1 2 3 Praise for Books by Douglas Gray The Canadian Guide to Will and Estate Planning (with John Budd) The authors have done a masterful job.... This ...
1 (By David for praise.) The LORD Is Kind and Merciful Is God really good, all the time? Psalm 145:9 145 I will praise you, my God and King, and alway...
1 In Praise of Libraries, Books, and Bibliophiles JOHN S. TANNER I speak today in praise of libraries, books, and bibliophiles. This topic is colored ...
1 LONDON BOOK FAIR DOUGLAS STEWART FINE BOOKS2 Add your details to our list for monthly New Acquisitions, visit Print Post Approved /0034 Image on f...
1 Praise for books by Nobel Peace Prize finalist R. J. Rummel "26th in a Random House poll on the best nonfiction book of the 20th Century."...
1 2 PRAISE FOR NOVELS BY PAUL L. MAIER A SKELETON IN GOD S CLOSET Debate over the Resurrection surfaces in Maier s new novel A Skeleton in God s Close...
1 Praise for the Lord sorted by title A Beautiful Life 1 A Beautiful Prayer 2 A Broken Spirit 901 A Charge to Keep I Have 3 A Child of the King 4 A Co...
1 2 Edited By Douglas Spelman3 The Woodrow Wilson International Center for Scholars, established by Congress in 1968 and headquartered in Washington, ...
1 '.. r. NEWS SERVICE OF THE SOUTHERN BAPTIST CONVENTION 460 JAMES ROBERTSON PARKWAY, NASHVILLE. TENNESSEE W. C. Fields, Director Thea Sommerkamp, Ass...
1 C2 2013 by Brett McCracken Published by Baker Books a division of Baker Publishing Group P.O. Box 6287, Grand Rapids, MI Printed in the United State...
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Praise for Books by Douglas Gray The Canadian Guide to Will and Estate Planning (with John Budd) “The authors have done a masterful job. . . . This is a shelf reference every Canadian taxpayer and every Canadian family should have.” —The Globe and Mail “An informative, practical guide . . . The authors . . . cover all the bases.” —National Post “This guide promises a general, practical, and objective overview of the issues, options, and terminology involved in estate planning. Fortunately, it delivers on all counts.” —CAmagazine The Canadian Snowbird Guide “. . . an invaluable guide to worry-free part-time living in the U.S. . . . by one of Canada’s bestselling authors of business and personal finance books . . . most comprehensive book to address issues for retired part-time residents of the United States . . .” —The Globe and Mail “. . . I hate to sound like a cheerleader for Gray and his Canadian Snowbird Guide, but RAH! RAH! RAH! Regardless . . . the book is a complete how-to—written in his characteristically thorough style . . . Gray delivers the goods right where the Snowbirds live. If you or someone close to you winters in the U.S., you should have this book . . .” —Business in Vancouver “. . . Gray has written a reference book, thoughtful and complete, and prepared with the authoritative research skills and knowledge of a fastidious solicitor . . . as practical as a sunhat on a Tampa afternoon, and that alone warrants it a place on every southbound RV’s bookshelf.” —Quill and Quire Mortgages Made Easy “. . . Gray’s latest endeavour is a good educational tool . . . no legalese here, just some good ol’ street-level English that explains—mostly for the benefit of novices—all the real and perceived complexities of mortgages . . .” —Calgary Herald
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Making Money in Real Estate, 1st Edition “Gray delivers the goods. It is all-Canadian, and not a retread book full of tips that are worthless north of the U.S. border. It’s chock-full of practical street smart strategies and advice, pitfalls to avoid, samples, what-to-look-out-for checklists and information.” —Business in Vancouver The Complete Canadian Small Business Guide (with Diana Gray) “. . . This guide is truly a gold mine . . . taps into the authors’ extensive expertise . . . an encyclopedic compendium . . . the bible of Canadian small business.” —Profit Magazine “. . .Detailed, very informative, scrupulously objective as well as being written in a style that is refreshingly clear of jargon . . . This one is a ‘must-buy’ . . .” —BCBusiness Home Inc.: The Canadian Home-Based Business Guide (with Diana Gray) “Should be required reading for all potential home-basers . . . authoritative, current and comprehensive.” —The Edmonton Journal The