Eight areas to monitor to protect your home’s value and avoid costly repairs.

Whether old or new, a home is an investment worth protecting.

“The difference between a house the owner has paid attention to and one they have not can be amazing,” said Mike Becker, a home inspector for Calgary and surrounding areas with Pillar to Post Home Inspectors.

Homeowners can maintain the value of their investment by monitoring these areas of the home:

1. Property and Site

“After buying a new home, the grade and property may be in a state of settling and the most important part of this will be drainage,” said Becker. “Mature lots will typically have good drainage, but should still be monitored, particularly after major runoffs or new landscaping.”Watch for:

  • Drainage must move away from the structure.
  • Monitor during snow melts and heavy rain.
  • Most newer lots require some regrading once they settle, sometimes five to 10 years out, but always monitor.

Investment:

  • Repairs = $3 to $6 per square foot.

2. Roof

Michael Babisky, general manager at Astoria Homes, said the top concern for Calgary homeowners should be regular roof inspections. “I recommend every three to six months, especially with the frequent wind and hail here.”Watch for:

  • Implement a regular maintenance schedule for shingles and flashings after five years.
  • Characteristics of shingles near the end of usefulness: curling up, rounded edges and granule surface wearing off.
  • Caulking usually lasts three to five years and should be refreshed.
  • Inspect after severe weather.

Investment:

  • Gutter cleaning = $150 to $300.
  • Gutter replacement = $7 to $9 per linear foot.
  • Asphalt replacement = $3 to $7 per square foot.

3. Exterior

“The majority of houses are being done with vinyl siding – a good, long-lasting material, assuming it has been installed correctly,” said Becker. “Wall covering, such as siding or stucco, nearing end of life are usually very apparent.”Watch for:

  • Loose or incorrectly fitted siding around openings, where moisture can reach the structure or wind might blow siding off. Seal holes with caulking and replace damaged pieces.
  • Exterior penetrations, such as those around gas lines/meters and furnace venting, require yearly re-caulking.

Investment:

  • Repairs = $5 to $6 per square foot.
  • Replacement can be more economical than repair costs.

4. Attic

“Typically, people are only accessing the attic if they are running wires or when something has already gone wrong, especially leaks,” said Becker.Watch for:

  • Condensation from the living area can build up and stain the ceiling, or worse. • Check for condensation when it’s cold outside. Look for signs of frost on the sheathing or around the attic hatch.
  • Over time, attic insulation can lose volume, reducing its R value. Improve thermal efficiency by adding more insulation.

Investment:

  • Insulation = $2 to $5 per square foot.

5. Structure

“Usually, if there are structural problems, they’re not something that can be fixed with maintenance,” said Becker. “But monitoring is best.”Watch for:

  • Doors not opening and closing properly anymore.
  • Cracks in finishing might indicate structural problems, but don’t always require action. Monitor over time for possible moisture penetration or foundational movement.

6. Electrical

“Nearly every do-it-yourself home renovation project I have seen (involving electrical) has safety issues,” said Becker. “Get an electrician, I cannot say this enough.”Watch for:

  • Mis-wired receptacles can damage electronics or cause shocks, sparks and/or fires.
  • Professional installations should be maintenance-free unless something fails, like a ground fault circuit breaker/receptacle. These should be replaced.
  • A very hot distribution panel might indicate problems. Don’t touch it, call an electrician.

Investment:

  • Repairs = $150 to $250 per hour, plus material costs.

7. Heating

“There will come a time when replacing the furnace heating system will be more economical than the repairs and maintenance, but I have inspected many houses with furnaces 25-plus years old that have been well maintained,” said Becker.Watch for:

  • Prior to winter each year, Becker suggests opening the front panels to take a picture of the furnace for yearly comparison. Water or rust indicate it might be time for inspection.
  • Yearly furnace cleaning is key to maximizing its life, Babisky says. “Clean the humidifier at the same time.”
  • Replace filters every six months.
  • After 10 years, implement a regular furnace maintenance schedule, with inspection by an HVAC professional.

Investment:

  • Annual service and cleaning = $250 to $500.
  • Furnace replacement = $3,600 to $4,700.

8. Plumbing

“Get leaks fixed as soon as possible,” said Becker.Watch for:

  • Leaks around slow-draining sinks, bathtubs and showers.
  • Less available hot water or the pilot light repeatedly going out. Repairs can often add years to appliances.
  • Water heaters typically last 10 to 15 years, but can fail at any time, usually unexpectedly.

Investment:

  • Repairs = $150 to $250 per hour, plus material costs.
  • Water heater replacement = $800 to $1000.

 

-Natalie Noble

What to know if you’re considering a mortgage from an alternative lender.

Samantha Brookes has been warning Canadians to take a close look at the clauses in their mortgage contracts for years, but her refrain has become a bit more prevalent in recent months.

