Our Dream Maui Vacation Condo
Recently, I just returned from our marathon to close on our ocean/beach front condo in The Hololani in West Maui. It truly is our dream Maui Vacation Condo.
I am convinced that there is no way we could have done this on our own. We hear about the importance of creating a good team of experts to surround you for real estate investing.
Without our “team”, we wouldn’t have accomplished the purchase within the necessary parameters. I tallied up the number of individuals involved in this one transaction and was shocked.
We had 20 people that I am aware of who dealt with our purchase file, of which 10 were key players for us alone, in making this transaction successful.
Randy, our friend and realtor, was absolutely fabulous. He has an amazing talent for bridging the gap between the urgency and expectations of how real estate transactions are done on the mainland versus the “Island” way of doing things. And they can be very different!
In my opinion, our condo is hard to beat because it being an end unit with two lanais/balconies (which is rare), and the 180 degree views. Among the many highlights of the condo is the in-suite laundry and the fact that the property also has underground parking (another rarity).
Hololani A604 – A stone’s throw from the OceanAs you can tell I am very proud of the accomplishment, as it has been on my vision board for a number of years.
Hololani A604 – a spectacular panoramic viewOnce we closed on the purchase, that’s when the “fun” began, as we had a great deal to accomplish before I returned to Vancouver. During the two weeks we were there, we had only a week to refresh the suite completely as the suite was booked rest of the time by vacationers.
When we stay somewhere, we like to stay in a place that is nicely appointed and properly equipped with the quality necessities to make a memorable stay. With that in mind we set out to make our suite as great as we could in the time we had.
We hired a team who stripped, prepped and painted the 2 bedroom, 2 bathroom suite throughout including in all the cupboards and closets in only 4 days which was a major undertaking. They also put everything back in place within the 4 days. Truly amazing!
We replaced all the old queen sized beds with luxury level pillow top
king sized bedding.
We updated the entire entertainment aspect with large high definition TVs and blue ray players in both the living room and master bedroom. We also added a surround system, set up free wireless Internet, free long distance calling from the suite to anywhere in the US and Canada.
Hololani A604 – Ocean views even from the living areaOne of my pet peeves when I stay somewhere, is a poorly equipped kitchen. You know the type: mismatched plates and cutlery, a small and odd number of drinking and wine glasses,too few mismatched pots, pans and bowls, a lack of working or useable utensils, useless bottle openers, of course old and worn out counter top appliances such as kettles, coffee makers, toasters and coffee grinders. And my biggest pet peeve in the kitchen is a useless cheap or non existent knife set for food preparation.
Hololani A604 – Well equipped kitchen with a viewWe solved all of those type of potential kitchen issues, because we replaced just about everything and we have a “real” knife set. Hallelujah!
Whether one is cooking an great meal; hanging out on the lanai catching a clear view of the humpback whales breaching on the ocean; seeing the large sea turtles come close or up onto to the beach; or just getting lost in a spectacular sunset with friends, we can be proud when we or our guests stay in our condo.
Hololani A604 – Sunsets from the lanai are pricelessTo make our guest stay even better, we also created a guest manual that is filled with valuable information . It contain contact info for restaurants and amenities, as well as resourceful reference pages highlighting great beaches, activities, shopping, transportation and tours etc.
Click here to view the video of our suite.
If you would like further information, please go to VRBO A604 link for the all the details.
What form of Property Ownership is Right for You?
Before you buy a real estate investment, considering the type of property ownership is an important part of your strategy – as well protecting your assets and understanding your tax implications. In my experience, each ownership type has specific strategies to improve your long term success.
I want to offer an overview of the different types of property and present information which can help you decide which property ownership is right for you.
Property Ownership Types
Generally speaking, property can be acquired and owned in a range of different forms – directly as an individual, joint venture, or indirectly through a limited partnerships, or Real Estate Investment Trusts (REITs). In Canada, investors can also consider investing indirectly via providing private mortgages or in a more structured way through a Mortgage Investment Corporations (MICs).
Within each of these groups, there are several liability and tax considerations. Let’s look at these in further detail.
DIRECT OWNERSHIP
Individual Ownership
If you own a rental property as an individual owner, you must consider the income or loss from the property for each calendar year.
A key advantage is that you enjoy the benefit of capital appreciation and profits as your investment is held within your portfolio. Also, according to CGA-Canada, if you own rental properties, unlike corporations, you are not faced with a capital tax on a federal level.
