John Pasalis in Real Estate Roundup
Why buy a condo when you can buy a REIT instead?
A report published by Macquarie Capital Markets this week finds that real estate investors would make more money buying shares in real estate investment trusts (REITs) that own rental apartment buildings than from buying a condo. Surprised? You shouldn't be.
As far as rental properties go, condominiums are generally very poor financial investments. Even with a 25% down payment, most condominiums wouldn't generate enough income from the rental to cover your mortgage, property taxes and maintenance fees. If you find that REIT's aren't as appealing as owning and managing your own rental properties, skip condos and focus on buying a multi-unit property instead. The down payment you would need for a small rental condo could probably buy you a decent duplex or triplex instead.
Why buying a REIT is more profitable than a condo (Globe and Mail)
Should you sign a Buyer Representation Agreement with an Agent?
The Toronto Real Estate Board has been promoting the benefits of buyer representation agreements through ads like the ones above, via a dedicated website with the unfortunate name BRAFirst.ca and even on YouTube. Buyer representation agreements ensure that an agent is legally required to represent their buyer client's best interests throughout the transaction and not the seller's.
What's missing from TREB's advertising campaign is a word of caution for buyers. When you sign a buyer representation agreement you are locked into working with that agent for the entire term of the agreement. This means that if after viewing several houses together you find that the agent isn't a great fit, there's no way for you to actually get out of working with that agent. The agent can not only force you to continue working with them, they can even sue you if you decide to buy a house with another agent during the term of the buyer representation agreement. The Toronto Star's Ellen Roseman shares a couple of bad experiences from buyers who signed buyer representation agreements in her column this week.
Due to this fear, some consumers try to work with agents without signing a buyer representation agreement but this introduces new problems - buyers are left without proper recourse if they feel an agent did not work in their best interest. Good agents don't work without an agreement as some buyers secretly work with multiple agents, effectively having all but one work for free. If you are working with an agent who doesn't explain the agreeement to you in advance, they either plan to rush through the paperwork the first time you make an offer on an house or are happy to represent the seller without explaining this to you. Agents tend to do this when they are not confident in their ability to explain things to you or just can't be bothered.
A better solution is to ensure that every agreement gives consumers the option to cancel at any time if they are unsatisfied with the service they are receiving. Unfortunately, this is not standard text in the agreement as drafted by the Ontario Real Estate Association, a form drafted by Realtors for Realtors. This means that you have to negotiate this into the agreement and make sure your agent puts it in writing. Our brokerage includes a simply worded cancellation guarantee as part of our standard agreement. I don't know of any traditional brokerages with a similar policy.
A buyer agreement with a realtor can be risky (Toronto Star)
Other Real Estate and Neighbourhoods News
Home sales fall but prices rise (Toronto Star)
Tougher downpayment rules best way to cut mortgage risks (CTV)
BoC should hike rates: C.D. Howe (CBC)
No more ‘dream home’ for many Toronto buyers (Metro)
John Pasalis is the Broker Owner of Realosophy Realty Inc in Toronto. Realosophy focuses on researching Toronto neighbourhoods to help their clients make smarter real estate decisions. Email John
