Making Money in Real Estate

DOUGLAS GRAY, B.A., LL.B., formerly a practicing lawyer, has extensive experience in all aspects of real estate and mortgage financing. He has acted on behalf of buyers, sellers, developers, investors, lenders and borrowers. In addition, he has over 35 years of personal experience investing in real estate. He is the author of 26 best-selling real estate, business and personal finance books, and is as well a consultant and columnist. Mr. Gray is president of the Canadia Enterprise Development Group Inc. and lives in Vancouver, BC. His website is www.homebuyer.ca.

Preface xi Acknowledgments xiii

Chapter 1: Understanding Real Estate Investment 1

Why Consider Investing in Real Estate? 2

Understanding the Real Estate Market 10

Establishing Your Investment Strategies 14

Key Investment Strategies to Consider 15

Buying with Partners 17

Summary 29

Chapter 2: Types of Residential Real Estate 31

Condominium 31

Single-Family House 45

Property for Renovation 54

Recreational Property 57

Multi-unit Dwelling 63

Apartment Building 63

Raw Land 66

Summary 68

Chapter 3: Finding and Evaluating the Right Property 69

What to Consider When Selecting a Property 69

Where to Find a Property for Sale 83

Determining the Value of the Property 88

Summary 102

Chapter 4: Selecting Your Advisory Team 103

Common Selection Criteria 103

Selecting a Realtor 106

Selecting a Lawyer 110

Selecting an Accountant 114

Selecting a Lender 117

Selecting a Financial Planner 117

Selecting a Mortgage Broker 122

Selecting a Building or Home Inspector 123

Selecting an Insurance Broker 126

Summary 128

Chapter 5: Understanding the Financing Aspects 129

What Is a Mortgage? 129

Types of Mortgages 130

Sources of Mortgages 138

Key Factors to Consider When Selecting a Mortgage 139

General Contents of a Mortgage 144

Determining the Amount of Mortgage Available 148

Applying for a Mortgage 149

Cost of Obtaining a Mortgage 153

Defaulting on Your Mortgage 159

Creative Financing 163

Dealing with Negative Cash Flow 164

Summary 166

Chapter 6: Understanding the Legal Aspects 167

Types of Ownership of Property 167

Understanding the Purchase-and-Sale Agreement 170

Services Provided by the Purchaser’s Lawyer 180

Services Provided by the Vendor’s Lawyer 185

The Listing Agreement 188

Forms of Legal Structure to Hold Investment

Property 190

Other Legal Cautions and Protections to Consider 193

Summary 200

Chapter 7: Understanding the Tax Aspects 201

Local and Regional Taxes 201

Provincial Taxes 202

Federal Taxes 202

Income Tax 210

Tax Implications of the Purchase Structure When Buying an Apartment Building 226

Summary 233

Chapter 8: Understanding the Insurance Aspects 235

Organizing Your Insurance Program 235

Types of Property Coverage 237

Types of General Insurance 244

Summary 248

Chapter 9: Buying Your Property 249

Selecting the Right Real Estate Agent 249

Determining a Property’s Value 252

Preparing the Offer 255

Presenting the Offer 256

Giving a Deposit 261

Making a Deal 262

Using a Lawyer 263

Insuring Gain 263

Closing the Deal 264

Summary 266

Chapter 10: Managing Your Property 267

Types of Management 267

Keeping Records 272

Finding the Right Tenant 275

Maintaining Rental Properties 285

Avoiding Common Fire Hazards 291

Improving the Bottom Line 293

Saving on Expenses 297

Summary 298

Chapter 11: Selling Your Property 299

Determining When to Sell 299

Determining How to Sell 301

Preparing to Sell 306

Preparing the Property 309

Closing the Sale 312

Moving On 314

Summary 315

Chapter 12: Understanding Financial and Estate Planning 317

An Introduction to Financial Planning 317

An Introduction to Estate Planning 317

Summary 331

Appendix 333

Form 1: Personal Cost-of-Living Budget 333

Form 2: Personal Net-Worth Statement 336

Form 3: Calculating Your Gross Debt-Service (GDS) Ratio 341

Form 4: Calculating Your Total Debt-Service (TDS) Ratio 342

Form 5: Projected Cash Flow 344

Form 6: Projected Income and Expense Statement 346

Form 7: Projected Balance Sheet 347

Form 8: Income Approach Worksheet 348

Form 9: Investment Property Analysis Checklist 350

Chart 1: Criteria for Determining Real Estate Cycle 352

Chart 2: Recovery on Renovation Costs 352

Chart 3: Amortization Period in Year 353

Chart 4: Interest Payments 353

Chart 5: Prepayment or Increased Payment Savings 354

Chart 6: Mortgage Amortization Chart 354

Chart 7: Monthly Mortgage Payments for Principal Plus Interest 355

Checklist 1: Real Estate Assessment Checklist 356

Checklist 2: Mortgage Checklist 364

Checklist 3: Real Estate Purchase Expenses Checklist 368

Checklist 4: Business Deductions Checklist 370

Checklist 5: Landlord and Tenant Suite-Inspection Checklist 372

Checklist 6: Master Checklist for Successful Real Estate Investing 376

Glossary 383

Further Education and Information 395

Index 397