However, for individuals in a higher tax bracket, once you are generating additional income, it can push you towards higher taxation. In addition, due to the unlimited liability factor – you can be exposed to legal claims by third parties, as a final consideration.
Joint Venture | Corporate Ownership
Joint venture ownership in real estate is created between parties to realize a financial benefit. Unlike a partnership, where each partner is entitled to share in allocated profits, joint assets are typically managed in undivided co-ownership. For real estate investors, joint ventures can offer greater affordability and offer significant tax savings. Also, if there is a mortgage involved usually one, two or all of the owners may have to guarantee the mortgage.
On the other hand, if you are investing is with friends or family, your joint venture agreement should be drafted by a lawyer in advance of your first purchase. As I have said before … “Life happens!” You need consider what will happen if one of the investors goes bankrupt, pass away, get divorced, sell their shares, or interrupt the partnership.
INDIRECT OWNERSHIP
Unlike direct ownership, the following property ownership vehicles fall under the securities act. As an informed investor, take the time to read and understand the entire offering memorandum or prospectus.
Each investment opportunity has a different perspective regarding investor distributions – both in timing and the form of dividends or interest income – which can be an important distinction to clarify.
Limited Partnerships
When you invest in real estate through Limited Partnerships (LPs), you purchase LP shares which can provide cash flow and tax deductions, while sheltering you from the cost and liability typically associated with individual property ownership. Limited partnerships allow many of the deductible expenses to be shared with investors, while you receive possible cash flow distributions and appreciation. However, as they are held for a set period of time and are not publicly trade, they can be illiquid.
My experience has shown that although Limited partners enjoy economies of scale, they also rely on a General Partner in an executive role to be accountable for operations. This means that as an investor, you have significantly less control over the direction of your investment.
Real Estate Investment Trusts (REITS)
Real Estate Investment Trusts (REITS) are created to combine the funding of a large number of investors with the intention of obtaining income producing real estate assets.
Like LPs, REITs typically issue units which allocate a pro rata share of the income and losses of the trust. Unlike LPs, many REITS are publicly traded on the stock market, which offers greater liquidity.
REITs provide tax advantages, improved access to equity markets and regular stable income distributions with the potential for high yield capital growth for real estate investors.
One of the disadvantages of REITs is a narrow focus on one sector of real estate. In my experience, putting all of your eggs in one basket is a risky choice.
Another consideration is the location of the REITs investment. If there are other projects underway in the same area, oversupply can damage your investment performance.
Mortgage Investment Corporations
Mortgage Investment Corporations (MICS) is an investment fund that combines investors’ money by buying shares in a pool of mortgages. In North America, these particular investment vehicles are unique to Canada. The group of mortgages is constantly managed, to ensure that invested share capital, and the earnings of repaid mortgages are being employed to finance new mortgages.
Generally held for a set period of time, MIC’s are regulated by the Securities regulator of the province, FICOM and CRA. MIC’s are legally obligated to annual independent audits – so as an investor, you get the annual results up front.
One of the key advantages for MICS is that they act as a non taxable entity. All income amounts are flowed directly as dividends to the investor group. Not only do investors get tax advantages, MICS shares are also eligible fore RRSPs and RPPs. Tax is paid only when a plan is collapsed and a beneficiary receives funds from the MIC.
Although you MICs offer a large pool of capital, the management group is responsible for determining which mortgages are approved. Inherently, residential mortgages come with some risk. Through strict lending practices, these risks can be mitigated.
Other Considerations
Now that we’ve looked at the different types, we also need to consider two other elements before you make your choice.
- Motivation
As I mentioned in earlier newsletters, understanding the “why” can help direct the “what” of your real estate investments.
For some, using a different real estate investment vehicle will create greater tax benefits. For investors with a larger portfolio, different forms of property ownership can spread and potentially reduce the risk of real estate investing. Determining what forms that best suit your objectives will be an important step.
For other investors, creating a legacy through real estate investments is a key element for their portfolio. Passing an investment on to the next generation of investors impacts which investment to consider. This consideration will require that you determine the exit ahead of time to minimize tax implications.
- Perspective
Liability and tax considerations are the primary reason to consider a variety of real estate investment vehicle. In my experience, each element is a moving target and your choice really comes down to your values and motivation.
The Final Analysis
Each property ownership type offers different advantages and disadvantages.
As you weigh your choices I highly recommend that you consult with your lawyer and accountant. In fact, invite them to join you for a planning meeting – so you can all be in the same room at the same time. Although this may seem like overkill, each professional can offer you a different perspective – giving you the clarity and a clear approach to how to approach your investing strategy across different real estate sectors.
