11 Real Estate Terms You Need To Know For 2024

[00:00:00] Welcome to the Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:13] Welcome back and thank you for joining us here at the Canadian Real Estate Investor

[00:00:17] Podcast. My name is Nick Hill. I am joined today and every Tuesday and Friday morning

[00:00:22] by none other than Mr. Daniel Foch. And today we are going to be looking at terms

[00:00:28] that you need to know and understand. Whether you are new to real estate investing or a

[00:00:36] seasoned veteran, these terms are important for this year especially.

[00:00:43] Many experts and commentators in the real estate industry are predicting a hot spring market.

[00:00:48] I'm not sure if I'm one of them, but it seems to be kind of the case so far, I think. I don't

[00:00:53] know like the CMHC thing. It's really all over the place. It's the same amount of people

[00:00:57] predicting mortgage cuts and no cuts. Well, we discussed the CMHC bond thing and I think the

[00:01:02] government is trying to kind of not... I think they're just trying to prop up the housing market and

[00:01:07] it seems to be... That part seems to be working like the heat of the spring market seems to be

[00:01:10] focused on entry level product. But others are saying this year is set to be more volatile

[00:01:15] and more hardship in the real estate market. I probably would fall somewhere in the middle.

[00:01:19] But what it does mean is that if you're planning on buying or selling or investing

[00:01:22] especially, then you want to know all these terms because you want to get a grasp for what

[00:01:29] is going on in our housing market. Exactly, Dan. And just like most industries,

[00:01:35] real estate is full of terms that can seem confusing. If you've listened to any number

[00:01:40] of episodes on our show, you know that there is an endless number of initialisms and acronyms

[00:01:47] that have to do with real estate, real estate investing, being a real estate professional.

[00:01:51] So imagine going to try to watch the Super Bowl and not having any idea of the rules of football.

[00:01:58] Go sports. Yeah, literally, right? Go real estate. Well, now imagine trying to navigate through one

[00:02:04] of the craziest real estate markets in the world without even knowing or understanding some

[00:02:09] of the basic terminology or jargon. So to best prepare you for said potentially hot spring

[00:02:16] market and just the changing market conditions in the real estate industry in general. And

[00:02:23] in general, the Canadian economy here is a list of terms that you need to know if you plan on buying,

[00:02:29] selling, investing or even just keeping up with the market this year. Dan,

[00:02:35] hit me with the first one. What we'll do is we'll look at the term, why it matters. You

[00:02:40] can give a bit of an explanation on it and then we'll kind of banter on it afterwards.

[00:02:44] Sound good? Yeah. And just for context, as many of you listening know, I write articles a lot for

[00:02:51] Zolo, which is the second biggest real estate search platform in Canada after realtor.ca,

[00:02:57] which is owned by the Realtor Canadian Real Estate Association. So they have,

[00:03:01] I would say a pretty good handle on what's going on. And this originally, this content was made,

[00:03:07] but I actually had a ghost writer who helped me with it. And so thank you. Yeah, I know.

[00:03:12] So Mr. Nick, thank you for helping me with this. And I, so Nick kind of came in and helped me

[00:03:19] write this because I was like, this would be, we use a lot of those Zolo articles for podcast

[00:03:22] episodes. But I was like, this would be a perfect one to really like kind of, let's take the most

[00:03:27] simple things that most people need to know about the real estate

[00:03:31] transaction. And so this was Nick's debut into writing an article for Zolo with me.

[00:03:37] Turns out I can both speak and write. They call that a wordsmith.

[00:03:43] So number one, first thing you need to know agreement of purchase and sale. This is the

[00:03:49] contract that is used when purchasing or selling a property purchase and sale. And it's a page on

[00:03:56] which you agree to those terms. It's all coming together. I know. I mean, most of these things

[00:04:00] like they're not super complicated, right? But why does it matter, Nick? Tell me why this

[00:04:05] one matters. Yeah, I mean, you need to know this one because you literally cannot do a transaction

[00:04:11] without one. Even if you do an off market deal with the VDB and all that kind of stuff,

[00:04:15] you still need a legal contract. And that's what this is, a legal contract that is not

[00:04:20] to be taken lightly. You should have the help of a real estate professional such as Mr. Daniel

[00:04:26] Focher, any number of other great real estate agents out there to help. They're not hard

[00:04:30] to find. There's one or two of them out here in Canada.

[00:04:32] Govill, you may know one or two. So Dan, tell me more about an APS.

[00:04:37] Yeah, so it is funny because you mentioned like even if you find an off market deal,

[00:04:40] like I've actually done a napkin deal before and eventually it has to become a... Like,

[00:04:45] yeah, the napkin could serve as your agreement of purchase and sale, but eventually in order for

[00:04:49] it to transfer, it would have to be... I didn't actually do it on a napkin by the way.