Since the Office of the Superintendent of Financial Institutions’ mortgage stress test was implemented in January, the founder of the Mortgages of Canada brokerage has seen “a huge influx” of Canadians who fail to qualify for a bank mortgage turning to alternative lenders that range from risky loan sharks to larger, more conventional companies like Home Trust.

While alternative lenders can provide a lifeline for Canadians who have run out of other financing options, Brookes said they come with pitfalls for those who don’t bother looking at the fine print.

“You need to read those contracts,” she said. “(With an alternative lender), the interest rates are higher, the qualifying rate is higher than if you were going with a traditional bank and they are going to charge one per cent of the mortgage amount (as a lender’s fee) for closing, so that means your closing costs increase.”

Alternative lenders tend to offer less wiggle room on their terms, so Brookes said that means you should pay special attention to another dangerous term she’s seen slipped into mortgage contracts: the sale-only clause.

It’s less common, Brookes said, but if left in, it might mean the only way you can break your mortgage is by selling your home. She usually makes sure it’s nixed from her clients contracts immediately.

She also advises mortgage-seekers to research a potential lender’s reputation, which can easily be done online. Looking up some lenders will reveal their involvement in growing strings of court cases, she said.

“If they are constantly in court fighting with consumers for money, are you willing to put yourself at risk with that kind of person?” Brookes recommended asking yourself.

Still, she said alternative lenders “that don’t end up in court every two seconds” are out there and can offer a good mortgage, if you do your research.

Broker Ron Alphonso has seen what happens when you don’t look into your lender. He recently heard from a couple who borrowed $100,000 via a paralegal posing as a broker, who then convinced the couple to give the money back to him so he could invest it on their behalf. Instead of investing it, the paralegal disappeared to Sri Lanka with the funds, leaving the couple on the hook for the money and resulting in eviction from their home.

“They got very, very poor advice,” Alphonso said. “Apparently the person that arranged the mortgage was an agent and paralegal that has since been disbarred. If they had a lawyer working for them, at least the lawyer could have said (before they signed the mortgage) maybe this isn’t right.”

Alphonso recommends seeking advice from a broker, who he said should also be questioned about how tolerant a lender will be if you were to default on one of your payments.

Some lenders quickly force their clients into a power-of-sale or foreclosure, while others will find a way to work out an arrangement that will allow them to keep their home.

“If you are already in some kind of financial problem and you go to a lender that is not flexible, you make the situation worse,” Alphonso said. “If you miss one payment, (within) 15 days you can be in power-of-sale.”

When that happens, he often sees people refuse to leave their home and try to fight the power-of-sale or foreclosure. They take the matter to court and end up spending tens of thousands of dollars in legal fees that can eclipse any remaining equity they might have in their home.

If they lose their case, which Alphonso said happens often, they end up with a massive lawyer’s bill, no equity to cover it and no place to live.

That’s part of why he said those seeking financing should have an exit strategy to get out of any mortgages they sign with an alternative or private lender with a higher interest rate.

“Your goal should always be to get to a lower interest rate,” he said. “If they don’t go in with a true goal of how to get out of this private mortgage, there will be a problem down the road.”

Alphonso recommended looking for an open mortgage, where you can prepay any amount at any time without a compensation charge or a prepayment limit that you would often find in a closed mortgage.

Open mortgages come with higher interest rates, but give buyers the option to switch to a cheaper lender if something happens. However, switching does often come with penalties, he said.

Because some agents and brokers don’t give enough information or fully explain penalties and clauses, he said the best way to keep out of trouble when seeking a mortgage is to ask lots of questions and understand what you’re getting into before signing on the dotted line.

-TARA DESCHAMPS, Globe & Mail

The lowdown on low down payments – Mortgage insurance a must for those with high-ratio loans

Hot markets and cold feet might keep some people out of the housing market, but a lack of upfront cash doesn’t have to be an obstacle. While it’s long been the convention in the industry to start with a 20% down payment, the availability of mortgage default insurance means ownership is still possible with as little as 5% down, as long as the buyer meets industry standards of income and creditworthiness.

“What mortgage insurance allows people to do is to get into the market with today’s prices, with today’s low interest rates, once they have determined that home ownership is right for them,” says Mary Stergiadis, principal for Ontario business development at Canada Mortgage and Housing Corp. The insurance repays lenders if a homeowner defaults on payment.

People with insured mortgages can take advantage of the same interest rates as those taking out conventional mortgages, she says. And the insurance doesn’t cost as much as some people think.

Here’s how it works: With 5% down, the insurance premium is 2.75% of the mortgage. On a $400,000 property with $20,000 down, the mortgage insurance premium would be $10,450. That would bring the total being borrowed to $390,450. Assuming a fiveyear closed at 3.75% amortized over 25 years, the monthly payment would be about $2,000, including less than $55 a month for the insurance. The same property with 20% down would have a monthly payment of $1,640.

