The truth behind myths

It’s a blustery autumn Sunday and there isn’t much going on so you decide to turn on the television. You are all caught up on “The Game of Thrones” so why not tune into HGTV? There are a lot of great shows on there and besides, you were thinking of doing a few Real Estate investments anyways. Although HGTV is very entertaining, sometimes educational, sometimes inspiring, there are a lot of things you need to be careful of when making sound choices in Real Estate. Below are 5 big Myths of HGTV when it comes to Real Estate.

MYTH #1: You’ll find your dream home by looking at just 3 houses.

I realize that the programmers are trying to condense a program into a 30-60 minute time slot with commercials but a Real Estate transaction takes a lot of time. You start by viewing many houses, circling back to the favourites, making the offer, dealing with insurance companies and banks, removing subjects, bank appraisals, conveyancing, moving - there are a lot of time taking tasks within a transaction. HGTV shows seem to illustrate things as quick moving and happening fast. Real estate transactions take at least 30 days to go from making an offer to getting the house keys. In reality there are buyers that take up to (and sometimes over) 1 year to find the right home for them. You can’t

MYTH #2: Even if a house is expensive, you can probably find a way to buy it.

Husband: Works at a fast food restaurant

Wife: Volunteer at the local animal shelter

Budget: $890,000

OK, this is a bit of a caricature but you get the idea. In reality, it’s not the easiest task getting a mortgage. There are a lot of factors that play into getting a loan for a house and a few hurdles to get over in order to be approved for one. Think of the 5 C’s of credit when assessing your ability to pay back a mortgage and whether you get the mortgage approved.

Credit history - Your lender will want to make sure when you've borrowed money, you've paid it back

Capital - Ensuring you’ve accumulated assets

Collateral - When it comes to a mortgage, you're putting your house up as collateral

Capacity - In short, capacity is debt servicing. For instance, your housing cost shouldn't exceed 30% to 32% of your gross income and all of your debts shouldn't exceed 40% to 42% of your gross income

Character - It’s an evaluation of all four previous C's as well as subjective and objective things such as how long have you been in your job, what type of job you have and how long you have lived in your current residence

Don’t forget about the controversial Mortgage Stress Test. Under the new Canadian mortgage rules, home buyers who have a down payment of 20% or more will be subject to a stress test. The stress test will use either 5-year benchmark rate published by the Bank of Canada or customer's mortgage interest rate plus 2%, whichever is the higher.

MYTH #3: If the faucets or countertops aren’t up to snuff, you should walk away from the house.

Any home that has been lived in by a human being (or a similar kind of animal) will have its fair share of scuffs, marks and dings. It’s important to buy a home that ticks off all of the boxes but a certain level of settling should come into play as well. A lot of sellers will sell their homes thinking that the buyers will be making their own changes to the home. Look beyond superficial things like countertops and older appliances, chances are you are going to want to change them and make them your own anyways. Instead, more focus should be placed on the bones and foundation of the house. More importantly the factors to pay more attention to is: Is the HVAC in good shape? How old and what condition is the roof in?

MYTH #4: Fixing up a home can be done pretty quickly and inexpensively.

Now onto the flip side of the above myth. Home renovations, especially when you are inhabiting the home while it’s being renovated, is an extremely expensive and stressful endeavor. How are your finances? How is your marriage or relationship? Renovations take its toll on any person, let alone a family. You have to make sure that you are up for the task and the commitment. Financially speaking, you will not be able to get your granite countertop and top of the line appliances on a $5000 budget. The average kitchen remodel can cost anywhere between $15,000 - $40,000. Renovations can be a never-ending vortex of suck your bank account.

MYTH #5: You’re not necessarily going to resell for top dollar.

Buyers don’t show up as soon as the renovated house goes on the market and pay top dollar without negotiating the sale price. This has been fabricated for your viewing entertainment.

In real transactions, a strategically set a listing price helps you sell your renovated home more quickly than the time, effort and beauty of your newly renovated home. Time literally is money here. The longer a home is on the market, the less desirable it becomes, and the less it’ll eventually sell for. You’ll wipe out your profits quickly and potentially end up losing money if the property sits too long on the market. This is precisely why you must be strategic with the dollars you are investing in the home you are trying to sell.

Buyers may love what you’ve done with the renovation. That is, provided you did your local research and know what buyers are looking for. But there are almost always things that the buyer or their inspector will find that require financial concessions from you, the seller.

STAY TUNED

If you’re an HGTV junkie, don’t be discouraged. The shows are entertaining, and they can teach people some things about home buying and selling. And even if you do make some mistakes from watching HGTV, it isn’t like you’re hurting anyone. Just be discerning with what kind of information you offer to your friends. In short, don’t start offering friends and family members medical advice based on what you’ve been picking up while watching “Grey’s Anatomy” or reruns of “House” and, when you are considering buying or selling based on what you think needs to be done, consider asking a professional what their opinion is first.