[00:04:55] Lawyers and accountants, they don't like napkins or shoebox full of receipts or any

[00:04:59] of that kind of stuff. They want to see a bit more... Yeah, so anyway, so the point being

[00:05:05] when a lawyer transfers the deed of a property, they will need an actual legal document to do that

[00:05:10] and the agreement of purchase and sale is what that is. So usually the first iteration

[00:05:14] of an agreement of purchase and sale will be done by a realtor, by a real estate professional,

[00:05:17] but then eventually it gets done more professionally, no offense to realtors, but

[00:05:22] by a lawyer which stipulates like everything, all the mortgage conditions, etc. So there are

[00:05:27] kind of two phases to that. So essentially it's a document that the buyer submits to the seller,

[00:05:31] so you'll often hear the word offer. This is my offer to purchase your house and so the buyer

[00:05:38] submits it to the seller when offering to purchase a home. It outlines the price, deposit

[00:05:43] typically, closing date, irrevocable date, which means that legally binding and cannot be

[00:05:48] revoked during that specified time period and it can't be canceled during that period of time

[00:05:56] unless both parties agree. So irrevocable means you can't take it back. If the seller accepts,

[00:06:00] then the agreement can only be terminated by mutual consent or if the agreement's terms and conditions

[00:06:06] permit it and conditions are things like financing, home inspection, insurance, we're

[00:06:12] seeing a lot of first time homebuyers or second time home buyers, sometimes sale of

[00:06:16] buyer's property would be another condition, but conditions are basically legal reasons that

[00:06:21] you could get out of the deal. Yeah, exactly. And why is this important for 2024? Because

[00:06:26] it is a hectic market out there and you need to know and understand that this APS is one of the

[00:06:33] most important legally binding documents and although simple, we have seen mistakes made on

[00:06:41] them which can be very costly to both the buyers and sellers, the end users or the investors

[00:06:47] but also to the professionals that are guiding those people through. So something to be very aware of.

[00:06:56] The next one. Comes from the Latin word Amore, Italian word Amore. Love. Yeah, it actually comes

[00:07:02] from the Latin word Amort which means death. Love, truth, death and real estate, the only three

[00:07:08] things certain in this life I guess in Canada. Taxes. And taxes, yeah, of course lots of

[00:07:14] lots of those. One or two of those. One or two of those. We won't get into that. That's a different

[00:07:18] episode. So the next term that you need to know for this year is amortization, amortization. That

[00:07:24] is the period. It's the length of time it takes you to pay off your mortgage in full and why it

[00:07:30] matters is because understanding your mortgage is absolutely crucial these days with changing

[00:07:36] rates, rising inflation and general economic uncertainty in this country.

[00:07:42] Can I just interject here? For those of you who haven't been listening for a long time, Nick

[00:07:46] is Italian even though his last name is Hill, he's actually Italian. So when he like makes jokes

[00:07:51] like that, he's being like he's you know- I'm just being me because he's Italian. My no-no

[00:07:56] has given me the blessing. Yeah, so thank you for clarifying that, Dan. I just wanted to

[00:08:00] clarify because- No cultural appropriation here. This is just me being me. Yeah, there you go.

[00:08:08] So and also amortization sounds better than amortization. It's a good way for people to

[00:08:12] remember it too. And also like and yeah I mean the easy way too because we talk about this why

[00:08:17] we always bring up Latin. It's like you know when you remember those lemony snicket books

[00:08:21] where you'd be like- Serious unfortunate events? Yeah, oh it's a word that means this

[00:08:25] and then we say oh it's a word and then you remember it and now all of a sudden this

[00:08:28] guy's teaching you so many great words. Who me or lemony snicket? Both, all of us, me too with a

[00:08:33] Latin because now people are gonna think oh amortization and they're gonna think death not love.

[00:08:38] Right. Right. Anyway. Your amortization will have a direct effect on how much interest

[00:08:45] you pay through the life of your mortgage. The more you know about these numbers the better

[00:08:51] you can budget your personal finances the better you can understand either one of the biggest

[00:08:57] purchases of your life or your investments. Now amortization combines interest and principal

[00:09:05] in payments allowing you to build home equity. It's displayed as a schedule an amortization

[00:09:11] schedule and it's included in your mortgage document so you can clearly see how much

[00:09:16] principal and interest you're paying off over the life of the mortgage. Now simply put the

[00:09:21] amortization period refers to the number of years needed to pay off your mortgage in total.

[00:09:29] This mortgage length can impact the total interest paid. Now the standard here in Canada is traditionally

[00:09:35] about 25 years but other durations may be available depending on your down payment

[00:09:40] and if your down payment is under 20% of your home price the max is 25 but we have seen 30

[00:09:48] and now of course when we get into the CMHCMLS elect space we're seeing them go all the way up to

[00:09:53] 50 years. Yeah that or the static payment variable rate mortgages which are Vince cause them buzz light

[00:09:58] ear mortgages. Yes. It's Vince Gaitanil who also just launched a podcast you were just on

[00:10:04] that dingo checkout Vince's podcast The Wise Old Owl. He is that he's very he's a sobering

[00:10:11] voice in the industry that's so okay so let's talk about this amortization because we presented

[00:10:19] the picture of the amortization schedule in the course and I said this is this is one of the

[00:10:24] most important charts in real estate and the reason is because it shows your principal balance

[00:10:30] going down but it shows how each year that goes by you pay less interest and more principal.

