All about assignments

Ever think about buying or selling a preconstruction deal before it’s ready?  Known as an “assignment”, here’s the pros and cons of flipping (or buying) assignments.  

WHAT IS AN ASSIGNMENT?

I guess we should start off by explaining what an assignment is.  Imagine that a purchaser enters in to an agreement to buy a new construction property a few years ago before the building even starts building, and then turns around and sells it to someone else before the completion date in the original agreement.  In Toronto this property is most likely a pre-construction condominium purchase, but an assignment can also apply to new construction freehold homes or even commercial properties.  Or, it could be an assignment of a resale agreement before the closing date.  The only thing that is common is that the property has not been registered on title to the original purchaser, and the original purchaser (known as the assignor) is selling their right to close on the property to the new purchaser (known as the assignee).

INTERIM OCCUPANCY vs FINAL CLOSING DATES

The most common case of assignments are pre-construction condos in Toronto.  There are two dates you should pay attention to, one is the interim occupancy date, and the other is the final closing date.  The former is when you get your keys, and the latter is when you get your mortgage. 

However, the only date that matters for assignments is the final closing date.


Here is a list of pros and cons of buying or selling an assignment:

SELLING?

It may be tempting to cash out, take the money, and run.  However, please consider the following before making your decision to sell prior to completion.

Pros:

  • You will realize instant gains, and the best part is that it's leveraged.  Your initial deposit will be around 20%, sometimes even less depending on the project and depending on when you decide to assign the contract.  Your selling price will be based on the market price of the overall asset.

  • No headaches of getting financing, because let's face it, it's getting increasingly difficult to get a mortgage in today's market.

  • You don't have to worry about market fluctuations, as who knows what will happen to real estate prices by the time the building registers.

  • No surprises from the developer.  Since you bought off plans, often times it is difficult to envision what the final product will be.  Perhaps your view is blocked by an unsightly neighbouring building, or that you didn't get what you were promised.  Maybe you expected the square footage of the property to be larger than in real life.

  • Let the next buyer worry about the extra closing costs.  True, you or your REALTOR was smart enough to cap your development charges and levies at the time of purchase, but there are always extra closing costs that you don't expect such as HST, land transfer taxes, legal costs, and all those minor fees and utility deposits that you did not expect.

Cons:

  • Be cautious of any tax implications that you may have.  Remember that an assignment of the Agreement of Purchase and Sale is really like selling the contract between you as the original purchaser and the developer.  This may be considered business income in the eyes of the Canada Revenue Agency, which is fully taxable unlike the capital gains exemptions that you get from the sale of real property.  The CRA is aware of this practice from condo flippers that do not declare the income, and is cracking down on individuals not reporting it.

  • You may be selling yourself short, as the property values will likely increase after the building is registered and vacancies are all absorbed.  There won't be any directly comparable properties to base the asking price on, because nothing else is listed.  You may have to use indirect comparable properties, such as units in other buildings or houses in neighbouring developments.

  • It may or may not be mentioned in an amendment to the Agreement of Purchase and Sale at the original terms of the purchase, but the assignment fee may sometimes outweigh the point of this assignment altogether.  That's even if the developer allows you to assign your purchase in the first place.

  • If the new purchaser isn't able to close on the property, you may still be on the hook to close.  Chances are that you already have your money in hand since your awesome REALTOR has negotiated your original deposit and any profit out of the deal already, but technically you are legally bound to the contract in case the new purchaser is nowhere to be found at the final closing.  In this case, you probably wouldn't be prepared to close either on such short notice.

  • You may be limited on how you can market your property for assignments.  In the case of preconstruction agreements, the developer likely prohibits the advertising of your property for sale on the MLS or anywhere else, because you may be competing with their remaining inventory.  It's probably in the second or third page of your agreement.  Any violation of these terms can be considered a breach of the original Agreement of Purchase and Sale.  I have yet to see a developer terminate an agreement due to this, usually they give you a warning.  However, you don't want to be the first case of this.  Of course, it will come down to a legal battle, but it's black and white.

BUYING? 

Purchasing an assignment from someone else might be a worthwhile endeavour.  Many of the pros and cons may mirror the opposite of those mentioned for the seller already.

Pros: 

  • It can be cheaper than the current market value of a similar resale property, as the assignor (the seller or the original purchaser) would need to give an incentive to purchase all the uncertainty that comes with buying something that probably isn't built yet.  Also, there probably has been a (significant) increase in property values since the original purchase, so there may be some room to negotiate.  However in a seller's market or a high demand property, this probably isn't the case.

