Author Archive: editor

Beat the crowd when investing in real estate

We all think about it and some of us take action and get our hands on real estate investment properties. The more the New York Stock Exchange fails to produce desirable returns, the more people start investing in real estate.

For most of us, the obvious property choice is a single-family home. Although you can invest in real estate without owning a home, most people follow the experience they have had buying their own home. It’s familiar ground and the learning curve for doing such a real estate transaction is quite slim.

Of course, there is a downside to this approach. Competition is fierce and there are markets where investors artificially increase the cost of properties while discouraging first-time buyers. If so, the bursting of the housing bubble is only a matter of time.

How to avoid these situations while succeeding in investing in real estate? How do you stay ahead of the competition and also prepare for bad times in real estate investments? The only answer I have is commercial real estate.

What commercial real estate could you ask? Commercial real estate is a solid investment in the ups and downs of the local housing market. The commercial real estate I am talking about is made up of multi-unit buildings.

Yes, you will become the owner and No, you will not have to do the work yourself. You are the owner and not the manager of the building. The cost of owning and managing the building is part of your expenses and will be covered by your rental income.

Apartment buildings are considered commercial buildings if there are 5 or more units. For the numbers to work, you should consider owning several small apartment buildings, or you should opt for larger buildings. This will keep the expense to income ratio in a positive cash flow. Owning rental property is all about positive cash flow.

By investing in single-family homes, it’s easy to get positive cash flow. Even if your rental income doesn’t cover your expenses 100%, home appreciation will contribute to positive cash flow. With commercial real estate, the rules are different.

While single-family homes are appraised based on the value of recent sales of similar homes in their neighborhood, commercial real estate doesn’t care about the appreciation in value of other buildings. The value of the property is based solely on rental income. To increase the value of commercial real estate, you need to find a way to increase rental income. The calculation formula would be too much for this short article. I have listed some very useful books where you can find all the details.

What is the other advantage of investing in commercial real estate? Commercial real estate financing is completely different from financing a single family home. While you’re financing a single-family home, you’re at the mercy of lenders who want to make sure you’re able to pay for the home with your personal income. Commercial real estate financing is based on the ability of properties to generate positive cash flow and cover the cost of financing.

After reading all this commercial real estate information, you’ll want to get out there and dive into the deals. Not so fast. First, you need to learn as much as you can about real estate. In commercial real estate, you are dealing with professionals. If you look too new, you’ll be wasting these guys’ time and your commercial real estate career will be over before it really begins. Second, no commercial real estate lender will lend you money unless you can demonstrate at least some real estate investing experience.

What is the solution for this? Go out and make yourself an offer or two on single family homes. It doesn’t matter if you make big profits to start with. Either way, most novice investors lose money on their first trade. If you manage to show positive cash flow with your single-family home offerings, you’re ahead of the pack.

My advice, buy a small single family home in a decent neighborhood and rent it out right away. This will keep your personal expenses to a minimum and you will have rental income to cover your monthly expenses. As a bonus, you gain experience as an investor and as an owner.

Real estate stories that show you how!

Let’s start to get you out of the pits. I mean, comfort zone! I’m going to slowly and methodically give you as many little sparks and insights as possible about the relatively simple ways everyday people are using real estate to achieve extraordinary results.

Stories are the best spark plugs. They allow you to observe casually from a safe, secure, and understandable perspective. I am going to write to answer most of the questions I think I would have if I read what you are about to read.

I want you to know something from the beginning of this report and something is this: I care about you and I mean it. I really want you to move into a new comfort zone, a pleasant and fearless zone. A place where you realize you have the power to achieve greater things than you can currently imagine.

You can begin to be more powerfully led, motivated, well-organized, and on your way to greater success. You will change and grow, slowly and steadily with every page you read. With every thought and insight you gain, your desire and courage will also grow.

Napoleon Hill wrote one of the best books of all time. It’s called “Think and Grow Rich”. The essence of this book, the secret it reveals again and again, is this: you must develop a burning desire.