Complete Canadian Franchise Guide (with Norman Friend) “. . . This book tells it like it is, a realistic look at franchising and what it takes to be successful. The information provided is clear, concise, practical and easy to apply . . .” —Canadian Franchise Association Raising Money: The Canadian Guide to Successful Business Financing (with Brian Nattrass) “. . . The authors have combined their formidable talents to produce what may be the definitive work on raising money in the Canadian marketplace . . . written in plain language, with a user-friendly question and answer format and contains invaluable checklists, appendices and information sources . . . a definite keeper for potential and practicing entrepreneurs alike . . .” —Canadian Business Franchise Risk-Free Retirement: The Complete Canadian Planning Guide (with Graham Cunningham, Tom Delaney, Les Solomon, and Dr. Des Dwyer) “. . . This book is a classic . . . will be invaluable for years to come . . . it is arguably the most comprehensive guide to retirement planning in Canada today . . .” —The Vancouver Sun
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BOOKS BY DOUGLAS GRAY Real Estate Titles Making Money in Real Estate: The Canadian Guide to Profitable Investment in Residential Property Real Estate Investing for Canadians for Dummies (with Peter Mitham) The Canadian Guide to Buying and Owning Recreational Property in Canada The Canadian Landlord’s Guide (with Peter Mitham) 101 Streetsmart Condo-Buying Tips for Canadians Mortgages Made Easy: The All-Canadian Guide to Home Financing Home Buying Made Easy: The Canadian Guide to Purchasing a Newly Built or Pre-Owned Home Condo Buying Made Easy: The Canadian Guide to Apartment and Townhouse Condos, Co-ops and Timeshares Mortgage Payment Tables Made Easy The Complete Canadian Home Inspection Guide (with Ed Witzke) Small Business Titles Start and Run a Profitable Consulting Business Start and Run a Profitable Business Using Your Computer Have You Got What It Takes? The Entrepreneur’s Complete Self-Assessment Guide Marketing Your Product (with Donald Cyr) The Complete Canadian Small Business Guide (with Diana Gray) Home Inc.: The Canadian Home-Based Business Guide (with Diana Gray) Raising Money: The Canadian Guide to Successful Business Financing (with Brian Nattrass) The Complete Canadian Franchise Guide (with Norman Friend) So You Want to Buy a Franchise? (with Norman Friend) Be Your Own Boss: The Ultimate Guide to Buying a Small Business or Franchise in Canada (with Norman Friend) The Canadian Small Business Legal Guide Personal Finance/Retirement Planning Titles The Canadian Snowbird Guide: Everything You Need to Know about Living Part-time in the USA & Mexico The Canadian Guide to Will and Estate Planning (with John Budd) Risk-Free Retirement: The Complete Canadian Planning Guide (with Tom Delaney, Graham Cunningham, Les Solomon, and Dr. Des Dwyer) Software Programs Making Money in Real Estate (jointly developed by Douglas Gray and Phoenix Accrual Corporation)
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THE ESSENTIAL CANADIAN GUIDE TO INVESTING IN RESIDENTIAL PROPERTY Third Edition
ISBN 978-1-118-11594-7 (pbk); ISBN 978-1-118-12203-7 (ebk); ISBN 978-1-118-12204-4 (ebk); ISBN 978-1-118-12205-1 (ebk) The material in this publication is provided for information purposes only. Laws, regulations, and procedures are constantly changing, and the examples given are intended to be general guidelines only. This book is sold with the understanding that neither the author nor the publisher is engaged in rendering professional advice. It is strongly recommended that legal, accounting, tax, financial, insurance, and other advice or assistance be obtained before acting on any information contained in this book. If such advice or other assistance is required, the personal services of a competent professional should be sought. Production Credits Managing Editor: Alison Maclean Executive Editor: Don Loney Production Editor: Pauline Ricablanca Cover Design: Adrian So Composition: Thomson Digital Printer: Friesens Printing Ltd. John Wiley & Sons Canada, Ltd. 6045 Freemont Blvd. Mississauga, Ontario L5R 4J3 Printed in Canada 1 2 3 4 5 FP 16 15 14 13 12
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Chapter 1: Understanding Real Estate Investment Why Consider Investing in Real Estate? Understanding the Real Estate Market Establishing Your Investment Strategies Key Investment Strategies to Consider Buying with Partners Summary
