Many investors in Canadian Real Estate are investing the way they are with an understanding that real estate provides a more reliable return on investment than stocks or bonds do these days, and that’s actually more true in Canada than it is in the USA. This is because demand continues to way outstrip supply here, and that is unlikely to change in the immediate future. The federal government has made efforts to cool the overheated market, and interest rates are expected to rise somewhere in the middle of 2022.

There are many people who will be quick to point out the folly of Government intervention in markets of any sort, and to be fair they are often much more educated and informed on the subject and not taking a position on the matter primarily because of a personal interest. There are also many intrinsic factors that keep the prices for real estate in Canada high, and most of them won’t be significantly changing any time in the near future either. Long story short, real estate investors continue to have little to nothing deterring them from investing as they wish.

A successful real estate agent is one that is receptive and attuned to their clients’ wishes and interests, and being able to advise them in the best way possible with that understanding is going to go a long way. Investors will welcome any info that improves the projections for their investment, and as such you should be as in-the-know as possible to impress and retain clients. In some cases it is the creating of new clients that is the challenge, and for realtors of this type our online real estate lead generation system here at Real Estate Leads is highly recommended.

The Smith Maneuver is something of a loophole for getting around taxes on investment properties, and it’s something your clients may well like to be made aware of. Let’s have a look at it with our final blog entry for the year here.

Legal Tax Strategy for Mortgage Interest – Deductible Interest

The Smith Maneuver is a legal tax strategy to convert mortgage interest into deductible interest. This is how it works. The owner gets a re-advanceable mortgage loan, ones that bank regulators typically call Combined Mortgage-HELOC Loan Plans (CLP). These are mortgages where the principal payment is immediately made available as mortgage credit.

The owner then makes regular mortgage payments. The payments you make are then available as credit on your HELOC., which is then used as credit for investing. Every payment made on the mortgage is taken from the HELOC, and then channeled into buying income-earning, eligible investments.

The owner then deducts the HELOC interest, with the interest paid on it now considered a tax deductible loan with the way it is used as an income generator. Your client will then get a portion back on their tax return.

From there, the tax return is used to pay down their mortgage. It functions as an accelerator that works to build the portfolio faster.

Repeat as Necessary

This process is repeated as many times as necessary until the mortgage is paid off. Once nothing more is owing for the mortgage, they can either start paying off their HELOC or start new at the beginning again on a new investment. Be aware that at some point the write offs will no longer be worth the interest, so clients should be running the numbers or have someone doing that for them.

Done right the homeowner receives these benefits:

• No outstanding mortgage loan
• An investment loan with tax deductible interest, generated from HELOC debt borrowed in size of the original mortgage.
• A more substantial mortgage portfolio.

Eligible Investment Types

Not all investments have eligibility for loan interest deductions. Only if the loan is for income-earning investments is it deductible. Financial advisors will often suggest only using dividend paying stocks for this reason and the CRA considers borrowed-fund share interest costs to be deductible on the basis that it is the common shareholder who will be receiving dividends.

Using money to buy a rental property, for example, can be eligible provided it is income producing.

Risks

Utilizing the Smith Maneuver may make a lot of sense, but it also comes with risks. They include some obvious ones like a major decline in home prices or investments, but of course one will immediately ask how likely that is going to be in Canada for 2022 and beyond in the foreseeable future given the super insulated hot housing market in Canada.

Hope that all of you have a good remainder of your Holidays and a Happy New Year coming up.

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That the BOC is going to raise interest rates at some point in 2022 is pretty much a given now, and in part because they’ve have always mirrored what happens in the US to a large extent. This rise has been long overdue, but it has been backburnered and primarily because of low interest rates since early March 2020 in place while Canada weathered the COVID pandemic. The grace period has seemingly run out on that, and the BOC can’t keep rates as low as they have been any longer. The only question is how much they will rise. The guess right now is 6 basis points.

In as far as this relates to the real estate market in Canada, it has been suggested that a rise in interest rates might be helpful in cooling the housing market. This was suggested in large part when it comes to investors buying into the housing market. It is entirely true that there are going to be more people investing in housing beyond a principal residence any time it costs less to borrow money. This is to say nothing of REITs and the other layers in all of this too. A heated housing market is a mixed scenario for realtors working with investors or people hoping to sell their home for above asking.

