Quite often we can hear credit officers will use the term pre-qualified. But exactly that means?
Pre-qualification   is the first step in the mortgage application process, in which the lender takes into account basic information about a borrower’s financial standing, including his or her income, assets, and debts, in order to approximate a loan amount the borrower might qualify for. It’s important to note that the amount is not guaranteed for approval, since the figure established by the pre-qualification process is based on unverified information provided by the borrower.

A mortgage with a down payment of 20% or more of the value of the property.

Buying a house/condo is a quite complicated subject. There are many reasons why people are buying properties. I will talk why I bought all my properties and how I picked them.
    So let’s start with the reasons, there are basically only two reasons to buy these are investment and place to live. However it can be a combination, for instance you can buy a property as a place to live but at the same time thinking about it as an investment so at some point they might to sell it and move to smaller place. I personally do not consider such situation as an investment, because until you are living in the property it’s very difficult to manipulate with it. Second situation it’s when people are buying property for pure investment, short term or long term it’s still an investment. So for better understanding let’s play couple of scenarios.

Place to live
Majority of the Canadian population is following this scenario. You are buying a condo/house and taking mortgage at the bank to pay for the property.

Pros
1. You are investing and enjoying living in a comfort at the same time.
2. It’s a great way to start building your net worth.
3. You have a tangible asset in your possession, in most of the situations appreciating asset.

Cons
1. If you lose a job you are in the risk to lose the property. Basically if you don’t have enough money to pay the mortgage you will need to sell it or you going to lose it to bank favor. If you will be forced to sell it could be not the best time to do it for example market is down.
2. There are additional costs associated with living in your own property – property taxes, utility bills, property maintenance. So when people are saying that they pay less to the bank when they are living in their own property compare to living in rental property it’s not exactly accurate. Quite often they are forgetting about additional costs.

Investment/Passive income
Canadian upper middle class quite often would buy a second property as an investment. For instance I’m living in my primary residence and paying a mortgage, but on top of it I own a rental property (condo) also with mortgage and I rent it out.  I not necessarily have to live in primary residence but I still can have a rental property. It does make sense in some situations.  Also I would like to talk later about short term and long term purchases. So here we go.

Pros
1. It’s a tangible asset and in most of the situations it’s an appreciating asset (based on the market situation).
2. If you have any other investments it’s an addition to your portfolio diversification.
3. You have all freedom in the world to decide when to sell it in condition you can sustain mortgage payments and associated costs.
4. You can easily turn it into passive income, rent it out.

Cons
1. It requires your attention and time to maintain it.
2. I you made wrong purchase you will be stuck with it for long period of time and it can cause financial disaster if not planed properly.

As you can see it’s clear that to have a property either way is WORTH IT!
In the next post I will talk more about investment properties and ownership scenarios.

Just the other day I received MPAC (Municipal Property Assessment Corporation) report. I'm really impressed with work these guys did with the website. What is good for this report and what does it mean to you as a home owner –here is an idea.
Since majority of us are living in houses and thinking about it as an investment it’s very useful to get these reports and get a sense of what happens with real estate market. It is not accurate market reflection but more of the trend. As a rule the report is falling behind the actual market by 2~3 years.
So what we are looking for are two things.

1. What is the trend in real estate market - AboutMyProperty TM
2. How much property taxes you will be paying in a near future - Property Assessment Notice

AboutMyProperty TM
Let me elaborate a little on market trends. There was an announcement in most recent report I received about new service – AboutMyProperty TM at http://www.mpac.ca/ Letter contained username and password to online account. There was plenty of very interesting and useful information inside of the letter but most important is an online research tool. I can’t stress out enough about its importance. So when you login you can find out what your neighbours properties worth. This is huge by getting this information you can assess where you stand with your property, are you in a risk, what is a trend in the neighbourhood and so on. It’s first time in order to evaluate my situation I don’t need to go to MLS and spent hours researching the data. 
 

Property Assessment Notice
“The assessed value of your property is used as the basis for calculating your property taxes. MPAC’s role is to accurately value and classify properties in Ontario. Your municipality/local taxing authority is responsible for setting property tax rates.” Basically that means what is written in property assessment notice that’s what you are going to pay as property taxes in the next year or two. So if you want to know exactly what is your tax payment for the next year you take Assessed value of your property from corresponding tax year and multiply by Tax rate of your municipality. Majority of municipalities post Tax Rates on their web sites so just google “Toronto Property Tax Rates” (instead of Toronto put your municipality name) and you will get tax rates.

So the formula looks like that:
(Assed value of your property) x (Residential Tax Rate) = (Annual property tax)