The end result is diversity in your real estate investments and better protection against potential risks in one sector or area.
BC’s Top 28 Grants and Rebates for Property Buyers and Owners
BC’s Top 28 Grants and Rebates for Property Buyers and Owners for 2012 is reproduced from Real Estate Board of Greater Vancouver April 5, 2012
1. Home Buyers’ PlanQualifying home buyers can withdraw up to $25,000 (couples can withdraw up to $50,000) from their RRSPs for a down payment. Home buyers who have repaid their RRSP may be eligible to use the program a second time.
Canada Revenue Agency www.cra.gc.ca. Enter ‘Home Buyers’ Plan’ in the search box.
1.800.959.8287
New home buyers can apply for a rebate of the federal portion of the HST (the 5% GST) if the purchase price is less than $350,000. The rebate is up to 36% of the GST to a maximum rebate of $6,300. There is a proportional GST rebate for new homes costing between $350,000 and $450,000.
Canada Revenue Agency www.cra.gc.ca. Enter ‘RC4028’ in the search box.
1.800.959.8287
Buyers of new or substantially renovated homes priced up to $850,000 are eligible for a provincial enhanced New Housing Rebate of 71.43% of the provincial portion (7%) of the 12% HST paid to a maximum rebate of $42,500. Homes priced at $850,000+ are eligible for a flat rebate of $42,500.
www.hstinbc.ca
1.800.959.8287
Buyers of new or substantially renovated secondary or recreational homes outside the Greater Vancouver and Capital Regional District priced up to $850,000 are eligible for a provincial enhanced New Housing Rebate of 71.43% of the provincial portion (7%) of the 12% HST paid to a maximum rebate of $42,500. Homes priced at $850,000+ are eligible for a flat rebate of $42,500.
www.hstinbc.ca/buying_goods/buying_a_home/new_ home_tax_calculator
1.800.959.8287
Landlords buying new or substantially renovated homes are eligible for a rebate of 71.43% of the provincial portion (7%) of the 12% HST, up to $42,500.
www.hstinbc.ca
1.800.959.8287
First-time new home buyers may be eligible for a one-time grant equal to 5% of the purchase price of the home, or if you are building a home, 5% of the land and construction costs, up to $10,000. The bonus is based on the net income of the home buyer. This program ends March 31, 2013.
www.sbr.gov.bc.ca/documents_library/notices /FTHB_Bonus.pdf
1.877.387.3332
Qualifying first-time buyers may be exempt from paying the PTT of 1% on the first $200,000 and 2% on the remainder of the purchase price of a home priced up to $425,000. There is a proportional exemption for homes priced up to $450,000.
BC Ministry of Small Business and Revenue
www.sbr.gov.bc.ca/business/Property_ Taxes/Property_Transfer_Tax/ptt.htm
250.387.0604
This federal non-refundable income tax credit is for qualifying buyers of detached, townhome, apartment condominiums, mobile homes or shares in a cooperative housing corporation. The calculation: multiply the lowest personal income tax rate for the year (15% in 2011) x $5,000. For the 2011 tax year, the maximum credit is $750.
Canada Revenue Agency
www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/369/menu-eng.html
1.800.959.8281
Reduces property taxes for home owners with an assessed value of up to $1,285,000. The basic grant gives home owners:
- a maximum reduction of $570 in property taxes on principal residences in the Capital, Greater Vancouver and Fraser Valley regional districts;
- an additional grant of $770 to rural homeowners elsewhere in the province; and
- an additional grant of $275 to seniors aged 65+, those who are permanently disabled and war veterans of certain wars.
BC Ministry of Small Business and Revenue www.rev.gov.bc.ca/hog or contact your municipal tax office.
10. BC Property Tax Deferment ProgramsProperty Tax Deferment Program for Seniors.
Qualifying home owners aged 55+ may be eligible to defer property taxes.
Financial Hardship Property Tax Deferment Program.Qualifying low-income home owners may be eligible to defer property taxes.
Property Tax Deferment Program for Families with Children.Qualifying low-income home owners who financially support children under age 18 may be eligible to defer property taxes.
BC Ministry of Small Business and Revenue
www.sbr.gov.bc.ca/individuals/Property_ Taxes/Property_Tax_Deferment/ptd.htm
This federal program provides financial aid to qualifying low-income home owners to repair substandard housing. Eligible repairs include heating, structural, electrical, plumbing and fire safety. Grants are available for seniors, persons with disabilities, owners of rental properties and owners creating secondary and garden suites.
www.cmhc-schl.gc.ca/en/co/prfinas/prfinas_001.cfm
1.800.668.2642 | 604.873.7408
A new program jointly sponsored by the provincial and federal governments provides up to $20,000 to help eligible low-income seniors and disabled home owners and landlords to finance modifications to their homes to make them accessible and safer.
