Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

MoneySense Retired Money: How safe are REITs and REIT ETFs during the Covid recovery period?

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MoneySense.ca: Photo by energepic.com from Pexels

My latest MoneySense Retired Money column has just been published: it looks at how much real estate should make up of an investment portfolio, either through direct ownership in physical real estate, or through more diversified REITs or REIT ETFs. Click on the highlighted headline for the full column: How much real estate should you have in a balanced portfolio? 

How much should real estate comprise in a balanced portfolio? While a principal residence certainly will be a big part of most people’s net worth, personally I don’t “count” it as part of my investment portfolio, even though it can ultimately serve as a retirement asset of last resort, via Home Equity Line of Credits (HELOCs), reverse mortgages or simply an outright sale when it’s time to enter a retirement or nursing home.

If you take that approach, and many of my advisor sources do, then the question becomes how much real estate should you have in your investment portfolio, above and beyond the roof over your head?

Certainly, if you are happy being a landlord and handy about home maintenance, direct ownership of rental apartments, duplexes or triplexes and the like is a time-honored route to building wealth. That’s the focus of organizations like the Real Estate Investment Network (REIN).

However, if you don’t want the hassle of being a landlord, you may want to try Real Estate Investment Trusts (REITs), which are far more diversified both geographically and by housing type. Some REITs focus on baskets in particular real estate sectors, such as residential apartments or retirement homes.

A still more diversified approach is to buy ETFs providing exposure to multiple major REIT categories, whether Canadian, US or international.

Adrian Mastracci, portfolio manager with Vancouver-based Lycos Wealth Management, says the REIT idea “makes sense” but suggests they should not make up more than 5 or 10% of an investor’s total wealth or not more than 7% of an equity portfolio. “I consider it part of the equity bucket. Publicly traded REITS trade more like equities than real estate.” He advises buying top-quality REITs (or ETFs holding them), diversified across Canada but avoids foreign ETFs because “you want the dividends taxed as Canadian dividends.”

Most of the major ETF suppliers with a Canadian presence have broad-based passively managed REITs although there is at least one actively managed one.

Major passive and active Canadian REIT ETFs

The Vanguard FTSE Canadian Capped REIT Index ETF (ticker VRE/TSX) was launched in 2012 and has a modest MER of 0.39%.  As the name implies, any one holding is capped at 25% of the total portfolio [typically this is RioCan.] Its mix is 22% retail REITs, 19.8% office REITs, 18.5% real estate services, 18.5% residential REITs, 8.5% industrial REITs, 8.1% diversified REITs and 4.6% real estate holding and development.

An alternative is XRE, the iShares S&P/TSX Capped REIT Index ETF, trading on the launched in 2020, which holds roughly 16 Canadian REITs, with weightings almost identical to VRE. The iShares product (from BlackRock Canada) has a slightly higher MER of 0.61%. Continue Reading…

When is the best time to sell your House?

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By Mike Khorev

Special to the Financial Independence Hub

No matter why you are ready to list it, selling your house can be a complicated affair. Why make it any more difficult than it needs to be?

Whether selling your primary home as you downsize or selling a secondary property to make room for new investments, choosing the right time to sell is essential for streamlining the process.

Maximizing profits and the selling experience are heavily affected by the state of the market, so you want to make sure you enter the market at the right time.

When is the best time to sell your house? Find out more today.

National Statistics: When you’ll see biggest profits

According to averages seen across the country, choosing the correct month and day of the week when listing your house can affect your profit margin.

Homes that sell at the beginning of May sell faster and for more money than houses at other times of the year. This trend has been seen for several years and does not seem to be changing just yet.

Additionally, houses listed on Saturdays get more views than houses listed on other days. Most agents aim to get their houses onto the market on Friday or Saturday so that they can take advantage of people’s free time on the weekends for showings.

Investigate Local Markets

Getting an idea of when the best time to sell your house is from the national market is good for general ideas, but your local market can be a great informant as well.

