GTA Real Estate Softens. Reduce Risks..

Excerpted from Moneyville, The Toronto Star
As GTA real estate softens, how to reduce risk

Buying a house can be daunting, but a little planning makes it less stressful.
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By Mark Weisleder | Sun Jul 29 2012

For every pundit who says the GTA real estate market will crash, there is someone else who says it will remain stable or even grow. I fall into that camp. Even so there are signs of weakness in the market. June resale figures for the GTA are 5 per cent lower than a year ago, according to the Toronto Real Estate Board. June prices were also lower than April and May, although still 7 per cent higher on average than last June. Some say this is a typical summer slowdown while others see storm clouds on the horizon. Whatever your vieww, here are some ways to reduce your risk, whether you own a home or investment property.

Pay down your mortgage: Increase your monthly payment. Even a little makes a difference. The more equity you build in your home, the bigger the cushion if prices go down.

Lock in your interest rate: There has never been a better time to lock in your interest rate. Three year rates are 2.84 per cent this week and 6-years at 3.59 per cent. This cushions you from unexpected rate or price swings.

Cover your costs: When thinking about a real estate investment, do the math. After making the down payment, the rent should at least pay for all expenses on the property. This includes mortgage interest, property taxes, insurance and utilities. Add another 10 per cent to pay for a property manager, who will make your life easier in managing your investment. Do not invest in real estate that does not carry the expenses. That’s just speculation that prices will increase. You can get caught if there is any slowdown.

Share your risk: Consider taking on a partner in any investment real estate. You get some equity out and share the bills and risk. Always get tax advice to check how much tax you may have to pay as a result of any sale. Draw up a partnership agreement to make sure everything is clear.

Do tenant checks: This is true for commercial or residential tenants. Do proper background checks and get additional guarantees if you are not satisfied with anyone’s credit or prior rental history. If you lose your tenant, you will have trouble paying your expenses.

Treat your tenants with respect: Your tenants are protecting your investment. If you treat them with respect, they will look after your building better. If your tenant is nearing the end of their lease, especially in a commercial situation, approach them to negotiate an extension to the lease early, to protect against someone else taking them away. If you treat your tenants the right way, they won’t bother to look anywhere else.

If markets collapse, no investment is safe, including stocks and real estate. Still, by taking the proper precautions, you should be able to safely ride out the storm and may even be in a position to take advantage of any falling prices by becoming a buyer.

Mark Weisleder is a Toronto real estate lawyer.Contact him at mark@markweisleder.com