Landlords take a lot of risks. All those benefits of your real estate investments must be safeguarded with good management and protection strategies. If your portfolio offers you wealth, security and a retirement in comfort then surely it’s worth safeguarding. In the blink of an eye a profitable portfolio with five properties [...]]]> Protecting Your Property Investment

Landlords take a lot of risks. All those benefits of your real estate investments must be safeguarded with good management and protection strategies. If your portfolio offers you wealth, security and a retirement in comfort then surely it’s worth safeguarding. In the blink of an eye a profitable portfolio with five properties all fully tenanted can suffer from vacancies, higher mortgage rates, and difficult credit markets and become a noose around the landlord’s neck. It doesn’t have to be that way, let’s look at how easy it is to protect your investment.

Safety From Tenant Arrears

When bad times come, landlords are often hit with rent arrears. Tenants struggling to feed themselves also know that evicting them will take time, whereas starvation will not. The rent is often paid only if there is sufficient money left after that weeks ASDA shop. It’s extremely important for landlords to plan for this eventuality either through having sufficient ready cash to ride the storm or through suitable insurance or tenant management products. Missing a mortgage payment is like hammering the first nail into the coffin of your investment business.

Adverse credit makes it close to impossible to secure favorable financing. An inability to access finance and remortgage away from uncompetitive deals will exacerbate problems for a landlord already struggling under the weight of tenants in rent arrears and a lack of cash reserves. It’s therefore essential that an amount of cash more than sufficient to cover not only the mortgage during the period of rent arrears but also to cover the legal costs of eviction and repairs to damage caused by disgruntled tenants is available. Think about whether your cash on hand would be sufficient if these problems hit multiple properties in your portfolio at the same time?

In the U.K., it is exactly this concern that leads landlords to take out either rent guarantee insurance or take advantage of rent collection and guarantee services such as Rent On Time. Instead of relaxing on their leather sleeper hoping their dwindling cash pile will last, these landlords have ensured their cash flow is uninterrupted in the face of tenants falling behind. On top of this, they often will have the funds required for eviction included in their product.

Be Afraid Of Surviving

There’s a common saying in the critical illness insurance world – one should be afraid of surviving sick, not afraid of death. A landlord with a huge, complex portfolio needs to consider seriously the implications of a bout of cancer or other similarly nasty affliction on family – especially if one of the family would be required to manage the portfolio during any treatment and hopefully eventual recovery process.

It might not make sense in all cases to fully insure all the debt balances as one would with a residential mortgage in most cases; it does make sense to ensure sufficient protection is in place to ensure the profitable running and management of the portfolio continues during the period of illness. This is especially important to those landlords who have chosen property investment as an alternative to pension. The loss of the portfolio combined with a partial recovery that leaves the landlord unable to work would result in survival into a life of poverty followed by a retirement of destitution. A shame when the exact opposite – a life of plenty and a retirement in comfort was within reach.

Watch With Interest!

Landlords need to keep a keen eye on mortgage interest rates. Many new property investors overlook the impact that small changes in rates might have on their portfolio. Analysing this is difficult as landlords might simply look at a rate increase of 1% and see that at current rent and their current variable rate they would be fine.  They overlook the threat that lurks in the shadows. It’s a hidden threat because the current product won’t exist at that future time – I’ll explain now how mortgage rates work and how this hidden trap is sprung.

Once a current mortgage deal expires – imagine being on a two year fixed rate at 4% there is usually a follow on rate which will be described as a standard variable rate or some kind of tracker rate. Imagine this rate is currently 5%. When imagining whether a mortgage in the future would be profitable, our landlord thought 5% was reasonable after a 1% rate rise. However, in reality, our landlord could face a standard variable rate of 6% if when the current deal finishes rates have increased by 1%. If the mortgage is on interest only, as many buy-to-let mortgages are, then the landlord will face mortgage payments that have increased by 50%.