Many of the factors that affect when the best time to sell is more specific to the area where your property is located. Such factors include: 

  • Mortgage rates
  • Tax incentives
  • Job growth
  • Seasonal changes
  • Tourism seasons
  • Rental market changes

Talk with local agents and experts about your market or do some research online to determine when sales seem hottest in your region. The dates may be as early as April and reach through the end of the summer, depending on where you are located. Adapt to what fits your area so that you can make the biggest profit on your sale.

Pay attention to the season

Different types of buyers may be shopping during different seasons. The market changes from season to season because of changing trends, so listing when your home type will be hot on the market is a good sales tactic. Continue Reading…

Spendapalooza 2021: Ottawa unveils first Federal Budget in two years

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CTVNews.ca

The first Federal Budget in more than two years was unveiled shortly after 4 pm Monday. You can get the official documents [all 724 pages of it, with the heft of a big-city telephone book] from the Department of Finance here.

It sports the title A Recovery Plan for Jobs, Growth, and Resilience. 

The last federal budget [“Investing in the Middle Class”] came down on March 19, 2019.

You can find the latest Budget tweets and post-announcement reaction under the hashtag #Budget2021, and on my Twitter feed @JonChevreau, which also scrolls on the right of this site. Minister of Finance Chrystia Freeland tweets as @cafreeland. Earlier Monday she tweeted that “we will finish the fight against COVID-19 and invest in job creation and a resilient economy.”

Here is the initial analysis from the Globe & Mail [possibly subscribers only]; personal finance columnist Rob Carrick focused on the childcare initiative.  Also at the G&M, David Rosenberg rightly construed it as a vote-buying multi-year massive spending binge that Canada is unlikely to afford.

Here is what the National Post has to say; William Watson’s take is here; I love this quote from him: “In terms of taxes, however, ‘over-threaten and under-deliver’ summarizes this budget.” Terry Corcoran characterized it as Canada’s Reverse Perestroika with a shift to centralized planning. Jack Mintz lamented the lack of fiscal anchors to hold back the Liberals. Diane Francis warned the pandemic spending spree is nowhere near being over, thanks to Justin Trudeau’s bungling of the pandemic. Finally, CIBC Wealth’s Jamie Golombek looks at five tax-related measures, notably the three replacements for the original CERB.

Here is the Reuters feed. One focus of the Toronto Star was an extra billion dollars devoted to Broadband infrastructure in rural communities.

Federal Minister of Finance and Deputy Prime Minister Chrystia Freeland. (Twitter.com)

Billed as a post-pandemic Budget, it lived up to the prerelease leaks of a spending marathon the past week. In short it is Justin Trudeau’s pre-election Spendapalooza 2021. More than $100 billion in spending over 3 years was unleashed, including $30 billion over 5 years and $8.3 billion a year thereafter for the centrepiece of it all: a National Childcare and Early Learning Program.

No real help to cool Housing Bubble and other measures that didn’t happen

As interesting as what was announced is what many feared might be announced and didn’t happen. As far as I can see at this point, there was no move to end the tax-free gains of a principal residence, nor did I see any changes in capital gains tax inclusion rates on investments in general. As Watson quipped about taxes, “Overthreaten and underdeliver.”

Also in the category of things we’re glad not to see is, as Global News summarized, no hike to the GST and no imposition of a Universal Basic Income, no broad-brush Wealth Tax [but new taxes on expensive cars, boats and planes] and no increases in Health Transfers to the provinces. There wasn’t even significant help to cool runaway housing markets, apart from a tax on vacant or underused residential property owned by non-residents: as reported by Robyn Urback in the G&M.

Nor was there much about Pharmacare, to the dismay of the NDP.

Apart from that there was billions for everybody. As Andrew Coyne wrote in the G&M, the budget had to be the longest in history because “this budget is about everything.”  He notes that the word “support” appears almost 1,000 times, and benefit/s more than 1,300 times.