Fewer homes going onto the market have been something of a counter to the FOMO trend that has people overleveraging themselves to buy homes, and for realtors who are struggling to drum up new business our online real estate lead generation system here at Real Estate Leads is an excellent way to take advantage of Internet marketing research to be tipped off to people ready to make a move in the market and perhaps not already working with an agent. A heated market offers more in the way of a lucrative career for realtors, but that will also mean many new real estate agents entering the profession.

Marginal Effect

Experts are saying that the coming BOC interest rate rises likely won’t have the market-cooling some are hoping they’ll have with real estate. If there is supposed to be more buyer hesitancy when interest rates are higher – and especially for investors buying secondary residences – why are the rate rises not foreseen to be effecting the volumes of home sales overall and / or bring down prices?

Nearly two weeks ago (Dec. 8^th) the BOC announced it would hold the interest-setting overnight rate at 0.25%. This came with the indication that rates may move higher sometime in Q2 or Q3 2022. Bank economists at TD economics are forecasting 3 rate hikes for 2022 followed by another 3 more in 2022.

Banking and real estate industry experts are saying that the rapid increase in home prices and housing affordability challenges seen over the course of the pandemic will not have any major impact on housing demand and prices in Canada. Higher interest rates will dampen demand for housing somewhat, but a supportive macro backdrop plus flexible stress tests that offer ample room for rates to rise should keep market activity at levels that were seen before the spring of 2020 and the start of the COVID-19 pandemic.

Multi-Tier Supportive Background

The supportive background is going to be strong economic, employment and income growth to take place in 2022, and that increased immigration inflow will also strengthen housing demand in the face of any degree of downturn it takes because of the rising interest rates as set by the Bank of Canada.

Let’s keep in mind as well that a large chunk of the Canadian population has now aged into what are known to be the prime home buying year – 25 to 39, and there are many people in all different age demographics who see the expectations of future price gains coming from entering the real estate market.

TD expects mortgage rates increases will still come in below the current stress test qualification threshold but that sales will stay elevated to counter the impact of higher rates. It is expected that another strong year for price growth is how 2022 is going to play out for Canadian real estate.

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Sign up for Real Estate leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads for potential new real estate clients. These leads are yours exclusively – no other realtor will receive the same leads that you do and that means you have the opportunity to be first in touch with these folks and presenting yourself as a real estate professional with the expertise they’ll want for buying or selling their home.

 

It’s only the people who either don’t work in real estate or don’t invest in it that might make the incorrect assumption that real estate is only about residential properties. Further, there are many agents who will choose to specialize in marketing, buying, and selling commercial properties and in major metro centres this can be a very solid choice for people who want to make money in real estate. It’s also not uncommon for realtors to work with returning clients who have already purchased at least one home to now be expressing an interest in BC commercial real estate.

Industrial continues to be the hottest asset class in every major Canadian real estate market as demand is outpacing supply in ways that even outdo what’s being seen in the residential housing market in most major Canadian cities. In Vancouver for example there is a 0.6% vacancy rate in the industrial sector and the situation is so acute it is having potential negative ramifications for provincial economy.

Having the versatility with your industry know-how and expertise to shift focuses as clients’ wish is something that will benefit a real estate agent. It’s best to try and get to a broad base of knowledge as soon as possible, along with doing whatever else you can to gain an edge on competitors. Real estate is always among the most competitive in any major city where properties have great value, and that shouldn’t come as a surprise. Here at Real Estate Leads our online real estate lead generation system is an excellent way to meet new clients of all sorts and be fast-tracked when it comes to being in touch.

But back to topic, right here at the end of 2021 / start of 2022 we may be at a time where it’s advisable for clients to consider offloading some of the assets they have in commercial real estate. Let’s look deeper into why that is.