1 2 10 14 15 17 29
Chapter 2: Types of Residential Real Estate Condominium Single-Family House Property for Renovation Recreational Property Multi-unit Dwelling Apartment Building Raw Land Summary
31 31 45 54 57 63 63 66 68
Chapter 3: Finding and Evaluating the Right Property What to Consider When Selecting a Property Where to Find a Property for Sale Determining the Value of the Property Summary
69 69 83 88 102
Chapter 4: Selecting Your Advisory Team Common Selection Criteria Selecting a Realtor Selecting a Lawyer Selecting an Accountant Selecting a Lender Selecting a Financial Planner Selecting a Mortgage Broker Selecting a Building or Home Inspector
103 103 106 110 114 117 117 122 123
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Selecting an Insurance Broker Summary
Chapter 5: Understanding the Financing Aspects What Is a Mortgage? Types of Mortgages Sources of Mortgages Key Factors to Consider When Selecting a Mortgage General Contents of a Mortgage Determining the Amount of Mortgage Available Applying for a Mortgage Cost of Obtaining a Mortgage Defaulting on Your Mortgage Creative Financing Dealing with Negative Cash Flow Summary
Chapter 6: Understanding the Legal Aspects Types of Ownership of Property Understanding the Purchase-and-Sale Agreement Services Provided by the Purchaser’s Lawyer Services Provided by the Vendor’s Lawyer The Listing Agreement Forms of Legal Structure to Hold Investment Property Other Legal Cautions and Protections to Consider Summary
167 167 170 180 185 188
Chapter 7: Understanding the Tax Aspects Local and Regional Taxes Provincial Taxes Federal Taxes Income Tax Tax Implications of the Purchase Structure When Buying an Apartment Building Summary
201 201 202 202 210
Chapter 8: Understanding the Insurance Aspects Organizing Your Insurance Program Types of Property Coverage Types of General Insurance Summary
235 235 237 244 248
Chapter 9: Buying Your Property Selecting the Right Real Estate Agent Determining a Property’s Value
249 249 252
190 193 200
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Preparing the Offer Presenting the Offer Giving a Deposit Making a Deal Using a Lawyer Insuring Gain Closing the Deal Summary
255 256 261 262 263 263 264 266
Chapter 10: Managing Your Property Types of Management Keeping Records Finding the Right Tenant Maintaining Rental Properties Avoiding Common Fire Hazards Improving the Bottom Line Saving on Expenses Summary
267 267 272 275 285 291 293 297 298
Chapter 11: Selling Your Property Determining When to Sell Determining How to Sell Preparing to Sell Preparing the Property Closing the Sale Moving On Summary
299 299 301 306 309 312 314 315
Chapter 12: Understanding Financial and Estate Planning An Introduction to Financial Planning An Introduction to Estate Planning Summary
317 317 317 331
Appendix Form 1: Personal Cost-of-Living Budget Form 2: Personal Net-Worth Statement Form 3: Calculating Your Gross Debt-Service (GDS) Ratio Form 4: Calculating Your Total Debt-Service (TDS) Ratio Form 5: Projected Cash Flow Form 6: Projected Income and Expense Statement Form 7: Projected Balance Sheet Form 8: Income Approach Worksheet Form 9: Investment Property Analysis Checklist Chart 1: Criteria for Determining Real Estate Cycle Chart 2: Recovery on Renovation Costs
333 333 336 341 342 344 346 347 348 350 352 352
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Chart 3: Amortization Period in Year Chart 4: Interest Payments Chart 5: Prepayment or Increased Payment Savings Chart 6: Mortgage Amortization Chart Chart 7: Monthly Mortgage Payments for Principal Plus Interest Checklist 1: Real Estate Assessment Checklist Checklist 2: Mortgage Checklist Checklist 3: Real Estate Purchase Expenses Checklist Checklist 4: Business Deductions Checklist Checklist 5: Landlord and Tenant Suite-Inspection Checklist Checklist 6: Master Checklist for Successful Real Estate Investing
353 353 354 354 355 356 364 368 370 372 376
Further Education and Information