OAS sweetener for 3.3 million seniors

A $500 one-time Old Age Security payment for seniors 75 or older [as of June 2022] is coming in August, followed by a 10% rise in regular OAS benefits in July 2022. Continue Reading…

Are people denying the Real Estate Bubble, too?

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Will Ottawa move to deflate the housing bubble by taxing gains on principal residences in today’s federal budget?

 By John De Goey, CFP, CIM

Special to the Financial Independence Hub

By now, you’ll know that I have been alarmed by stock market valuations for a long time.  Late 2019, in fact.  Recently, I pointed out that the bond market is severely stretched based on current valuations.  It is now time to complete the TINA Trifecta by examining real estate.

Depending on which market you live in, real estate in Canada is likely somewhere between “pricey” and “there is no hope in hell for my kids to ever be homeowners.” In the greater Toronto area where I live, the consensus price increase in real estate over the past three years or so is about 30%.  No wonder there’s speculation that today’s federal budget will include a capital gains tax inclusion on principal residences.

From a financial planning perspective, it is considered prudent to expect real estate prices to increase at about the same rate as wage inflation.  Inflation has been hovering at around 2% for over thirty years now.  Wages have been essentially stagnant over that timeframe. Stated differently, we’re already gone nearly a third of a century with real estate outpacing prudent expectations.  That’s what TINA [There Is No Alternative] does.  There is literally no alternative because everything is expensive to buy, but ridiculously cheap to own: in terms of financing and the cost of carry.

The Great Covid Bubble?

Central banks started lowering rates aggressively in early March 2020.  Government cheques started to be sent out about a month later.  Over the past 13 months or so, we’ve reached the point where the combined effects of fiscal and monetary stimulus have created a valuation monster that touches on all major asset classes.  Stocks, bonds and real estate are all flashing red in terms of historical valuations.  Someday, people could look back on this unprecedented confluence of circumstances and call it the “Great COVID Bubble.” Continue Reading…

36% of non-Home-Owners under 40 giving up on buying first home, but others still plan to buy, RBC poll finds

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By Amit Sahasrabudhe, Vice-President, Home Equity Financing, RBC

(Sponsor Content)

The road to home ownership isn’t always an easy one and the pandemic has made it even more complex, bringing new challenges and opportunities for prospective homebuyers. For some, lifestyle changes have created opportunities for increased savings. Others find themselves priced out of the housing market.

RBC conducts an annual Spring Housing Poll to learn more about Canadians’ attitudes around home buying and the housing market. This year’s results show that despite some Canadians – especially non-homeowners under 40 – reporting they have given up on the dream of home ownership, there has been an increase in those who say they’re likely to buy in the next two years.

Even amidst an increasingly expensive housing market, most Canadians feel that housing continues to be a good investment and that it is still better to buy than rent.

Should you buy now or buy later?

The first step in knowing whether it is the right time to buy is understanding how much you can realistically afford. This includes having a full picture of your current financial situation and how it may change in the future. It is also important to consider external factors like the overall housing market and economy, as they can also have a big impact on your ability to purchase a home.

In fact, our research found that many Canadians are planning to wait to purchase a home because of the state of the economy, concerns about their job security and affordability, especially in hot housing markets. For others, historically low interest rates and the fear that housing market will become increasingly unaffordable are motivating the decision to purchase a home sooner.

While Canadians now have a lot more factors to consider when buying a home, they don’t have to embark on this journey alone. Buying a home is one of the most important decisions you will ever make and there’s no substitute for doing your research and receiving expert advice on how to fit your home purchase into your overall financial plan. RBC Mortgage Specialists are available to help you with your home buying journey from start to finish, and appointments can be booked virtually, by phone or in-branch.

Saving for a down payment

When it comes to purchasing a home, saving for a down payment can often be the biggest barrier to entry. While everyone’s financial situation is different, some Canadians have taken advantage of reduced spending during the last year to build up their savings. Our research found that most Canadians who are likely to buy in the next two years are setting aside monthly savings to put towards purchasing a home, saving an average of $789 each month. Continue Reading…