  • Perhaps it's a good deal, if the assignor (the seller or the original purchaser) is under a distressed situation.  Maybe you can negotiation a win-win situation, where you get it at a great price and they get bailed out of a sticky situation.

  • It will be a brand new property, as it wouldn't have been lived in.  Who doesn't love that new car smell?

  • Also, new properties have the newest building technologies.  Floor-to-ceiling glass, state of the art appliances, home automation, all that sexy stuff.

  • If you need a longer closing, this may work out in your benefit.  Usually assignments are sold well before the final closing date.

  • Maybe you're not finding what you need on the resale market, this might be another avenue to expand your search in to.

Cons: 

  • It can be cash intensive, as any smart assignor (the seller or the original purchaser) will want their original deposit and their profit upfront.  This can require a large amount of cash required to close, as you won't be able to get a mortgage until the final closing date.  Almost all lenders would want to secure their loan on title, but there is no title to secure it to when it is still under the interim occupancy date. 

  • There is always the risk that the developer could cancel the projectIf this happens, then the developer would refund you back the original deposit with maybe some small interest, and you would be left to chase the original purchaser back for the hefty profit that they may have already spent.  It doesn't happen often, but if it does then you might wind up in a wild goose chase.

  • You may not get what you expect.  Unless you're experienced from buying from plans, the final product may be smaller than what you actual expected it to be in real life.  Or there may be an outside influence that couldn't possibly be shown on the plans.

  • You will have to inherit all the extra closing costs, such as development levies, utility hookups, etc.  Also, if your REALTOR wasn't experienced enough to know that you have to hold back funds for property taxes from the day that the original purchaser took occupancy before final closing, then you may be left chasing them down for that period of time when you finally get your retroactive tax bill.

  • You don't have any resale data to compare to, so you may be buying on speculation.  Will the property values support the new purchase price once it's actually built?

  • You might open yourself up to a changing market because of the length of time it can take to final closing.  That can be a good or a bad thing, depending on which way the market goes.  If you're looking for a interest rate hold, most banks don't hold their rates for more than 3-6 months (we have a bank that will hold it for much longer), so you may open yourself up to higher interest rates.  Or prices may drop, so you might find yourself having to put a larger than expected down payment.


BOTTOM LINE: CONSULT A PROFESSIONAL!

If you're still interested in buying or selling an assignment, make sure you reach out to a specialist that can walk you through your personal situation.  As you can imagine, it can be quite complicated as there are many things to consider.  Let us structure a deal to protect you and look out for your best interests!  To learn more, please drop us a line.

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Have you ever considered downsizing in to a condo?

Do you want to downsize and take some equity out of your home, but you can’t seem to find the perfect property that doesn't require any work for under a million dollars? Well maybe you haven't considered condo living yet!

I always say that the condo lifestyle is a luxury.  Imagine that you will never have to pick up a shovel again, and your car is always nice and toasty in the heated underground garage, and depending on the building you may have luxurious amenities such as a heated indoor swimming pool or fitness facilities that you wouldn’t otherwise have in your own home.  Some buildings have full-time concierge and security, which often translates to full-time Amazon package receivers, for all your online shopping needs.  

And speaking of security, wouldn’t it be fabulous to simply lock your door and take off for your next vacation and not have to worry about anything?

You should consider ditching that unused space that you can never seem to keep clean, and move in to the right sized condo.  Visit our website or give us a call, and explore the freedom of condo living!

February 2018 Toronto Market Update

What's going on in Toronto's Real Estate Market this month? 

Condos are up in value. Detached prices are down. Less is being sold.  What’s really happening?  Watch to find out more! 

Maybe you’re in that perfect situation of having a condo to sale and ready to move up to a house.  

Buying VS Renting in the Toronto real estate market

We know that coming up with the downpayment for a property is tough, especially with the average price of a detached home in Toronto being $1,250,235 ($532,700 for a condo) and the new lending rules. However, here are some reasons why we think it makes sense to buy vs rent.

4 Ways Home Buyers Will Be Affected By The New Mortgage Rules

4 WAYS HOME BUYERS WILL BE AFFECTED BY THE NEW MORTGAGE RULES ON JANUARY 1, 2018

Feeling stressed about the new “stress test”? Here’s what you need to know…

As of January 1st, 2018, all home-buyers will be required to undergo a new “stress test” – regardless of your down payment amount.