BC Housing www.bchousing.org/Options/Home_Renovations
604.646.7055 or toll-free 1.800.407.7757 extension 7055
Provides home buyers with CMHC mortgage insurance, a 10% premium refund and possible extended amortization without surcharge when buyers purchase an energy efficient mortgage or make energy saving renovations.
www.cmhc.ca/en/co/moloin/moloin_008.cfm#reno
604.731.5733
Financial institutions offer a range of mortgages to home buyers and owners who make their homes more energy efficient. For example, home owners who have a home energy audit within 90 days of receiving an RBC Energy Saver™ Mortgage, may qualify for a rebate of $300 to their RBC account.
www.rbcroyalbank.com/products/mortgages/ energy-saver-mortgage.html
1.800.769.2511
Financial institutions offer ‘green’ loans for home owners making energy efficient upgrades. Vancity’s Bright Ideas personal loan offers home owners up to $20,000 at prime + 1% for up to 10 years for ‘green’ renovations. RBC’s Energy Saver loan offers 1% off the interest rate for a fixed rate installment loan over $5,000 or a $100 rebate on a home energy audit on a fixed rate installment loan over $5,000.
For information visit your financial institution.
www.vancity.com/Loans/BrightIdeas
www.rbcroyalbank.com/ products/personalloans/energy-saver-loan.html
16. LiveSmart BC: Efficiency Incentive ProgramHome owners improving the energy efficiency of their homes may qualify for cash incentives through this provincial program provided in partnership with FortisBC and BC Hydro. Rebates are for energy efficient products which replace gas and oil furnaces, pumps, water heaters, wood stoves, insulation, windows, doors, skylights and more. The LiveSmart BC program also covers $150 of the cost of a home energy assessment, directly to the service provider.
www.livesmartbc.ca/rebates
1.866.430.8765
Home owners and residential landlords buying heating fuel receive a BC government point-of-sale rebate on utility bills equal to the provincial component of the HST.
www.sbr.gov.bc.ca/business/consumer_taxes/residential_ energy/residential_energy.htm
1.877.388.4440
Mail-in rebates for purchasers of ENERGY STAR clothes washers, refrigerators, dishwashers, or freezers.
www.bchydro.com/rebates_savings/appliance_rebates.html
1.800.224.9376
This ongoing program rebates BC Hydro customers $30 to turn in spare fridges in working condition.
www.bchydro.com/rebates_savings/fridge_buy_back.html
604.881.4357
Pay no HST when you buy ENERGY STAR high-performance windows and doors.
www.bchydro.com/rebates_savings/windows_ offers/current_offers.htm
604.759.2759 for a free in-home estimate.
To save energy, BC Hydro offers rebates including 10% off an ENERGY STAR cordless phone. Check for new offers and for deadlines.
www.bchydro.com/rebates_savings/coupons.html
1.800.224.9376
A range of rebates for home owners include a $50 rebate for upgrading a hot water tank, $300 rebate on an Ener-Choice fireplace and a $1,000 rebate for switching to natural gas (from oil or propane) and installing an ENERGY STAR heating system.
www.fortisbc.com/NaturalGas/Homes/Offers /Pages/default.aspx
1.888.224.2710
For commercial buildings, provides a cash rebate of up to 75% of the purchase price of an energy efficient boiler, for new construction or retrofits.
www.fortisbc.com/NaturalGas/Business/ Offers/Pages/default.aspx
1.888.477.0777
The City of Vancouver provides a subsidy of 50% of the cost of a rain barrel for Vancouver residents. With the subsidy, the rain barrel costs $75. Buy your rain barrel at the Transfer Station at 377 W. North Kent Ave., Vancouver, BC. Limit of two per resident. Bring proof of residency.
http://vancouver.ca/engsvcs/watersewers/water/ conservation/programs/rainbarrel.htm
604.736.2250
Other municipalities have similar offers.