[00:10:37] Remember principal is actually what makes you own more of the house whereas interest is just money

[00:10:44] literally flying out the door right into the bank's coffers. Yeah it's a sunk cost yes it's

[00:10:49] money that's gone and so when you make a mortgage payment so sorry when you make a purchase

[00:10:57] the one of the primary reasons why I would personally rush into buying real estate because

[00:11:02] I would never encourage anybody to I don't think you need to be in a hurry I don't think

[00:11:06] there's a way to time the market I don't think there's FOMO blah blah blah you know what I mean

[00:11:10] like yeah of course I don't think always a good time to buy and sell what goes up none of those things

[00:11:14] yeah the one reason why you should want to buy a property sooner rather than later is so that you

[00:11:20] can start having that amortization schedule paid down the sooner that property one is

[00:11:26] amortizing itself killing its mortgage if we're going to go back to the Latin roots

[00:11:30] right killing it the death of that mortgage then it starts building equity paying itself equity

[00:11:36] through principal pay down and every single principal payment that goes by your your principal

[00:11:41] balance goes down which means the amount of interest that you owe on that mortgage now is

[00:11:44] going down because the amount of money that you're borrowing is going down. And the amount

[00:11:49] of ownership that you have in that house is doing the opposite it's going up. Right and so

[00:11:54] when you think about ideas like compounding this is a very good example of how real estate

[00:11:59] compounds by gradually increasing the speed at which it pays itself down. And so if you can buy the sooner

[00:12:07] you can buy property number one the sooner property number one can amass enough equity that it can buy

[00:12:11] you property number two and property number three. This is another reason why we really encourage

[00:12:15] people especially beginner investors to focus primarily on cash flow or capital accumulation

[00:12:20] rather than equity growth because equity growth requires you to wait until you can do a refi

[00:12:26] or sell a property whereas this is a very predictable way. Okay I know I have this much money coming in

[00:12:31] and so you can model something off of something that's predictable whereas capital appreciation

[00:12:36] is not predictable amortization is on a schedule it's scheduled it's that predictable.

[00:12:42] It's got its own morning routine it gets up every morning. Every morning and takes an ice bath.

[00:12:49] Okay no again very very important for both investors and and users so so definitely be

[00:12:54] aware of what that is and if you have a mortgage you have an amortization schedule.

[00:12:59] Well if you want to go check that out you can go and see them online or reach it to your bank or

[00:13:04] lender or whoever that mortgage is held with and get them to send it over.

[00:13:10] Dan the next one's interesting because this is something that is confused a lot

[00:13:14] and this is why I wanted this one in here. I can understand why it's confusing we did a whole

[00:13:17] episode on this where we were comparing like M-PAC to the BC assessment office so

[00:13:23] the term is assessed value by the way before I start so and the assessed value refers to how much

[00:13:29] the property is worth in the eyes of your local tax assessor's office.

[00:13:33] Not in your eyes not in my eyes not in the 45 other people that are bidding the property up

[00:13:37] not in their eyes either so assessed value and market value very different.

[00:13:43] Well I think the especially important point is that in BC assessments are like

[00:13:48] relatively accurate like you hear sold over assessed value sold under assessed value because

[00:13:52] they actually want to know what every property is like worth in quotes like they actually used it as a

[00:13:58] I don't know like a I guess a marking point or like a data set.

[00:14:02] Yeah in Ontario your assessed value so assessments in Ontario are revenue neutral

[00:14:07] which means that they're just deciding how to cut up the pie so they're saying okay we

[00:14:14] know that each municipality has this much value of property and you know let's say there's

[00:14:19] 10 million dollars worth of houses in this property or in this municipality and there's 10 houses okay

[00:14:25] each one could be worth a million dollars or one could be worth 800,000 and one could be worth

[00:14:29] 1.2 million and one could be worth 300,000 and one could be worth 700 you know what I mean

[00:14:33] and so you're dividing up who's who owes x amount of tax based on that assessment

[00:14:38] so that's the role of an assessment in something like Ontario whereas in BC they're

[00:14:42] kind of a little bit more accurate so why do assessed values matter knowing a property is

[00:14:46] assessed value is crucial for anyone planning to buy or sell it's often mistaken with market

[00:14:50] value but they are different it estimates a home's worth based on current market conditions

[00:14:54] the market sorry market value estimates a home's worth based on market conditions

[00:14:59] whereas assessed value can be much less than purchase or sale price it refers to how much

[00:15:05] that it's worth in the eyes of your local tax assessor's office so you know in a province

[00:15:09] like Ontario that's worth how much is worth relative to your neighbor's property or to

[00:15:15] the entire tax environment the purpose of the assessed value is determine how much you'll

[00:15:19] pay in property taxes so which are location dependent as an example in a rising market like

[00:15:26] Guelph the assessed value can be like 50% less than the purchase price because

[00:15:31] they only do these assessments every I think they're planning to another one soon but like

[00:15:35] I think it's like every five years yeah I think the last one I was getting was maybe 2016 or 17 and

[00:15:41] then they do this like phasing in thing where they try and like grow it at what the market is

[00:15:46] currently growing at but like especially in Ontario the market is so volatile that it's

[00:15:51] very difficult to assess accurately and when you think about the whole universe of properties

[00:15:56] in Ontario like there's millions you know the population is huge here versus like BC which

[00:16:02] is much smaller it's easier to assess that many properties in BC and to keep it current

[00:16:07] whereas I can understand why they have a difficult task in Ontario especially in Ontario where

[00:16:14] there is the volatility and the volume double V yeah for sure again good takeaway is the

[00:16:20] higher your home's assessed value the more property taxes you will pay now again this one's

[00:16:26] important because if you are just getting into real estate whether a professional or

[00:16:32] an investor or an user and you come across the assessed value of the property that you just spent

[00:16:38] $800,000 on and that assessed value of the property is $350,000 no don't worry you did not

[00:16:44] substantially overpay as Dan just explained assessed value and market value especially here

[00:16:50] in Ontario very very different yeah and and um you did write in this wonderful article that while

[00:16:57] property taxes aren't usually deal breakers it is the first the first letter in the acronym TMI