Don’t leave this book thinking that the statement above is a cliché and you already know it! I just take you to my next point, the next point is: your desire needs a starting point. So to start developing desire, my secret is that you have to have a goal. Why do you want to get into real estate? I know what you’re thinking: making money, being safe, feeling useful, and looking successful. Good points. I agree that you can have all of that and more if that’s what you want.

Now, here’s something that comes before all those things you want. What is the purpose of all these things? Goal, goal, goal… you have to set the goal first before you get things. My goal, or so I thought early in my career, was to move to a nicer home and make my first home my first rental property. When I moved into the next one, I quickly realized that as soon as I rented it, I was somehow responsible for creating happiness and security in someone else’s life who had no no connection with me.

It soon dawned on me that the decisions I had made in choosing this first property would either help or hurt me in my quest to succeed in the real estate investing industry.

Everything is cumulative, everything you do and how you do it adds up. It gets worse and makes your life easier or more difficult. I will give you experiences that you can learn from and that will make your life easier; I’ll show you how. It’s my goal.

The book that unwittingly gave me the courage to take my first steps into real estate was a book called “How I Turned $1000 Into $3 Million In Real Estate In My Free Time” by William Nickerson. He was a masterful storyteller and by osmosis, after reading his book, I found myself gravitating towards the real estate classifieds section of my Sunday newspaper.

I ended up jumping and my life changed. It was an FHA foreclosure, two-bedroom, one-bath home with an in-ground, screened-in pool, with a hot tub and built-in sprinkler system. I bought it for $46,000 and used the HUD 203K rehab program to fix it. I spent $16,000 to upgrade and do some repairs. Then they gave me a loan for a total of $62,000. It took me three months to finish it and I was into it; I had done it!

My life changed, I learned, I took the leap. From there, I was confident. I had already had my first house but now I had two. Well, I was in the Coast Guard and you wouldn’t know it, three months later we moved. Uncle Sam picked me up from St. Petersburg, Florida and dropped me off in Kodiak, Alaska for my next tour of duty.

Well guess what? I was armed with ambition, courage, confidence and enough knowledge to be considered dangerous, so I bought a duplex as soon as I landed on Kodiak Island. I now had three residences and my relationships and responsibilities grew with my new tenants who relied on me to provide them with a clean, functional and pleasant environment to live in.

Real Estate, Real Estate and Leased Land

Delaware and the rest of the original British colonies have lands that are leased rather than owned by the residents of those lands. Much of this is not obvious to the casual observer.

The Lewes Beach land is leased and not owned by the owners. Lewes Beach land is owned by the City of Lewes. Rehoboth by the Sea and Dewey Beach lands also include leased lands. Most leases on this land will NOT be renewed, but will be returned to the owners and the owners will remove the homes on this land at their own cost. Much of the land in Riverdale, on Indian River Bay, next to Oak Orchard, is also up for rent. In Riverdale, the leased land belongs to Chief Clark of the Nanticoke Indians.

About half the people of Sussex County live on leased land; most of this leased land is in what people call parklands or mobile home communities. However, in these communities there are rarely truly mobile homes and there are even two-storey wooden houses on some of the leased land in these communities. Condominiums and townhouses are also sometimes found on leased land. Some people find all of this quite difficult to understand.

We real estate agents and lawyers use the term simple fee to describe land that is sold as real estate; it’s real estate We use the term leased land or leasehold interest to describe land that is not conveyed as real property.

This lengthy text covers leased land, real estate, private property, personal property, mobile homes, dwellings on leased land, and a legal dissertation to define, describe, and determine the differences.

Terminology is important when talking about real estate, that is, real estate.

Black’s Law Dictionary is the definitive and recognized source of legal definitions under our US law; which derives from English law

PROPERTY: In the strict legal sense, a set of rights guaranteed and protected by the government. BL6, p. 1216.

