REALTOR BLOG
By Saffron Quist | Flex Realty Group
📞250.550.4466
✉saffronquist@gmail.com
Purchasing Real Estate is one of the most empowering moves you will ever make!
When I was 19 and still living at home, my Mom mentioned that she was considering charging me rent (like a nominal $200 or so). About 7 minutes later, I opened the Real Estate leaflet that used to come in the Sunday newspaper and made the decision that I was moving out.
I had no clue what I was doing. I had never bought or sold property before, never had a mortgage or bank loan outside of a $700-credit-limit visa, and… I also had no inhibitions. I was doing this.
My 3 part-time minimum-wage paycheques and I got on the phone and began booking property viewings. I did have enough sense to start at the cheapest properties; the small older houses and outdated condos.
I ended up purchasing a 1990’s condo in Coldstream. It was in good shape and had a great layout but was dated… kinda perfect for a first. I did a little painting and replaced a light fixture or two and about 18 months later, I sold for 80% more than I had paid. The profit became my down payment for the next property.
Heading into the purchasing process can feel SO overwhelming even for a veteran. There are a lot of moving pieces and things to put into place… not to mention that both federal and provincial legislation are everchanging which affects property values and qualification requirements. You don’t need to be an expert! You just need to find the right professionals, take their advise and have a bit of blind faith. If I could do it at 19, you can to.
Here are 5 things you should absolutely do (or not do) to get started:
1. Do not take out any new loans.
Oh my gosh, this is probably the number one mistake I see happening. Buyers are shopping for a home, they are pre-approved for a mortgage… they may even have an offer pending on a property and then BOOM, they buy a new car with a loan orchestrated by the dealership.
Mortgage qualifications are calculated on a few items including your debt load. Until your property purchase has closed and you’re sipping margaritas on your new deck… all your debts will be factored in and you could completely disqualify yourself. Wait to take out new loans until after you’re all moved in.
2. Do build your credit and down payment.
To qualify for a mortgage you will need a good credit score and at least 5% for a down payment.
The easiest way to build credit is to open a credit card, use it in small amounts and then pay it off in-full each month. Also, be sure to prioritize things like your cell phone bill and make sure your payments are on time. Keeping your bills at a $0 balance and being prepared to close credit-card accounts will be powerful when applying for a mortgage.
Squirreling away 5% or more is a bit more difficult in today’s market but here are some ideas to help this build faster:
Open a savings account with the highest possible interest rate, open a TFSA (tax free savings account), and/or purchase low-risk investments. This way you’re making a little revenue off the money you deposit. I personally love working with a Financial Advisor who is not connected to a specific institution (they work for you not the bank). Let them know you are saving for a home and you want your money to be LOW-RISK and LIQUIDABLE at any time (meaning you can cash-out without notice) and they will guide and educate you on some great options.
Save. I know this sounds obvious but every time you go to splurge on something ask yourself “do I want this new outfit or do I want home ownership?” and then deposit that amount of money into your savings account.
Ask family for money gifts. If you’re lucky enough to have parents, grandparents, aunts, uncles, etc. who have a little extra cash and appreciate your property-purchasing efforts, ask for money for your birthday and Christmas.
Ask a family member to invest with you. Be clear that this is a partnership and not a freebie! Perhaps Uncle John is interested in a small real estate investment?..
Set ownership percentages (50% you / 50% him -or- 60/40 or 25/75). This amount is equal to how much each of you are responsible for the down payment and financing… it will also be the amount that you receive when you sell. Partnering with someone means that your initial costs are significantly lower and the profits are shared.
Set a timeline and have an exit strategy. I’m sure Uncle John will want to see his money again in his lifetime. Consider your first property a stepping stone and not a forever home. I recommend choosing a timeline of 1-5 years while watching the market. You want a little bit of wiggle room to sell when things are hitting a price climax so that there are profits to stuff in your pocket at the end of the sale.
Pay all the monthly and annual costs instead of rent. Since Uncle John owns half the property, it would be reasonable for him to expect some sort of rent while you’re living there. Instead of traditional rent, pay the annual property taxes, strata fees and take care of all the maintenance. For him, there is zero cost or work involved.
Having a great Mortgage Broker is very helpful at this stage. They can guide you to some awesome tips and help you do the math so you know exactly what you’re aiming for. Let me know if you need a recommendation :)
3. Make the first one a stepping stone.
This is not necessary, but will give you a nice boost towards your forever home. I often see first time home buyers holding out for their dream property and then never being able to bust into the market. Here is something to remember, once you’re in the market… you have something to sell. You’re part of the game instead of a spectator.
Consider the first 1-3 properties as investments, an education and stepping stones to your ultimate goal. Get a good deal when the market it a little quieter (often November - March and/or when interest rates increase slightly and everyone else throws a hissy fit). Buy something you don’t necessarily love but has awesome resale value (great location, nice layout, etc). If you’re handy and creative, chip away at few cosmetics such as paint, lights and decor (if you’re not handy or creative, do nothing!). Watch the market and when there is a buyer frenzy, sell at a profit. WHAMO, now you have a larger down payment.
This is a great time to have a skilled Realtor in your back pocket. Choose someone who has experience flipping and investing (like me!)
4. Stay away from leaseholds.
On each MLS listing you will see the status as ‘Freehold’ or ‘Leasehold’. Leaseholds are typically found in mobile home parks and on Indigenous lands, and can be offered by a developer, native band or even the government. You’ll be tempted by the significantly lowered price tag but here’s the kicker… you’re not buying real estate. You are buying an object on a leased lot. This “object” may look exactly like a house, however, because it’s not on land that you own, you cannot mortgage it.
Leaseholds can be a good option for cash buyers, sometimes those heading into retirement or looking for an affordable vacation property but they are not a great way to get ahead in the market. You will need to apply for a chattel loan (similar to a car or boat loan) which often has a higher interest rate -and- leasehold property are way more challenging to sell making them less than ideal as an investment.
5. Get a solid budget.
Work with your mortgage broker. Crunch the numbers. Do the math. You may qualify for more than your willing to spend every month -or- you may qualify for less than you were hoping and that’s ok! Let’s just get you into the dang market and find something in that budget for now.
Going shopping without a clear budget is a recipe for disappointment. You may find something you love just to discover you can’t purchase it… or that you’re too slow in organizing financing and someone else scoops it.
If you don’t have a great Mortgage Broker, ask me for a recommendation!
Get out and enjoy a fall hike with your kids with this fun, free scavenger hunt, perfect for Okanagan trails.