[00:17:04] which I still think should be yes exactly tax much information uh which should be changed to

[00:17:11] Tim really like I don't know why it's not Tim can we just make that thing taxes insurance

[00:17:15] maintenance yeah TMI yeah well it's commercial real estate brokers that's why they just there's

[00:17:20] like we've got to be an initialism the guy who came up with this probably named Tim and he's like I

[00:17:24] don't want this yeah for sure so okay so TMI taxes maintenance insurance I don't think I need

[00:17:31] to explain this one to you taxes that's that's what they're referring to property taxes so

[00:17:36] knowing the assessed value will help you determine your property taxes aiding in

[00:17:40] planning and modeling out your deal and the cost of that as a real estate investor okay let's go to

[00:17:48] closing costs all right this uh this one matters because it's the one time fee you will experience

[00:17:53] when closing on a new property now if you're a seasoned investor you have been through this many

[00:17:59] times but this is a very very common question from let's say newer investors or first time

[00:18:06] home buyers so if you plan on buying a property your first one or your forever one or even an

[00:18:12] investment property you will need to budget for closing costs there's no way out of them these

[00:18:18] are the one time fees that you will experience when closing on a new property and you don't want

[00:18:23] to be caught surprised when making what could be the biggest purchase of your life so preparing

[00:18:29] and knowing these numbers is just the right thing to do now closing costs can include taxes

[00:18:36] and fees such as your land transfer tax your legal expenses your inspection fees but they can vary

[00:18:42] it's not the same for every property based off of price and a couple other things that could

[00:18:48] complicate it so the best practice Dan would you agree is to kind of budget anywhere from between

[00:18:54] two to four percent of your purchase price of your home maybe a bit high but I like to air on

[00:19:00] the side of caution on this stuff yeah I think that's reasonable especially like with adjustments

[00:19:07] I've been I've been here with some huge curveballs on adjustments so adjustments are

[00:19:12] what's the easiest way to explain this like adjustments are things that the owner of the

[00:19:16] property before has already prepaid for example taxes would be a great example because we just

[00:19:21] came out of taxes so let's say they've paid six months in advance or the year like or

[00:19:26] if somebody gets their assessment in February or March and they prepay their taxes for the year

[00:19:31] because they're super financially prudent like that and they don't go on the schedule right

[00:19:35] totally something I would do yeah I know you that's what you would do so and then they so

[00:19:39] they've prepaid their taxes for the year and now all of a sudden you buy the property they

[00:19:43] do that in February and you buy the property in March they're like you know something happened

[00:19:47] oh we decided we want to sell it now you have to buy those taxes those prepaid taxes off of them

[00:19:52] basically yeah this happens a lot with utilities as well like when we bought a place up north we

[00:19:59] they had oil tanks and they had it was really remote so they had multiple oil tanks it was like

[00:20:04] thousands of dollars worth of oil that we had to buy off of them because they had already bought

[00:20:08] pre-bought all of the oil because when the truck comes rather than having I guess the delivery

[00:20:13] fee was a lot rather than having them just fill one tank and keep coming back they would

[00:20:17] fill multiple and then it would be like a huge amount thousands of dollars but it'd be enough

[00:20:21] for the whole season right but we didn't really think about this and then we saw it in the adjustments

[00:20:27] I was like whoa that's a lot of that's a lot of money right because yeah and we had to they already

[00:20:31] paid for this oil yeah and we're going to get to be the ones to consume it so we got to we had to

[00:20:37] buy that oil off of them that's another really good example right same thing with propane

[00:20:41] taxes is a good example another huge one with when you're purchasing an investment property

[00:20:46] is rents the rent deposit right first and last month's rent if the if you're buying a property that

[00:20:53] that somebody has already got a tenant in it and they've collected a last month's rent deposit

[00:20:58] you're typically getting that that deposit off of them so I can adjust it off of the price

[00:21:02] those are examples of adjustments and I feel like the rent one is is so often forgotten I mean back

[00:21:07] in my early days I I got screwed out of out of first and last month's rent from or last month's

[00:21:13] rent from from from a deal because I wasn't aware of those type of adjustments so essentially

[00:21:20] the good thing is it's stuff in in the examples Dan just gave it's stuff that you inevitably pay for

[00:21:25] anyways yeah however it's just unfortunate timing because you are having to pay for that as well

[00:21:31] as your legal's as well as your land transfer well at the same time and many of these adjustments

[00:21:36] can't be built into the purchase price right exactly these aren't you can't amortize these

[00:21:41] over the more things not gonna be like oh yeah we'll just just toss it in the road that only you

[00:21:44] pay you yeah we'll give you 25 year am on that oil you just bought or no they want it now up front

[00:21:49] right it's got to be a cleared line at them so here's a quick example let's just say you bought

[00:21:52] a house for $600,000 because you're very smart and you're not buying in downtown Toronto

[00:21:58] and that's just below the average price of $659,000 in January of 2024 you should budget

[00:22:06] anywhere from 12 all the way up to $24,000 in closing costs now I know what you're gonna say

[00:22:14] and I could probably get away with less and and that might be true but you always isn't it better

[00:22:20] to have a little bit of money left over that feels like almost free money instead of holy I need to

[00:22:24] go find another two four six grand out there call that girl math where they're like oh yeah I use

[00:22:29] yeah I use a gift card so it's free yeah exactly yeah there you go boy math on

[00:22:35] that's realtor math right there hey that's that's entrepreneur math I don't know what it is but