PERSONALITY: Personal Property; movable property; movable property; property that is not attached to real estate. BL6, p. 1144

PROPERTY: (movable property) – In the broad and general sense, all that is possessed, not entering under the name of building. Inferior right or interest in absolute ownership of real property, or any right or interest held in movable property. BL6, p. 1217

Therefore, movable property is one that can be easily removed from ownership and is not property. Personal property includes crops, trees, shrubs, trailers, sheds, cars, mobile homes, manufactured homes that have a Department of Motor Vehicles title instead of a deed, and the contents of a house or building. In a home or business, personal property includes drapes, light fixtures, carpeting (carpeting not installed), cabinets and freestanding closets, furniture, and all contents of closets, drawers, and buildings. Buildings without foundations, i.e. sheds that are only supported by blocks, are personal property, i.e. they are personal property and not part of real estate . These personal possessions include dog kennels and especially the small storage buildings that are so common outside homes today.

GROUNDS: In the most general sense, includes any soil, soil or ground whatsoever… Black’s Law Dictionary 6th Ed. (BL6), p.877

PRIVATE PROPERTY: Under protection against appropriation for public use, it is the property which belongs absolutely to an individual, and of which he has the exclusive right to dispose. Assets of a definite, fixed and tangible nature, capable of being possessed and transferred to another, such as houses, land and furniture. BL6, p. 1217. Private property is land, houses and furniture. Private property is protected against misappropriation for public purposes. Private property is absolute property.

REAL ESTATE synonym of immovable property” and p.1218 REAL ESTATE … General term designating land, leases, inheritances (those things which are hereditary); which, on the death of the owner ab intestate, passes to his heir”. BL6, p1263

ASSETS: The degree, amount, nature and degree of interest a person has in REAL and MOVEABLE property.

How to get your exciting real estate license and what does it offer?

First, to get your real estate license, you will need to complete a 63-hour pre-licensing course. Many online educational sites offer this and it can be done from the comfort of your own home. If you’re more of a classroom person, your local community college might offer the course. When taken in the real classroom, the course can take 4-6 weeks due to scheduling. Online courses that you can take at your own pace. So if you want you can do the whole course in one week.

Below are some requirements for the state of Florida to obtain your real estate license

General requirements:

You must be 18 years old, have a high school diploma or GED to get your real estate license.

Academic requirements:

Take the 63-hour pre-licensing course and pass.

Exam and Application Requirements:

· Submit a completed real estate license application, submit your fingerprints and pay the associated fees.

· Pass the Florida Real Estate Sales Associate state exam with at least a score of 75 out of 100 points or pass the Florida Real Estate Law exam with a score of 30 out of 40 points.

· Activate your license with a real estate broker using the appropriate DBPR forms or it can be activated online by your broker.

These are the basic steps needed to get your real estate license in Florida. Getting your real estate license sounds easy, and to some extent it is. However, the review and the amount of study should not be taken lightly. I would recommend doing a little more research online before deciding on a real estate license. If you want to make a career change, this is definitely a great choice.

So how do you really get into real estate and what does it offer?

First, of course, once you get your license, activate it with a broker. This is where you have to decide which path you want in real estate. Different companies offer different options, divisions, rates, training, etc. Take for example:

Property Management – ​​It is best to research local property management companies. There are also national property management companies that you can join. Once you join them, throughout your journey in this field, you will gain knowledge and experience in all legal aspects of property management. There are many, from how to evict a tenant to how to get notices to your door and when. Property management is hard work and at the same time rewarding. Many agents gravitate towards this field because of the steady stream of monthly income. Others don’t want to deal with tenant headaches. For example, if you manage 150 units and an average call rate of 10%, that would represent 15 different issues to resolve during that month. These can be anything from non-functional air conditioning units to plumbing issues; tenants locked out of their homes and needing access, tenants disturbing other neighbours. First, the positive side which means that 135 units will not cause any problems. On average, management companies charge landlords about 10% of monthly rent (every company and state is different), in return, as an agent, you can get a percentage of that amount. Since all companies offer different payments, let’s average the company’s monthly revenue. Let’s say 150 units rented for $1,000 each month would be 10% of $1,000, or $100 X 150 units “equals” monthly income of $15,000. Now you see the steady income I mentioned earlier.