The City of Vancouver in cooperation with Vancity, FortisBC, BC Hydro and Natural Resources Canada offers access to loans for energy retrofits including heating systems, insulation and air sealing. The Home Energy Loan from Vancity is a 12 month pilot program that will end October 21, 2012. For more information attend a workshop (see third link below). The goal is 500 homes, and loans are offered at 4.5% fixed rate over 10 years. The program also helps with accessing grants from the federal ecoENERGY program, the provincial LiveSmart BC program and FortisBC.
www.vancity.com/Loans/homeenergy
http://energyloan.eventbrite.com
Email: energyloan@vancouver.ca
604.374.0507
In partnership with the Real Estate Foundation of BC, Vancity provides grants up to $50,000 each to qualifying charities, not-for-profit organizations and co-operatives for projects which focus on building renovations/retrofits, regulatory changes that advance green building development, and education to increase the use of practical green building strategies. The deadline for applications was January 23, 2012. If you are still interested in this grant, open the link and consider contacting Vancity to express your interest.
www.vancity.com/MyCommunity/NotForProfit/Grants /ActingOnClimateChange/GreenBuildingGrant
604.877.7000
Your municipality may provide grants and incentives to residents to help save water. For example, the City of Coquitlam offers residents a $100 rebate and the City of North Vancouver, District of North Vancouver, and District of West Vancouver offer a $50 rebate when residents install a low-flush toilet. Visit your municipality’s website and enter ‘toilet rebate’ to see if there is a program.
28. Local Government Water Meter ProgramsYour municipality may provide a program for voluntary water metering, so that you pay only for the amount of water that you use. Delta, Richmond and Surrey have programs and other municipalities may soon follow. Visit your municipality’s website and enter ‘water meter’ to find out if there is a program.
TOP 10 Things To Do To Improve Your Multi-Family Investment ROI (Through Your Relationship With Your Property Manager)
There always seems to be so much you can do to improve your your property. This can be costly and you generally will improve you investment return but not always and not always quickly. However there are steps you can take that are not costly that can ultimately improve your Return on Investment (ROI).
Here are my current TOP 10.
1. Walk the Walk. To make sure you have a clear understanding of what is happening with your real estate investment, take the time to review your monthly statements. Review your income and expenses statements provided by management and make sure that you have a good understanding of what is happening with your money.
2. Monitor Performance. If you live in the same region as your investment, perform a “silent shop” of the property. Swing by the property unannounced and ask questions or get someone that no one knows to drop by, but make sure you let them know what to look for. You can actually hire professional silent shoppers to do this task.
3. Review the Property. Talk to the resident manager and review the condition of the common areas such as hallways, stairwells, garages, laundry rooms, garbage areas and review landscaping. How do you feel when you see the common areas of the property? What is perspective from the exterior? Is this the kind of place you would rent?
4. Set Clear Expectations. Be clear about your expectations about how the investment will be managed with the property management group from the start of the relationship. Take the time to maintain an active dialogue of any issues as they arise.
5. Get Involved with the Board. The best way to know property performance is to get involved with the board or council of your unit. For a small time commitment, you gain insight and regular updates regarding renovations, rental vacancies and market competitors.
6. Connect with the Resident Manager. The resident manager sets the tone of the building. They are responsible for ensuring the rules and regulations of the property are adhered to. By talking to the resident manager, you can determine their knowledge and overall care for the important role they hold.
7. Ask Questions. As the relationship manager for negotiation and administration of contracts, ask questions about relationships they have with different vendors. Security, waste management and emergency services, can significantly affect the level of tenant satisfaction. Done well, vendors are responsible for level of service and standards for the building. Done poorly, they can impact all common areas and property performance.
Tenants notice the small details. If, for example, the waste management service leaves additional refuse in the collection area, the tenant’s opinion of the building may be compromised. This in turn, may impact how the area is treated by other tenants.
8. Review Tenant Retention Programs. The property manager is not only responsible for finding great tenants … they are also responsible for ensuring they stay. Review the tenant retention strategies for your building. Whether it’s a regular building newsletter to share improvements in a common area or a card around the holiday season, small thoughtful gestures go a long way.
9. Learn from Mistakes. How does the property management team learn from mistakes? The right property management company not only informs you when there is a situation, but also communicates clearly until the issue is resolved. Learning from mistakes and mitigating risks is a sign of great management company.
10. Offer Thanks. Recognizing and thanking your property management team is a great way to build your relationship. Mutual respect and clear communication is the foundation of a relationship that will work for both parties.
Ultimately, the additional time you invest in your property can make a significant impact in your long term results. Ask questions. Be part of the Annual General Meeting. Monitor the Performance.
In a competitive rental market, retaining tenants is the key to achieving great results from your suite. Based on my experience, following these steps will ensure that your relationship you have with your property management group is a success.