[00:22:39] I've abide by it now speaking of money and closing cost and talk to me about another

[00:22:46] chunk of change that is part of the purchasing process here yeah so we'll move over to the

[00:22:53] deposit not to be confused with the down payment because I do feel like that's like a lot I hear a

[00:22:57] lot of people say down deposit which is not a thing and then and then also people who when you

[00:23:04] when you're talking about the deposit they think you're talking about the down payment so deposit is

[00:23:08] it's like good faith money right in a lot of cases that in in places in the US they call it

[00:23:14] stuff like that right like there's different different names for it that are on the tip of

[00:23:18] my tongue but escaping me right now but um that they they would use that kind of would explain

[00:23:22] it better but it's basically just like assurance money right so this is a small percentage of the

[00:23:26] purchase price that is due within 24 hours of the accepted offer in a lot of markets like I don't

[00:23:32] think real estate professionals aren't supposed to act as though there's some sort of standard thing

[00:23:36] but you you see in a lot of MLS things now especially with a lot of people walking away from deals

[00:23:40] like there were when when bit when markets were going crazy like with the bidding wars and stuff

[00:23:44] people would just go off around like 10 properties and then just not show up with the deposit

[00:23:47] they would only show up with the deposit on the one that they kind of miss they wanted

[00:23:51] these yeah and so a lot of people were asking for like okay five percent deposits right and and

[00:23:57] realtors would in a lot of cases will try and request a deposit that's sufficient to cover the

[00:24:02] fees but there's the deposits typically do within 24 hours of the accepted offer the down payment

[00:24:07] is due on closing and that's what you give to basically to the bank to secure against the

[00:24:13] value of the property that's you buying equity out of the property so why does this matter

[00:24:17] along with closing costs as a buyer you need to be aware of your deposit the deposit serves

[00:24:20] as security for the seller demonstrating your financial commitment to the agreement and good

[00:24:24] faith it's normally due within 24 hours of the accept of the agreement of purchase and sale

[00:24:30] being accepted unless it's otherwise agreed to so I'll often do like two phase deposit so

[00:24:35] I'll do a small deposit up front and then upon waiving conditions I'll do a second deposit

[00:24:40] you need that money on hand typically when you plan to make an offer on the property

[00:24:43] so that you can be agile and actually write that check to give somebody that assurance

[00:24:48] the buyer pays a deposit on the successful purchase and sale it's just to provide so it's

[00:24:53] basically if you disappear the next day or decide not to to finish the deal for reasons

[00:25:02] otherwise than what's outlined in the APS like so not not within the scope of conditions

[00:25:08] you would you'd forfeit your deposit and we're hearing about this a lot right now with

[00:25:11] pre-constructions we've seen it we've seen it firsthand people walking away from relinquishing

[00:25:17] tens of thousands of dollars hundreds of thousands I think I posted one the other day it was like

[00:25:20] 600k i saw that was brutal man hate to see it horrible but yeah so if you give a builder a

[00:25:27] deposit as an example 20% and then you decide not to do the deal you forfeit that deposit

[00:25:31] and they might there might also be damages if the property is dropped in value

[00:25:36] beyond that 20% that they've already collected from you but a deal is not firm in binding

[00:25:41] without a deposit check also known as consideration like there's a legal term called

[00:25:45] consideration which means that something needs to exchange hands to prove that the deal

[00:25:49] has actually taken place and this is another thing where people were just not showing up with

[00:25:54] the deposits the next day and there's really nothing you can do to chase them because

[00:25:58] they just signed a deal but like if they didn't show up with the consideration then it's

[00:26:01] technically not a legally binding deal and so this is where you were seeing a lot of agents

[00:26:05] especially in again these bidding war things where they're asking people to actually submit

[00:26:08] the deposits with the with the agreements of purchase and sale and actually the drop the

[00:26:14] drop down menu when you're creating an offer as a realtor is like here with which means it's here

[00:26:19] with the offer and then or upon acceptance which is like so there's a couple different options

[00:26:25] or as otherwise described in the agreement those are kind of the three options that you get to

[00:26:30] to put in your APS so so how much should they like what would a deposit look like I mean

[00:26:36] I think again I think it's like I think the industry is trying to push for like that kind of

[00:26:40] five percent range but in some rural markets you're seeing much smaller yeah we've seen come

[00:26:44] you see one thousand five I've literally seen everything from from one percent to ten percent

[00:26:48] I've done deposits that are like five or bucks before I know guys who who are flipping land that

[00:26:52] that are like assembling land that do like tiny deposits as well yeah I mean again going

[00:26:57] back to what it means it's in good faith right it's okay I'm serious about this it's almost

[00:27:01] like I'm putting a small financial hold on this property so you know again going back to that

[00:27:06] $600,000 example five percent of that your deposit be 30 grand yeah and this money later becomes part

[00:27:12] of your down payment like this money you've already put into the trust account of the real

[00:27:15] estate brokerage typically goes into the real estate brokerage of the property that you're

[00:27:19] purchasing like the listing brokerage of the property that you're purchasing gets held in

[00:27:23] trust and doesn't get deployed until the contract is or the property is closing and

[00:27:28] then it goes to the lawyer's trust account which then goes to the seller yeah but it becomes part

[00:27:32] of your down payment so if you put five percent down as a deposit but you're planning to put 20

[00:27:36] percent down you only need to come up with another 15 yeah exactly very important this is not just