Luxury real estate: This is also a very good niche once you have obtained your license. There are pros and cons like in property management. When we talk about luxury real estate, we are talking about 1M+ homes. The obvious advantage of this is the amount of money you earn on each trade. Example, a sale of 1 million at 3% commission earns you 30,000 revenue, now subtract your splits with your broker, say an 80/20 split, the agent would earn $24,000 commission, do this 4 times a year and you’ll get 96,000 Not bad for a 65-hour pre-licensing course. Let’s point out the drawbacks. It’s not as easy as it looks or as seen on TV. This market is more of a referral-based market. You can certainly do that without a referral, but at some point you have to have those buyers or sellers in your sphere.

5 Essential Features That Make Real Estate Investing Profitable

From time to time, people who are trying to decide where to put their money ask me if real estate businesses are more or less profitable, compared to other business opportunities.

My answer is always that in addition to its potential to generate significant profits, investing in real estate often has long-term benefits.

I discuss five of these benefits below:

1. You can renovate (increase the value of) real estate
After you buy a stock, you hold it for a while and hopefully sell it back at a profit. The success of the action depends on the management of the company and its commercial success, which is beyond its control.

Unlike other traditional investment instruments, such as stocks for example, whose rate of return depends on third parties (eg company management), real estate investments are directly under your control.

Although you cannot control the changes that may occur in demographics and the economy, or the impact of nature-induced changes, there are many other aspects you can control to increase the return on your investment in the nature.

Examples include items related to adding repairs or improvements to the physical property and the tenants you allow to live there.

If you do it right, the value of your investment will increase, which will translate into greater wealth for you.

2. Investing in real estate, when done right, has proven profitable even in times of recession (like the one we are currently experiencing)
On several occasions, it has been used to effect a bailout, after financial setbacks, such as those experienced by many in the economic downturn taking place in Nigeria today.

A considerable number of clients have confided to me that due to the current economic situation, they are unsure of profitable channels to invest their money. Some of them are made up of bonds and treasury bills, but they are in dire need of new investment.

We had long discussions and, based on my experience as a real estate consultant, I recommended real estate investment as the most suitable and safest alternative investment channel.

Indeed, even if all businesses collapse, the earth will still appreciate a lot. Then, to emphasize my point, I ended by sharing the following apt quote from a former US President:

“Real estate cannot be lost or taken, managed with reasonable care, it is the safest investment in the world” – Franklin Roosevelt.
As expected, the client chose to take my advice and signed up – it was the obvious and common sense thing to do!

3. Real estate investments are inflation-proof
In other words, investing your money in viable real estate can protect you from the damaging effects that inflation often has on other conventional investments.

Indeed, the value of real estate generally tends to increase in positive correlation with inflationary pressures. This is why real estate values ​​and rental rates rise with rising inflation.

Therefore, the nature of real estate gives owners the unique advantage of being able to adjust the rates they offer to match inflation.

Monthly rents, for example, can be increased to compensate for inflation, thus providing protection against inflation-induced losses suffered by other monetary investments.

4. Real estate is only because it is universally acceptable as collateral, to secure bank funding
Today, real estate in the form of buildings or land, with appropriate titles (i.e. .

It has the unique characteristic of being able to protect the interests of both the borrower and the bank (which grants the loan), so that the funds can be released, that is, after verification and agreed conditions.

This is one of the main advantages of a private C of O over the global C of O, because the former (i.e. the private C of O) is what the borrower potential will need, in the event of any future financing transaction. with the bank. in Niger.

5. Real Estate Investing Uses Other People’s Money
In other words, you can do it even if you don’t have enough money. Just know how.

This is possible because real estate is physical property or what is called a durable good.

How to Buy Property in Canada

property in canada

In recent years we have seen a surge in worldwide interest towards buying property in Canada, with real estate investors lining up to purchase homes and condos in Canada’s major cities. This guide summarizes some of the key points.

HOW TO BUY PROPERTY IN CANADA 

Can foreigners buy real estate in Canada?
Absolutely! You can buy property in Canada no matter what your citizenship, or where you currently live, and there are no restrictions on the amount, or kind of real estate you can buy. Now here’s what you need to know – while Canada does welcome foreign investors, there are many rules and regulations that make ownership somewhat tougher to achieve than that for Canadian resident citizens. The most significant barrier has been the implementation of a 15% Non-Resident Speculation Tax in both Vancouver and Toronto. This is a significant tax that must be paid by foreign citizens and non-permanent residents (including corporations and trusts) when purchasing real estate in both the greater Toronto and Vancouver areas. The areas where the tax is in effect include much of greater Vancouver and the lower mainland, and much of greater Toronto in a wide area from Niagara Falls, to Hamilton, Oakville, Mississauga, and points east all the way to Peterborough. Further details can be found here.

