Fri, 08 Jun 2012 08:43:41 GMT |
A real estate purchase is usually the biggest investment in a person's life. But not every deal proves fruitful. In big cities like Vancouver, Calgary, Montreal and Toronto, where it seems like mere real estate ownership is money in the bank, it can still go seriously wrong.
One of the biggest mistakes is to try to forecast the market, which is what most people try to do, says realtor and lawyer Patricia Houlihan. When is the last time you heard someone say the market was going to go down? They say it every day, but truth is, nobody knows.
'My philosophy is never try to buy at the bottom or sell at the peak as you will miss it every time,' says Houlihan.
There are other real estate mistakes, and MSN has compiled a list here — with the help of experts and some of the homeowners who made those blunders.
Vancouver-based Debbie Walker thought her lovely Kitsilano condo in with its own private elevator entrance was her dream home. But not long after moving in, 'things started to happen.' The patios flooded. Unbelievably, water was flooding from a neighbour's fireplace into her unit. They discovered the walls of the eight-year-old building were rotted right through. The eight owners had to cough up around $400,000 in repairs. Walker sold her unit as quickly as she could, and ended up breaking even. That was more than a decade ago. 'And the owner who lives there now is having the exact same problems.'
Today, we have licensed home inspectors to look for flaws — don't hesitate to use one, say our panel of experts.
CBC radio host Bill Richardson says he's never had a lot of luck in the real estate game, and he's got a knack for selling at the wrong time. In 1999, he sold a house when the market was down, but he didn't want to be there any longer and couldn't wait for the market to bounce back up.
'I sold the house for emotional reasons ... and I lost a lot of money,' says Richardson.
'I follow my heart rather than my head, and sometimes it's not advantageous as far as the pocketbook goes. I've also bought houses that were in need of repair knowing full well that was so, but because I'm not handy all I can do is write the cheques. So it becomes a very expensive proposition and absorbing of time.'
More recently, Richardson sold a house he'd purchased 10 years ago for $176,000. Instead of holding out, he accepted the first offer. 'I didn't make nearly as much as somebody sensible would have made,' he says. 'I spent as much repairing the house as I did to buy it. I broke even.'
Today, he lives in a rental apartment close to work and says his house-owning days are over.
We've all heard the refrain — 'I'd buy, but the bubble is about to burst.' Or how about that person who gets nervous and sells at the wrong time, believing there is a bubble about to burst? 'But who cares about a bubble?' asks realtor Patricia Houlihan. The mistake is when you think it's a speculative investment.
She cites a couple that thought about purchasing a decade ago, and never did because they bought into the loop thinking that the bubble would burst. If they'd purchased a house they'd had their eye on a decade ago, they would have paid $425,000. Today, that house is worth about $1.5 million, says Houlihan. 'House prices more than doubled.' The couple had to move from Vancouver to New Brunswick to buy.
It's a known fact that for most cities in Canada, the addition of a swimming pool will make your property depreciate. They're considered a major hassle to maintain, and if you have kids, they are a potential death trap.
'A lot of people make bad decisions in renovations. It's such a basic thing. Get some advice,' says realtor Patricia Houlihan.
She recalls a couple that had a great house in a tony neighbourhood, but they tore out the basement suite, reducing the value of the house by $75,000. 'In some areas, you can't get buyers without a suite,' she says.
Most people shouldn't trust their own judgement and should seek an outside opinion before taking a sledgehammer to the walls.
'Even if I did a renovation on my own house, I would always ask for a second opinion — and I know what sells and doesn't sell.'
So, you hear the market is going to go down. You sell before it does, and decide to sit and wait and then you'll buy back in. Sounds reasonable, right? But it's a major gamble.
The mistake you're making, says mortgage specialist Katherine Martin, is that you're viewing your home as an investment.
'I look at my home as a place to live. I am raising my family there,' she says. 'I don't care if my house is worth a lot.'
She recalls a client who sold her condo two years ago to buy back in when the market was lower, and she is still renting. The market went higher.
'She has some mental block — she thinks prices are too high, but they aren't coming down. She's losing out.'
Artist Pablo Tee says his condo purchase was 'the stupidest thing I've ever done in my life.' He purchased a small Vancouver condo without doing his due diligence because he was in a rush and thought, 'What could go wrong?' He paid $124,000, which meant a $900-a-month mortgage, and strata fees of $70 (strata fees — or condo fees — are the monthly maintenance fees collected from each owner, usually calculated according to the Strata Property Act). But when he went away for a year, the fees went up to $290 because the roof needed replacing. 'I couldn't afford it anymore,' he says. Then everything started to fall apart, and he needed out. He sold for $115,000. 'I'm probably the only person to lose money on real estate in Vancouver.'
Bo Gembarsky had a good job and figured he should buy a condo, so he got approved for a $200,000 mortgage and went on a search. That was 10 years ago. Today, he's still renting because he just doesn't trust condo ownership.
'I do regret it because at least the banks and credit unions would take me more seriously, because I would have owned an asset at one point. But now I'm not as strong in terms of their view of me as a consumer, frankly.'
Realtor Patricia Houlihan says she had married doctors as clients who put off buying so long, their kids are now teenagers and they're still living in a rental. 'Get into the market,' she says. 'Who cares if it goes down? It always goes up higher than where it was before over time. When you pay rent, you are putting money in the garbage every month.'
Times have changed, which means your parents might be out of touch when it comes to the market. Mortgage specialist Katherine Martin sees it all the time — people whose parents advise them to save more than 20 per cent for a down payment. The thinking goes, if your down payment is less than 20 per cent, you'll have to pay the Canada Mortgage and Housing Corporation insurance premium, which is usually between one per cent and 2.9 per cent of the house price, says Martin. But that doesn't make sense if the market is climbing so much that you'll end up paying top dollar for the home just to save on a fee that is built into the mortgage anyway.
'In the time that it takes to save that money, the market is going up and it gets more expensive to buy, or maybe interest rates are going up. Who knows? Don't wait. If you have money for a down payment, you should buy.'
Source: MSN Money (http://money.ca.msn.com/banking/mortgages/gallery/worst-homebuying-mistakes-1)