Vancouver Example

The BC economy benefits from local industrial activity just as that of any other province would. According to the Q3-2021 Vancouver Industrial Market Report from Colliers, Vancouver entered a 5th straight quarter of zero vacancies for 100,000+ sq. ft industrial facilities category and a 2^nd quarter in a row of absolutely no facilities larger than 50,000 sq. ft being available. This has meant that demand for strata space has never been higher.

Through the first 3 quarters of 2021 there was an average price per square foot for strata in the GVA that was a record high at $429 per square foot. This works out to an increase from 110% from the same period in 2016 and Vancouver also established a record-high average price per square foot for strata over the first 3 quarters of 2021 – $619 per square foot. That is a 98% increase from the same period in 2016.

We’re also seeing e-commerce companies contending with supply-chain disarray, and this is expected to increase demand for warehouse and distribution space is going to become stronger through 2022. This demand is obviously going to push prices up, and even more than incrementally. The trend for e-commerce firms to offer favourable deliveries also means they need that industrial space that’s near town.

All of this creates a situation where realtors may want to advise their clients to consider the valuations they have for commercial / industrial properties they’re holding onto. If current trends continue into the middle of 2022 we may have a commercial real estate market here that is extremely hot and the prices that similar properties are selling for may be something your clients want to be made aware of.

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It’s only the people who either don’t work in real estate or don’t invest in it that might make the incorrect assumption that real estate is only about residential properties. Further, there are many agents who will choose to specialize in marketing, buying, and selling commercial properties and in major metro centres this can be a very solid choice for people who want to make money in real estate. It’s also not uncommon for realtors to work with returning clients who have already purchased at least one home to now be expressing an interest in BC commercial real estate.

Industrial continues to be the hottest asset class in every major Canadian real estate market as demand is outpacing supply in ways that even outdo what’s being seen in the residential housing market in most major Canadian cities. In Vancouver for example there is a 0.6% vacancy rate in the industrial sector and the situation is so acute it is having potential negative ramifications for provincial economy.

Having the versatility with your industry know-how and expertise to shift focuses as clients’ wish is something that will benefit a real estate agent. It’s best to try and get to a broad base of knowledge as soon as possible, along with doing whatever else you can to gain an edge on competitors. Real estate is always among the most competitive in any major city where properties have great value, and that shouldn’t come as a surprise. Here at Real Estate Leads our online real estate lead generation system is an excellent way to meet new clients of all sorts and be fast-tracked when it comes to being in touch.

But back to topic, right here at the end of 2021 / start of 2022 we may be at a time where it’s advisable for clients to consider offloading some of the assets they have in commercial real estate. Let’s look deeper into why that is.

Vancouver Example

The BC economy benefits from local industrial activity just as that of any other province would. According to the Q3-2021 Vancouver Industrial Market Report from Colliers, Vancouver entered a 5th straight quarter of zero vacancies for 100,000+ sq. ft industrial facilities category and a 2^nd quarter in a row of absolutely no facilities larger than 50,000 sq. ft being available. This has meant that demand for strata space has never been higher.

Through the first 3 quarters of 2021 there was an average price per square foot for strata in the GVA that was a record high at $429 per square foot. This works out to an increase from 110% from the same period in 2016 and Vancouver also established a record-high average price per square foot for strata over the first 3 quarters of 2021 – $619 per square foot. That is a 98% increase from the same period in 2016.

We’re also seeing e-commerce companies contending with supply-chain disarray, and this is expected to increase demand for warehouse and distribution space is going to become stronger through 2022. This demand is obviously going to push prices up, and even more than incrementally. The trend for e-commerce firms to offer favourable deliveries also means they need that industrial space that’s near town.

All of this creates a situation where realtors may want to advise their clients to consider the valuations they have for commercial / industrial properties they’re holding onto. If current trends continue into the middle of 2022 we may have a commercial real estate market here that is extremely hot and the prices that similar properties are selling for may be something your clients want to be made aware of.

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Sign up with Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads. The important distinction is in the fact that these leads are only provided to you, and you’ll be the only realtor receiving these leads that are for prospective clients most likely living in the same town but at the very least considering a real estate sale or purchase there. It’s a great way to supercharge your client prospecting efforts and we’re nearly certain you’ll see it as a very worthwhile investment in growing your real estate business.