Facing these higher interest rates, the rent may no longer cover the mortgage by a sufficient margin to refinance the property to another lender – our landlord no longer meets criteria and is stuck with the current lender and an unaffordable mortgage. Taking a longer term product now, or considering which properties offer a sufficient yield to protect against this future situation is really important.

Protect What’s Yours

Hopefully this guide gives many landlords the tools they need to start investigating the protection they need to ensure the vast wealth and wonderful future they have planned through property purchase avoids becoming a nightmare. These really are some simple, cheap steps that keep the risk away and make sure you can focus on growing your land Empire!

In Canada [...]]]> The U.S. Federal Reserve borrowed a play from Bank of Canada governor Mark Carney on Wednesday when they promised to keep interest rates low until at least the end of 2014. This is a good indication that Canadian rates will stay low as well, thus continuing the support of the real estate market here.

In Canada last year, the number of sales increased 2.2% over 2010 and the price of an average Canadian house increased 7.1%! In the GTA, the average house increased 10.8%.  Low interest rates will only cause this upward pressure to continue, just as our Bank of Canada has been warning that some real estate markets are overvalued.

This concern that low interest rates are increasing house prices beyond their reasonable value, will force Jim Flaherty, the Canadian finance minister, to make it harder for Canadians to qualify for a mortgage. He may have to reduce the CMHC insured amortization to 25 years or tweak the mortgage qualification in other ways to reduce the amount of new homebuyers.

I have seen clients choose to look for homes outside of Toronto, or even outside of the GTA, even though they work in Toronto because they consider the prices that homes are selling for inflated.  However, even on the fringes of the GTA house prices have ballooned to the same as they are here in Toronto.  A big drawback is the increased commute and plus out there you don’t get all the amenities like public transportation and availability of shopping like you would in Toronto.  Is there a winner in this situation?

The U.S. Fed also said they are considering printing more U.S. dollars, so expect the Canadian Dollar to raise above parity once again.  This will once again allow Canadians to take some of the equity out of their homes and purchase retirement homes in the sun.  Places like Arizona, Texas and the Mayan Riviera are sure to benefit.

Whether you are in the office or on-the-go, the new CMHC Mobile KIT provides quick and convenient access to tools and resources relevant to today’s busy mortgage professional. [...]]]> CMHC is pleased to introduce two new tools designed to provide you with flexible and convenient ways to access comprehensive CMHC information anytime, anywhere.

The CMHC Mobile Kit for Mortgage Professionals

Whether you are in the office or on-the-go, the new CMHC Mobile KIT provides quick and convenient access to tools and resources relevant to today’s busy mortgage professional. These tools and resources will help you stay informed and can easily be shared with your clients to help them make informed decisions.

Recognizing that you work in a fast paced, electronic and mobile work environment, the new CMHC Mobile KIT is a free application that can be easily downloaded to your mobile device and allows you to quickly access:

• Insurance product and premium information
• The latest news, including recent insurance announcements
• Calculators and tools (including The Mortgage Payment, Affordability and Premium Calculator)
• Your library of customized RESOURCE factsheets and CMHC housing guides to share
• Key CMHC contact information

The CMHC Mobile KIT is available 24/7 to mortgage professionals from across the country and can be downloaded to your Blackberry, Android or iPhone device at cmhc.ca/mobile.

The Premium Calculator

CMHC has launched its Premium Calculator, a new tool to support Canadian homebuyers. With this easy-to-use online calculator, potential homebuyers can quickly estimate mortgage insurance premiums allowing them to make better-informed home buying decisions. The Premium Calculator is the latest addition to CMHC’s suite of resources that support Canadian homebuyers.

The Premium Calculator helps estimate the CMHC Mortgage Loan Insurance premium payable when your clients are purchasing a home.  Simply enter the purchase price, down payment and the amortization period to calculate the applicable premium. The calculator is also available online through EveryThingYouNeed.ca and cmhc.ca.

For more than 65 years, CMHC has shared a wealth of knowledge, housing expertise, tools and guidance to help mortgage professionals stay informed and become trusted advisors to their clients.