[00:27:40] extra money on top this is built into to the whole piece okay great the the next term that

[00:27:49] you need to know for 2024 home inspection from uh from the latin word due diligence so go do it

[00:27:57] it is funny uh this one because this wouldn't have mattered like a while like last year last year it

[00:28:03] just started mattering and but like 20 basically since from from covid till the peak of the housing market

[00:28:09] people weren't weren't able to do home inspection and i literally like we talked about this during

[00:28:13] in episodes back then being like hey i know home inspectors and they're literally looking

[00:28:17] for jobs right now because they were not getting called now a home inspection is a walk through

[00:28:23] of the property by a professional not your dad not your uncle who's going to come and kill the deal

[00:28:28] not anyone who just is you know watching enough hg tv that they think they can comment on stuff

[00:28:33] but an actual professional um who is conducting a home inspection before you relinquish those

[00:28:40] conditions which are again the most common are inspection and finance now why this matters

[00:28:46] as a dad i can say that when you go so when you go to the uh how many deals have you ruined

[00:28:52] so when you go to the the birthing classes at the hospital they teach you the home inspection course

[00:28:59] okay now after you had your kid you're gonna get bored okay in 20 years from now they're gonna

[00:29:02] want a house you can go and say this pretend you know a bunch about a house oh why that matters

[00:29:08] make sure you bring a measuring tape it helps with legitimizing yourself so why this matters

[00:29:14] now more than ever um is because when the market was crazy as dan and i were just saying

[00:29:18] people were literally just not getting home inspections it was the craziest thing now listen

[00:29:24] to home inspection not all home inspections are the same right if i'm if you're buying a condo in

[00:29:31] the downtown core of any number of cities across the country newer condo you likely don't need a

[00:29:36] home inspection you should get the status certificate looked at as always but you'd likely

[00:29:41] don't need a home inspection because the home inspector is going to walk into your

[00:29:44] you know 500 square foot six or square foot apartment and be like yeah this is standard

[00:29:49] where you do need a home inspection is anything row home single detached multi family anything where

[00:29:58] there's age to the building there could be complicated matters and we've seen so many people

[00:30:04] get rid of home inspections over the last few years and they were left with some nasty and very

[00:30:08] expensive surprises so getting a home inspection is all about knowing what you are buying you know

[00:30:15] we're talking about kyc know your client well kyp know your product as well okay yeah i think i

[00:30:20] think this is a huge one like in a lot of cases a home a home inspection serves a couple of purposes

[00:30:24] number one is to identify anything that is going to dissuade you from purchasing the property

[00:30:29] any major defects that you would be like okay oh there's knob and tube right yeah that's either

[00:30:34] are going to cost me a ton of money or i can use as a bargaining chip to go back and say hey knock 20

[00:30:39] grand off because there's 40 grand worth of electrical well especially if you can substantiate that in

[00:30:43] the report because the other thing a lot of people don't know this but once a seller and their

[00:30:47] their agent becomes aware of them of a defect like a major defect in a property they have a legal

[00:30:53] obligation to disclose that and so it is really a big bargaining thing because you can now go

[00:30:57] to them and say okay well you know there's not been tube in the house and now that you're

[00:31:01] aware of that you would have to disclose that yeah it's a big deal right you can't withhold

[00:31:06] information like that don't do that yeah and so it's it's like one way or another a buyer is gonna

[00:31:12] know that so you might as well negotiate with me now so that's number one number one is identifying

[00:31:17] a bad defect from the property through a home inspection number two is you almost get like

[00:31:23] an owner's manual right you literally have a extraordinarily detailed book of everything from

[00:31:31] your roof to your soft it's your eavesdrafts your drains in your basement like the stuff that most

[00:31:37] people and even seasoned guys like us day that most people you know kind of breeze past man i've

[00:31:42] seen home inspectors go in there notice stuff that that i wouldn't notice if i spent you

[00:31:47] know days in the property yeah and i think one of the interesting parts is that you almost get

[00:31:52] like a timeline like a gantt chart you should be able to create a gantt chart of like when these

[00:31:56] maintenance items are going to come up so you can start forecasting those in your capex budgets

[00:32:00] so remember capex versus off x capital expenditures are things that like basically improve the value

[00:32:04] of the property off off x operating expenditures are things that basically are necessary to

[00:32:08] operate the business or the building and business capital expenditures like roof etc should

[00:32:13] show up in the home inspection hey you got 10 years left on this thing and then you

[00:32:15] got to replace it so start putting those into your financial model so now all of a sudden you

[00:32:18] know exactly this is what my this is actually you know oh do i have enough cash saved up from

[00:32:24] from rent by the time the roof comes up if not okay maybe i need to i either need to

[00:32:30] know that i'm going to be paying that out of pocket or i have to maybe think about doing

[00:32:33] another deal right yeah and actually in our in our course we we built that a whole checklist

[00:32:39] for investors to go in and like you know there's different things you can look for on that too

[00:32:43] like hey how easy is it to put another suite in here etc so there's home inspection and there's

[00:32:48] also investor inspection but none of that is happening you're not even buying a place without

[00:32:54] this next one here dan so what is that yeah so the next one is a pre approval the first step

[00:32:59] in the process of buying a home getting pre approval allows you to understand your budget

[00:33:02] so you would go to a lender and you would ask them for they would look at your financials and

[00:33:08] you would ask them for basically what you could qualify for as a mortgage now this is

[00:33:11] the maximum of your budget but doesn't mean you have to spend that amount definitely does not

