s Housing Changes – and let’s Renovate Houses!

So I’ll talk about the subject that’s on everyone’s mind – the Government’s new 16 point plan to ‘tame’ the housing market. We all knew something was coming down the pipeline, and it definitely broke all the headlines and dinner table conversations when it was released last week.

The most interesting part about all this is that most of it is geared towards investors – with a focus on how investment real estate is creating chaos for the housing market.

Although it consists of 16 different points, there are a few points that seem most significant.

1.A 15-per-cent Non-Resident Speculation Tax (NRST) on the price of homes in the Greater Golden Horseshoe (GGH) purchased by individuals who are not citizens or permanent residents of Canada or by foreign corporations.

This same measure was implemented in Vancouver recently, in an attempt to curb their rapidly rising real estate prices. The thing is, if Vancouver is any example, it only worked temporarily – for about six months.  In and of itself, this wasn’t the cause for the slow down.  It was more the fear mongering that occurs when these types of changes happen, where domestic buyers sit on the sideline and wait, or sell their properties in a frenzy.

My take on this is as follows – there are huge numbers of very wealthy foreign buyers (in Country’s like China) who are desperate to remove their money and park it somewhere safe.  Do you really think that a 15% tax is going to stop them anyway?  In addition – there are exemptions from these taxes for students and other landed immigrants who are being used as channels to purchase property in Canada.

So it would seem that our market will follow the same trend as Vancouver’s – a slight blip (due to a pause from local buyers) who will then jump back in over time.

2. Expanding rent control to all private rental units in Ontario, including those that were built after 1991

I think this has been the most talked about point.  Quite frankly one that doesn’t affect me personally – as most of the homes I buy are older and already subject to rent control.  But for those purchasing new constructions it is definitely a pain point.

At the event I was at this weekend, there was lots of buzz that builders will claw back on constructing the rental units which in turn is working against creating more supply of rental housing.

While it will be favourable for renters that get rent-controlled properties, such action incents builders to shift away from constructing new rental projects,” said Craig Alexander, chief economist with the Conference Board of Canada. Financial Post

The other two points that are noteworthy are a standard lease document (which I am very curious to look at) and a tax on vacant properties.

Let’s see how the next few months unfold and how the market reacts.  At the end of the day, the economic fundamentals in Ontario are great – we have large numbers of immigrants coming in and not enough inventory for the long term.  This means that there will always be a supply and demand issue.

Either way, my advice is to look at the fundamentals and the numbers – not the market.  I look at investing in real estate as a business – and that means making sure each individual investment makes money.  If it does – who cares about anything else.

In addition, I think that this is a welcomed opportunity.  The market has been so hot, that a little cool down is much needed and well appreciated.  This is a great time to buy.  I am already seeing more and more listings on the market, however, this is also a reflection of the Spring seasons whereby we typically see the greatest number of listings.

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I am currently working on a few legal duplex projects and I get lots of questions from investors on this process.  I will write a future blog post more on the process – but it definitely has its challenges.
Many folks want to flip – and I understand that it is one of the few ways to create income through Real Estate that is short term in nature.  I prefer to refinance and hold all of my properties, but that is a personal preference.
Adding secondary suites to nice homes in nice areas is a safe way to create equity in a home through the renovations process.  By adding a unit, a homeowner or an investor is able to create an extra income within the property – which is so very beneficial with the increasing home prices in today’s market.
Best of all, when it is done legally, you truly do have a rare product as many of the units out there are not legal and owners do not warrant the retrofit status when they sell.
Finding the right property is key in this process.  I currently have a few conversions on the go, but this is one of my most recent finds and I think it is going to be awesome.

 

 

 

 

 

 

 

This home had a beautiful main floor – which makes my life easier.  The basement was also completely unfinished – I love a blank slate.  The ceilings heights were perfect and the lot size was large enough.  These are just some of the things I look for when I’m doing a walk through and deciding if a property will fit my criteria.

The project is now well underway and I will share some progress updates and tips with you in my next post.

This is by far my favourite strategy, it mixes renovating and creating large amounts of equity with the concept of long term, beautiful rental dwellings to add to my portfolio.

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA

Your Real Estate Investment Advisor, Coach & Realtor
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