This will not only reduce how much financing you qualify for on your next purchase, but it will also limit affordability on the refinance of your existing home. In fact, some scenarios show Canadians will be able to afford 20 percent less house once the new rules come into effect.

Securing your mortgage before the January 1st deadline could potentially save you tends of thousands of dollars.

-- From: www.msavvy.ca

THE QUESTION IS: HOW DO THE NEW RULES AFFECT YOU AND YOUR FINANCIAL GOALS?

While the industry is undergoing a massive shift, you always have options. We’re happy to walk you through them. In the meantime, here are four reasons you may want to take action before the new rules set in…

REASON #1: You’re a few months away from buying your first home.

For years now, you’ve been working hard to cut down on expenses and save up for that down payment. The fact is, you’re tired of paying someone else’s mortgage and you’re ready to start investing in your own financial future. If you’ve been thinking about purchasing a home in the coming year, you may be closer to your goal than you realize.

Wondering how much house you can afford? We break it down in the chart below. For more specific numbers, try using our savvy calculator to determine affordability based on your current income and budget.

Of course, these numbers are all about to change. As of January 1st, 2019, your maximum mortgage affordability will drop. We summarize the impact in our affordability chart here.

Wondering if this is the time to make the leap into home ownership? Fill out our online application to determine if now is the time to buy your first home.

 

REASON #2: You have some debt to pay off (or large expenses coming up).

Perhaps your kids are heading off to university, or you are looking to free up some extra cash to cover home renovation expenses. Refinancing allows you to tap into your home’s equity to pay off debt while taking advantage of lower interest rates. In fact, you can refinance up to 80% of your home’s value to pay off unsecured debts, renovation debt, or to simply access cash.

If your debt is weighing you down, this may be your best opportunity to make a change. Fill out our quick and easy online application form and we’ll help you determine if refinancing before the January 1st deadline is the right option for you.

Of course, these numbers are all about to change. As of January 1st, 2019, your maximum mortgage affordability will drop. We summarize the impact in our affordability chart here.

Wondering if this is the time to make the leap into home ownership? Fill out our online application to determine if now is the time to buy your first home.

 

REASON #3: You’re ready to upgrade.

As your family grows, so does your lifestyle. Right now, mortgage rates are at a historical low – we’re talking 1.99% for a variable five-year mortgage rate in Ontario. At this rate, a family buying a home for $500,000 with a $125,000 down payment could expect to have a monthly mortgage payment of $1,743.

But as of January 1st, that same buyer will have to undergo a stress test prior to qualifying in order to ensure they can afford to pay their mortgage at two percentage points higher (3.99%). This means they would have to show they can afford to pay a mortgage of $2,165 per month. That’s a difference of $422 a month – or $5,064 a year!

(Refer to “Chart B” above for the full breakdown of the impact on affordability). If you’ve been thinking about making a move, it may be in your best interest to secure a mortgage pre-approval before the new mortgage rules kick in.

 

REASON #4: You’re looking to make an investment purchase.

By now you know, it’s about to become tougher to qualify for a mortgage. No matter how you look at it, your purchasing power will decrease when the new rules come into effect January 1st.

If you’ve been considering financing an investment property, doing so before the deadline could mean the difference of owning up to 20 percent more house (as opposed to waiting until 2018 to purchase). Take a few minutes to fill out an online mortgage application today, and we’ll get back to you right away with the answers you’re looking for.

While the January 1st deadline is fast approaching, we want you to remember: it’s not just about the numbers. Even if you’re not in a position to purchase before the January 1st deadline, you still have options.

We’re here to discuss your short and long-term financial plan, so we can help you make the decisions that are right for your personal situation. And we promise we would never make a recommendation we wouldn’t suggest for our own family members. Get started by filling out an online mortgage application, and we’ll take it from there.

 

Have the paperwork ready? Let's get started. Click here to apply with our partners at Mortgage Savvy.

Toronto Real Estate Market Update - December 2017

Here are 8 key indicators I use to check on the health of the Toronto real estate market!
For more blog posts, click here.


Transcript:

Hi it's Kenneth Yim from Keller Williams Realty.  I know you get a lot of mixed headlines with what's happening in the Toronto real estate market, so I'm here to give you eight key indicators as to what's actually happening. Check it out!