[00:33:15] people have this like tendency to just like max out what they can possibly spend i would say

[00:33:19] don't do that but anyway so you can go through this process by contacting a mortgage broker do

[00:33:24] you know any good mortgage or an agent nicks a mortgage broker by the way if you're a new

[00:33:29] listener so just give us a shout if you need a pre approval i think there's a link in the show

[00:33:32] notes just asking a key's good and they can help you run the numbers on potential purchase

[00:33:37] prices and monthly payments will also give you something called the debt service coverage

[00:33:40] ratio that's in here right is it maybe not no dscr debt service coverage ratio this is basically

[00:33:45] how much income you would need to produce to pay your mortgage payments usually like 1.2 1.25

[00:33:51] that will come up when you get a pre approval typically they'll say oh you need to you know

[00:33:55] your income needs to be this much to to substantiate the mortgage i think that's it another

[00:33:59] another cool type of mortgages yeah another very cool type of mortgage here is the vtb the

[00:34:05] vendor take back also known as seller financing there's a creative financing solution that allows

[00:34:11] property sellers to become the buyer's lender become the buyer's bank and why this matters is that uh

[00:34:20] it's 2024 and we are going to be seeing a lot more creative financing solutions and options

[00:34:27] like this as the economy continues to go through this tough cycle that we're in right now

[00:34:32] there are benefits to both the buyer and the seller when using a vtb the buyer must still make

[00:34:39] regular payments to the seller as you would with any other lender the interest rate is set by the

[00:34:44] seller and agreed upon by the buyer and again you would come it would come with mortgage documents

[00:34:49] and all that good stuff why this is important is because if you are looking to buy anything

[00:34:55] other than in a single family home this year this is something that should be on your radar

[00:35:02] i appreciate you putting that in there dan we did a full episode on this dan just updated me

[00:35:06] onto what it was episode 46 how vendor take backs can make every deal better and they have come up

[00:35:12] a whole bunch of times throughout the last 180 plus episodes and we have a bunch of really great

[00:35:19] content as well as some actual vtb structures in the course realist.ca so if you're interested

[00:35:25] in those go check that out it's so funny um jayme uh the one of our course members he

[00:35:30] came on and he's like yeah i've been listening to the show and like uh he's a contractor um and

[00:35:36] just crushes it knows how to add value like and he's like yeah i bought three deals last year

[00:35:40] vtb he's like i didn't know it existed and then i heard it on your show and i went and just

[00:35:44] negotiated it with the seller love it and it was just like such an awesome like proud dad

[00:35:49] moment right so jayme congrats on the vtb deals and uh and yeah he's um he's in the course

[00:35:54] as well and we're kind of figuring out what's the next step with those things how are we gonna

[00:35:57] add the value how are we gonna strategize that portfolio that he was uh we put it together like

[00:36:02] amazingly well yeah the cool thing we did with him so if you're thinking the course isn't for you

[00:36:06] because you own a bunch of properties so be it it's not for everybody but the people that

[00:36:10] are joining to have a bunch of properties one of the cool things that we do is we hop on and we

[00:36:14] do a portfolio audit so we look at the highest and best use of each one of those properties

[00:36:19] what your mortgage payments are what the utilization of that property is what your

[00:36:23] coppacks and off-backs looks like over the next few years so anyways just a quick little plug there

[00:36:28] dan what is the next one pos another acronym here yeah careful with that acronym power of sale

[00:36:36] if a homeowner stops paying their mortgage and default on the loan a power of sale by the

[00:36:40] lender allows the home to be sold to pay back the mortgage we talk about this a lot in this

[00:36:44] and the next one which is foreclosure next going to talk about so power of sale and foreclosure

[00:36:49] are different in a power of sale the lender exercises the right or the power that they have to

[00:36:56] sell the property if you're not paying the mortgage with a foreclosure they almost close on the property

[00:37:02] which i'm just trying to think of like the easiest way to think about it right foreclose they

[00:37:06] take they take possession of it like they close the deal and they actually take possession of

[00:37:09] the property and then they would sell it we talk about both of these in distress deals power

[00:37:15] of sales episode number 53 yeah where we compare and contrast them so the big thing is a lot of people

[00:37:21] think they're going to get good deals on power of sales but actually you're not really that likely

[00:37:25] to do it because the bank has a legal obligation to try and protect the market value so they have

[00:37:28] to keep it on the market for a long enough period of time and they basically are making an effort

[00:37:33] to protect the seller's equity so that they're not like rug pulling the seller and just

[00:37:37] selling it out from under them firing getting off their books as quickly as possible power

[00:37:40] of sales most commonly used in ontario pei new brunswick and new finland and labrador do you want to

[00:37:47] move on to the next one that is moved used outsize of outside of those which is foreclosure yeah it's

[00:37:52] using the rest of canada kebek bc and alberta all abide by the foreclosure rules and then i just

[00:37:58] want to go back to your point about why there's this obsession with power of sales and foreclosures

[00:38:03] and i think a lot of that comes from our our friends just south of us where

[00:38:09] yeah well wait happens yeah exactly and you know there's there's just all the stories back then

[00:38:13] about going and buying these just you know quote unquote distressed deals where you were literally

[00:38:18] getting them for for actual crazy bargains but as dan said it's not the same up here so foreclosure

[00:38:24] in a foreclosure the mortgage lender will go to civil court to get that foreclosure it's a

[00:38:30] lengthy process the judgment in the order of the full core foreclosure will order that the