Here we are in the final month of 2021, and like every one of them this year has gone by quickly. What has probably been the biggest waypoint for it for the Real Estate Market was one that is far away in the rear view mirror now, and specifically the market ‘cool down’ of the early spring that didn’t last nearly as long as some thought it might or being a precursor to any sort of overall market correction. In fact what has been seen since then is a resumption of market activity to the tune of some of the hottest real estate market conditions ever seen in Canada.

As always, this is a source of much discussion and introspection on the part of anyone who works in the real estate industry or has an interest in it – specifically both homebuyers and home sellers. For the seller there’s everything to like about the hotter market, and the exact opposite will be true for the majority of homebuyers and especially those are looking to buy their first home from a realtor who is very knowledgeable about how to submit the most competitive bid on a home while still understanding their client’s budgetary concerns and how much they’ll be able to afford with BOC interest rates set to rise in Canada.

New clients can be hard to come by, and especially with so many people making career shifts into real estate all the time. That’s a part of why our online real estate lead generation system at Real Estate Leads is a good choice for anyone who wants to get something of a leg up on the competition and build their client base with a little more speed. That’s likely the majority of them.

But back to topic, the Canadian Housing Market Outlook Report for 2022 has come out as it always does as the current year draws to a close, and there are some notable findings in it that give us an idea of what’s to come as we move into a new year next month.

Upward Pressure on Housing Prices Will Continue

All sources are expecting steady price growth across the Canadian Real Estate Market in 2022, and along with this the current supply shortage for homes will continue too creating upward pressure on housing prices for the foreseeable future. The consensus seems to be that there will be a 9.2% increase in average residential sale prices across the country, and that is up roughly 2% from what was foreseen at this same time last year as 2021 was on the horizon.

The report provides something a reflection of homebuyer confidence too. Just slightly less than half (49%) of respondents feel that Canadian real estate will remain one of their best investment options in 2022 and a similar 49% of respondents have confidence in the Canadian real estate market remaining steady through next year.

It is encouraging to see that so many are feeling confident in the housing market in 2022 and view Canadian real estate as a solid investment, and this will be true for homebuyers and those who will be putting homes up for sale when working with a dedicated real estate agent.

There has very much been a trend of homebuyers searching for larger properties with greater affordability, which is likely to continue pushing demand and prices up in 2022 and – most notably – heating markets in smaller areas of the country where this equation is possible but where such upward pressure has not been seen before. This trend has notably increased demand for single-family detached homes and for condos in some regions too, which may continue into 2022.

Both coasts of the country have cities that continue to be seller’s markets, or are becoming that way for the first time as is true for some parts of Atlantic Canada, including larger urban centres like Moncton, Fredericton, Saint John, Halifax, Charlottetown and St. John’s all experiencing an influx of out-of-province buyers taking a newfound interest in housing in these Maritime cities.

For Ontario, we’re seeing how investors now make up the largest segment of home buyers in Ontario, with 25% of homes being snapped up by investors speculating that prices will only keep rising. This is leading for some civic official to call for a speculation tax like the ones that are in place elsewhere in the country.

Additional Findings

• The percentage of Canadians who currently own a home is 62, and ownership continues to be most common among those ages 35+ (70%) compared younger 18-34 cohort (42%)
• 2-in-5 Canadians are willing to rely on their agent to advise them on potential moves in the real estate market and making informed transactions
• 23% of Canadians have an increased desire to build their own home or buy one at pre-construction
• 26% of Canadians feel an impetus to purchase a home before BOC mortgage rates go up in 2022
• 72% of Canadians said rising home prices would not factor into purchasing decisions for 2021

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Signing up for Real Estate Leads here means you will receive a monthly quota of qualified, online-generated buyer and / or seller leads that are delivered to only one realtor – you. They are your leads exclusively, and will be for people in your area of the country who have indicated their considering a move in the real estate market. You’ll have the opportunity to be in touch with them first, and make your pitch as to why they’ll benefit by working with you as their real estate agent. This is a proven effective way to build your client base more effectively and establish clients who will want to work with you.