So I have to tell you, this is only for 416.  If you need the numbers for 905, please feel free to give me a call.  

Okay, I know the number you are all curious about is the average price.  So here's everything since 1996, and as you can see, if you draw a regression line, you can see that we're slightly above average, but you know Toronto has been growing at a rapid pace and you know it's a wonderful place to be. We're still cheap compared to the rest of the world.

Here's actually what's happening, year over year. Now we'll zoom in a little bit, we'll see the five year average. And you can see it follows two little humps. So here we are. We're just about to finish the fall market, getting in to the winter months. Many of you ask, "when's the best time to sell"? Well, it's either spring or fall, that's the highest average price, and the lowest price is typically the summer when everyone is on vacation, and the winters when the holiday season hits.

So really, it's up to you.  I mean the average price is the highest in the spring and the fall, but as you will see in the next slide, you will have the most competition.  Similarly, if you are looking to buy at the lowest price point, you might not have a lot of options in the winter and the summer.

So let's get in to the next slide.  The number of units sold.  This shows the volume of activity, and again it follows two major humps, you'll see in the spring and in the fall you'll have the highest activity, and in the summer and the winter, everyone is on vacation and holidays, and there's less units sold.  So here we are now, and as you can see there's going to be a lot less activity in the coming months, but then again the average price goes a little bit lower.  So it might be an opportunity for buyers.

Now the third key indicator is the number of new listings in the market. As you can see, we have a lot more new listings on the market.  But it does follow the typical curve that we've seen before.

The fourth thing, let's match them up. So the ratio you see here is basically the amount of units sold compared to the number of new listings that come on to the market.  Right now we're just around 60% of [units sold] to new listings.  So if you look at the trend line, we're seeing slightly less sales, but overall the market is pretty healthy.

The number of active listings.  So that's what's currently listed in the market and hasn't been sold yet.  We'll see the trend line is moving a little bit up. In the beginning part of the year, you can see it's been pretty low, so things have been selling, fast, as you know.

Now if you take these numbers together, I think this is the most powerful slide, the months of inventory.  So basically, that means if nothing new were to come on to the market, how many months would it take to sell whatever we have active on the market?  So we take the number of active listings, divide that the number of sales every month.  So as you can see right now, the months of inventory is about 1.8 months.  So if nothing new were to come on the market, it would take about 1.8 months to sell everything that we have on the market.  It's actually not that bad.  Compare this to 2008 when we had the big tech bust, and when the U.S. economy collapsed.  So at the peak of the crash, we had almost 8 months of inventory. As you know, that blip didn't last long. Overall, we're still pretty healthy.

The days on market, tells us on average, how long it takes to sell a home in today's market.  And as you can see, the numbers are trending downwards. Although we're a little bit above the average line, it's still going down. We're looking right now of an average of about 21 days to sell your home in today's market.  And again, it follows the same seasonality curve. The spring and the fall is the hottest market, and the summer and the winter it's a little bit slower because people are on vacation. In this spring in 2017, you saw a crazy boom, everything was selling really fast.

So this last slide, the sold to ask ratio, will tell you if the market is typically trending to have bidding wars or not.  So if you're asking for $100.00, right now you're going to get $99.30.  In the early part of the year, it was actually approaching 112%! That's crazy! So right now we're a little bit under, I think it's a great time to get in, people are getting under what they're asking.  If you're looking to sell, well, maybe now is the perfect time to trade up. 

So as you can see, we're not going to head to a crash any time soon.  But we have less than a month before the government implements their new mortgage qualification rules. If you need to know how that's going to affect you, please give me a call.

Don't forget to subscribe to our YouTube channel, or give us a call and we'll give you a one-on-one market update with that's going to affect you.  Thanks for watching!

Five Minutes with Marlon Yee and Kenneth Yim

FIVE MINUTES WITH MARLON YEE
November 2017

Join us as we talk shop about Toronto real estate and some of our our investment success stories, and how you can get started if you have no money down.


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Marlon Yee

 

Call me at 647.299.8252 or email me at marlon@capitallendingcentre.com to get all your options!

Social Media:
Facebook: Marlon Mortgages
Instagram: @marlong_mortgage

300-801 Yorkmills Rd. Toronto ON

There are 7 Ways to Make Money In Real Estate

Join us as Ken takes us through the seven ways to make money in real estate.  For more blog posts, click here.