[00:38:37] right and title of the homeowner in the mortgage will then be foreclosed with the mortgage lender

[00:38:41] now holding the title of the property now that lender has taken possession of the home the

[00:38:47] lender will then sell the home on the open market since the letter owns the rights and

[00:38:52] title to the home the lender will keep all the money from the sale of the home if the sale

[00:38:58] of the home did not cover the amount of the remaining mortgage the lender cannot go after

[00:39:04] the borrower for the difference so the defaulted borrower is semi protected in this obviously

[00:39:12] you've lost your property but they can't go after you if that delta between mortgage amount owing

[00:39:19] and sale of the property exists they can't go after you for that so that's power of sale

[00:39:24] foreclosure now we're not going to go too much more into detail on either of those because we did

[00:39:29] do a full episode on them and dan has created some great content for our course wheel list

[00:39:34] dot c m both of those and really how to find them and also how to properly approach them

[00:39:40] and make sure that you are getting a good deal and not just a quote unquote distressed deal

[00:39:46] what is the final term here dan now this one is a kind of umbrella term here because there's

[00:39:52] a lot of other little terms underneath that are kind of attached to this one that are going to be huge

[00:39:59] this year and I think over the next couple years yeah I think this is one of the most important

[00:40:02] themes in real estate right now I mean we're just we're on a call with a couple of people from the

[00:40:07] rehousing group shout out to them we've had on the show recently go check out the website one

[00:40:12] of the coolest yeah if you want to if you want to like basically figure out if you can

[00:40:15] multiplex a house almost like instantly and like a catalog of different houses like they probably

[00:40:19] have your house 11 or 12 different housing types 11 they have a pre-war bungalow like all these

[00:40:24] different post war houses yeah the most common like the 12 most common Canadian houses basically

[00:40:30] rehousing dot ca anyway we're hoping to do some more work with them have them back on the show

[00:40:33] soon but anyway zoning is is from our perspective one of the most important things we're seeing it

[00:40:39] change coast to coast they're having um more and more up zoning units added to houses etc

[00:40:45] these laws can create or subtract value from you and they dictate what activities are allowed in

[00:40:51] each zone and prescribe what types of buildings and structures and number of units are permitted

[00:40:57] on a property it also outlines the allowable density building height and setbacks of the

[00:41:01] zones different levels of the government regulate zoning in Canada including municipal

[00:41:05] provincial and the federal government even and they seem to be trying to play more and

[00:41:09] more in that space in the attempt to solve this sort of housing crisis not sort of the

[00:41:14] this very real housing crisis in Canada right now yeah no I mean I don't have much to add to that

[00:41:19] you know then you I actually initially had this one is up zoning but I figured zoning in general

[00:41:23] right was I mean we've seen major changes in so everything from like a minor variance to

[00:41:30] all the way to changing something from farmland to commercial from single family residential to

[00:41:38] multifamily residential or mixed use that is where the secret power of real estate exists

[00:41:44] because if you have a piece of land and it looks like hey this is a big piece of land it's on a corner

[00:41:49] I could probably fit a tower here I could probably fit a building at least five times the size of

[00:41:53] the one that is currently occupying the space but then you go and check the zoning and you are

[00:41:58] handcuffed by single family residential well too bad but now we're in this renaissance

[00:42:07] period here in Canada where zoning changes and zoning amendments are you know a very acceptable

[00:42:14] thing and almost encouraged in a lot of ways so now more than ever this to me and this is why I put it

[00:42:20] last say the best for last this is the term that you need to be aware of you need to gain an

[00:42:25] understanding of no matter who you are in the space because even if you're a single family person

[00:42:30] and you're going sorry a single family and you're not having an investor or a realtor listening

[00:42:36] or a mortgage agent listening and your client brings you a property check the zoning check the

[00:42:40] zoning in the neighborhood check the neighbor's zoning because if you buy a property and a few

[00:42:46] years later the zoning changes or there's or there's push to have the zoning change

[00:42:50] in that neighborhood the neighborhood you just bought and could look drastically different

[00:42:55] 100% I completely agree most notable examples of this BC just went up to multiple units

[00:43:00] Toronto just went to four plexus sounds like we're going to see more and more of this

[00:43:04] coast to coast this is really the big opportunity right now Ontario Bill 23 allowed garden suites

[00:43:08] garden suites are going to be a huge thing I think for this year as they're starting to finally like

[00:43:13] actually make their way through the building departments and we're we're excited to present

[00:43:16] some pretty cool opportunities on the financing and construction side of the of that so

[00:43:20] stay tuned for that because we're going to have some really really cool guests on

[00:43:23] to discuss those things. Yep you're right Dan thank you so much for listening everybody

[00:43:28] go check out the course that we mentioned if you are interested in leveling up your

[00:43:33] real estate investing knowledge and your network and on that networking piece get out

[00:43:39] to an event do yourself a favor and go meet some amazing real estate investors as always

[00:43:45] thanks so much for listening we'll see you soon the Canadian real estate investor podcast is for

[00:43:52] entertainment purposes only and it is not financial advice Nick Hill is a mortgage

[00:43:58] agent with premier mortgage center and a partner in the G and H mortgage group licensed number

[00:44:04] 10317 agent license M21004037 Daniel Foch is a real estate broker licensed with rare real estate

[00:44:16] a member of the Canadian Real Estate Association the Toronto Real Estate Board and the Ontario

[00:44:22] Real Estate Association