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The past decade has seen one of the biggest real estate booms and busts in living memory. The boom times attracted many to become real estate investors, and the bust led to many more picking up bargain properties. And still others have hesitated due to concern over their lack of knowledge of just how to profit from the boom and bust periods. Others, of course, invested anyway, but lacked a due sense of caution or any clear plan or objective and lost money. The key to success is an approach that’s ambitious and informed, prudent when it comes to sizing up the opportunities, and satisfied with the financial wealth and independence that prudence brings. This book is a practical step-by-step guide designed to assist you in attaining your financial and investment objectives through real estate. It provides a realistic awareness of market conditions, and the basic knowledge for applying sound judgment to the opportunities that are available. While sound judgment is always important, the information that makes it possible changes. This book appeared 20 years ago, in 1992, well before most investors were looking online for information: then again, in 2005, at the height of the real estate boom of the last decade. While it retained the core content of the original edition, it was revised to reflect the growth in popular interest in real estate investment and connected readers with the many new online sources of information. This latest edition again updates the information regarding online sources, which have increased in scope and quality since 2005. Revised with the assistance of Peter Mitham, my co-author on Real Estate Investing for Canadians for Dummies (Wiley), it is designed as a reference to help you navigate the wealth of information now available while providing street-smart advice on investing in real estate in the post-boom era. Changes to lending practices, a more conservative attitude, and a focus on cash flow that will help reduce risk are all factors that contributed to this edition. Accordingly, the material in Chapter 5, “Understanding the Financing Aspects,” is significantly updated while Chapter 10, “Managing Your Property,” is expanded. Changes to tax
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policies, particularly the harmonization of federal and provincial sales taxes in Ontario, have prompted updates to Chapter 7, “Understanding the Tax Aspects.” Chapter 9, which in previous editions was devoted to negotiating strategies, has been fleshed out as a full-fledged guide to buying a property. These changes, and a comprehensive review of the entire text, are designed to fine-tune the content to today’s reality. The hope is the new information and a clearer presentation will increase your confidence when sifting through information and making significant decisions regarding your real estate investment. Whether you’ve bought a property as a principal residence, a home with a secondary suite, or as straight-up investment, the guidance this book provides aims to boost the return you see on your investment. I hope you enjoy this book and find the information helpful and encouraging. Your candid feedback on how this work can better meet your needs is welcomed and will assist in preparing future editions. Please refer to my contact information and website at the back of the book under “Further Education and Information.” Good luck and good fortune! Douglas Gray Vancouver, B.C. www.homebuyer.ca
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I am grateful for the kind assistance given to me by many parties, including the Canada Mortgage and Housing Corporation and the Canadian Real Estate Association. Thanks to Ken Chong of DMCL, chartered accountants, in Vancouver, B.C., for all his helpful assistance from time to time on tax implications of various business and investment scenarios. I would like to express my appreciation to Don Loney, Executive Editor at John Wiley & Sons, for his patience, encouragement, and insightful suggestions in the development of this new edition. I have had the pleasure of working with Don for over 20 years, since the first edition of this book was published. I have indeed been fortunate to work with such a consummate professional in the publishing business. Last but not least, I would like to thank Peter Mitham, a talented professional wordsmith and real estate expert, and collaborator on this new edition. Peter has been my co-author on two other Wiley publications—Real Estate Investing for Canadians for Dummies and The Canadian Landlord Guide.