“What consumers have to ask themselves is what $60,000 means to them in terms of savings,” Ms. Stergiadis says, referring to the amount needed to reach a 20% down payment for this property. “How long would it take to save that additional down payment? Where will home prices be within that time? Where will interest rates be?”

(But note that the tax on the premium – 8% in Ontario – cannot be amortized and is due on closing.) The insurance rate goes down as the down payment goes up. For buyers with 10% down, for instance, the premium is 2%; with 15% down, it’s 1.75%.

A popular misconception is that this insurance applies only to the primary residence of the borrower. But it is also available for a second property, such as a home or condo in the city to cut a commute or to house an aging parent or a student. CMHC does not, however, insure recreational properties.

Private mortgage insurers, such as Genworth Canada and Canada Guaranty, also insure high-ratio mortgages. The rates offered match those of CMHC; consumers usually aren’t aware of differences, as lenders apply directly to the insurers once an offer has been made and accepted on a property.

Genworth estimates about 30% of Canadian mortgages are insured, down from historical levels of as high as 40%. That percentage tends to be lower in the GTA, says Jason Neziol, Genworth’s regional vice-president of sales for Ontario and the GTA. That’s because higher prices mean more people make larger down payments in order to quality for mortgage loans.

Mr. Neziol says private insurers play an important role in the market by providing more choice for lenders and helping to educate the public about options. “It gives options to consumers,” he says. “It’s good for lenders to have a choice in terms of what insurance providers would do.”

You don’t have to be a first-time buyer in order to qualify. Plus, even conventional mortgages, those with 20% or more down, can be insured. This can happen if a loan is slightly outside of a lender’s usual parameters.

And there can be a rental component. A buyer can purchase a duplex with 5% down, for instance, but must live in one unit. A 10% down payment is the norm for three-and four-unit properties, where one unit is owneroccupied and the others are rented out. The point, Mr. Neziol says, is to be aware of the many options available.

© Copyright (c) National Post

Scott McGillivray offers tips on how to keep from overextending yourself

If you want to become a successful income property investor but are prone to impatience, you may want to steer clear of new condos and budget-busting renos, says the host of HGTV’s Income Property.

Licensed contractor Scott McGillivray is an authority on the subject not just because he has his own show, now in its eighth season, but also because he’s a well-versed investor with hundreds of properties to his name.

“When you are buying an investment property, it is a little bit different than just looking for a home,” says McGillivray, 35, whose show was expanded to an hour last year to devote more time to helping homeowners find the right property in the first place.

“For me, going to an hour allowed me to answer some of those questions. We do the home tours and point out things that I think most conventional people shopping for a property wouldn’t particularly (consider).”

McGillivray checks out three to five properties per show and spends about a 1½ hours at each location, where he will do a cursory inspection and renovation estimate. He’ll look for costly concerns – like foundation and structural issues and mould and mildew.

He says the toughest task during the house hunt is keeping his clients’ emotions in check and focusing on the income potential.

“If I know it’s just going to be way out of control with the budget, it’s not going to make sense,” he says. “The whole idea of what we do is to help people afford their homes and to help people make money in real estate. If I notice right away there is no profitability to be made, then we are looking at the wrong house … I don’t want to see them over-invest.”

The income potential creates a “safety net” that protects the homeowner in case of unforeseen things such as market fluctuation, he says. “Our average homeowner is having more than half of their mortgage costs covered by the rental income coming in. So even if you are approved for a $500,000 home, and we buy you a $500,000 home, you are making payments as if it was a $200,000 home.”

So where should you put your money? Eight or nine years ago, he may have shown buyers a condo, but now he is steering them away from that market and toward singlefamily dwellings.

“For investment purposes, the prices on condos have risen quite significantly, unproportionally actually, in most markets.” He says that when he did invest in condos they were usually older. Now, with the explosion of new builds, featuring elaborate designs and amenities, comes condo fees that are going through the roof, sometimes doubling within the first few years.

“Your profitability in terms of investment is just paid out in condo fees,” says McGillivray. “There isn’t a lot of control. I prefer to be in the driver’s seat, which is why … I believe in investing in freehold properties.”

For those looking to buy a property under market value, he says the best time to buy is now. According to seasonally adjusted figures, prices are reduced by five to seven per cent between October and December.

Once the rent cheques start to flow in, homeowners should expect to build wealth gradually, he says. If they want to make a quick buck they’re in the wrong business.

“It’s not just about the $800 a month; the tenants are paying down the mortgage, the property is going up in value, there are other elements at play here that take time,” he says. “Real estate is a get rich slow process. If you try to get rich quick, you are going to get burnt.”

© Copyright (c) The Ottawa Citizen