Transcript:

Hey guys, it's Kenneth Yim from Keller Williams Realty here, with another real investing video. This time I want to tell you about seven different ways you can make money in real estate.

All this information comes from Gary Keller's Millionaire Real Estate Investor book. Really really good stuff.

So first things first, it's called "finding and referring". Okay? So that means if you find a property either on or off market, and you introduce it to an investor in to it, often times they'd be willing to pay you a finder's fee. Now, as you can imagine, the fee probably won't be that high, but at least it's a little bit of something and you didn't have to put any cash out.  So that's a good way to do it. So always be looking on the market.

Number 2 would be "controlling and assigning".  Oops, let me get it in focus there.  Controlling and assigning.  Now these are a little bit difficult to come across, I mean really you're flipping the paper and not the actual property, andI caution you because for tax purposes you'd be paying business tax, not capital gains tax. Talk to your accountant about that, but you know, it's a great way to make some money with minimal down.  So, all you do is put some money down towards securing the property, getting it in to contract, putting maybe a long close, and then finding another buyer that would be willing to pay more than what you paid for it.  Not a bad option.  I've done that once before and it was pretty awesome... actually a few times. It was awesome.

Another one, "buy and sell".  Ok so you buy the property, then right away you close on it and then you can flip it out for a little more money as well too. Now again, it's a little bit difficult to make money on that especially with the all the high closing costs, like land transfer taxes, and selling costs, lawyer fees, and all that.  So there would have to be a lot of value in there to make it. 

Again, another one to do is "buy, improve, and sell", commonly known as the "fix and flip".  I'm doing one of these myself, it's not a bad way to make money.  You buy it, close on it, fix it, flip it, and try to profit within 6 months, maybe a year.  This is what I would say... these four strategies that we just talked about, "buy, sell, improve", "buy and sell", "control and assign", and also "find and refer" is the best way to get cash quickly.  To build your cash.  

But the real, real, real way to make money is when you grow your equity.  Ok?  So here's another option: it's a little bit creative, it's called the "lease option". Alright? So maybe you potentially you have a property that you already have and you've given it to somebody like a tenant and maybe they're trying to fix their credit (so they can't buy yet), you offer them a lease-to-own scenario.  Anywhere from 2 to 5 years. So they pay you often sometimes it can be a higher than market rent, so you can get some good cashflow there, you're also building equity because you know you're holding the property obviously, and then you sell it to them at a pre-determined price. Now it could be a win-win, depending on the situation, but it's a good way to make some money.  Like yeah... you can get really creative in that. You HAVE to get really creative.

Here's my favourite: "buy and hold".  This is what I'm doing with all my pre-construction condos. The reason why I bought a lot of them and I think it makes it easy for the everyday investor, is because you can take that money out of your equity of your home, let's just say, or savings.  You have staggered deposits, over a two year period.  You'd be paying a certain amount every single payment, maybe $30,000 to $40,000 per payment, until you hit your deposits, your 20% down.  Then after that, you can wait for the building to be built, it would be about 4 to 5 years.  The market typically WILL rise, and then at that point you get your mortgage, and then you kind of just hold on it right?  Put a tenant in there, hold, hold, hold!  Don't ever sell.  Take a line of credit out if you want to. If you're kind of getting lost, just take a look at my last video on how... I'll point that to you next.  Buy and hold I think is my favourite strategy.  It just kind of, you know, five years flies by so fast.  You don't even notice it.

Also the one to create real value is to "buy, improve, and hold".  Right, so same kind of idea.  You buy it, put some money in to renovations, and then you can hold on to it, get a tenant in there, and then maybe improve it some more. This also includes buying a piece of property... a piece of land let's say or even a building, and putting more intensification to it, so more density, creating more floors, maybe getting some re-zoning to do that. Something that's one floor now, and then adding two more floors to it, so that's 3 times the amount of space you have.  That's also amazing too.  So this also can get very creative, and also needs a lot of expertise as well too, but probably is the best way to make money. 

So, there you have it, seven ways to make money in real estate.  If you want to talk a little bit more, give me a shout!

Oh yeah, and if you like what you see, don't forget to click on subscribe or check out our last videos that we just did.  Thank you (for watching)!

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How I'm Building My Wealth Through Real Estate

How I’m building my wealth: walking around the monopoly board locking up properties. The second phase will be trading up to build hotels.

For more blog posts, click here.