I want to immigrate to Canada. Will buying a property help me to get accepted?
Immigrating to Canada is a complicated process and, unfortunately, owning property is not one of the factors taken into consideration for acceptance. Nevertheless, owning real estate in Canada certainly won’t hurt your chances and will be considered part of your overall net worth. If you are wondering if you’d be eligible to immigrate to Canada, visit the Government of Canada Citizenship and Immigration website.

I’m a Canadian citizen living in a different country. Am I considered a non-resident for the purposes of buying real estate if I’m an expat?
Citizens of Canada who don’t reside in Canada for more than half the year are considered non-residents (and thus subject to non-resident rules).

I’m a non-resident and want to purchase a property in Canada with a resident. How will that be treated?
If you buy a property with a resident, you will still be treated as a non-resident and thus subject to the same requirements, including a higher downpayment. If you are purchasing with a spouse who is a permanent Canadian resident, you are not generally subject to the Non-Resident Speculation Tax.

GETTING A MORTGAGE WHEN YOU ARE A NON-RESIDENT

Can a non-resident get a mortgage to purchase a house or condo in Canada?
Yes. Most often, Canadian banks and lenders will require non-residents to have a minimum 35% down payment.

How do I qualify for a mortgage as a non-resident?
To qualify for a mortgage for a property in Canada, non-residents will generally require:

  • A 35% downpayment (not from gifted funds)
  • A reference letter from their bank
  • An employment letter verifying income in Canadian or US dollars
  • Three months bank statements
  • Canadian credit check

Will I Get the same interest rate as a Canadian borrower?
Non-residents are eligible for the same interest rates as Canadians, provided they meet the mortgage eligibility criteria. If you live in a country that does not have a tax treaty with Canada, you will only be eligible for a fixed-rate interest rate. [See a list of countries that have in-force tax treaties with Canada]

If you don’t meet the eligibility requirements, you may still be able to get financing from other lenders who charge higher interest rates.

How soon does the down payment have to be deposited in a Canadian bank?
Most Canadian banks will require your down payment to be deposited 30 days before the closing of the purchase. Most banks will want to be able to trace the source of your down payment going back 90 days.

What’s a deposit, when do I need it and how do I pay it?
After your offer to purchase a property is accepted, you’ll need to provide a “good faith” deposit – usually around 5% of the purchase price – within 24 hours. That deposit is held in trust by the listing real estate brokerage and it forms part of your down payment. It’s a good idea to open a Canadian bank account and have the deposit funds there when you start house hunting – so when you are required to pay the deposit, it’s easily accessible.

What kinds of closing costs should I expect to pay?
If you are buying in the Toronto or Vancouver areas, as a non-resident, you will be required to pay the 15% Non-Resident Speculation Tax and will be subject to the other regular closing costs, including land transfer taxes and legal fees.

Will I qualify for any government programs?
As a non-resident, you will not qualify for the first-time buyer programs or land tax rebates offered by the Canadian government.

I don’t need a mortgage. How do I pay for the property?
You can buy a property without getting a mortgage if you have 100% of the funds in cash. That money would need to be transferred to your lawyer before closing.

HOME BUYING PROCESS QUESTIONS

Do I need to come to Canada in person to search for a property?
Non-residents can search and find a property to purchase without ever setting foot in Canada. Today’s technology allows you to view photos and videos of most properties for sale in the marketplace. Many non-resident buyers also choose to have a family member or friend living in Canada assist with the home search process. If you are going to need a mortgage, you’ll need to open a Canadian bank account – Canadian banks will require you to come to Canada to do this. Note there are some exceptions to this (for example, investors with HSBC accounts may be able to get a Canadian account opened without coming to Canada).

I want to buy a house. Will I need the services of a home inspector?
It’s always a good idea to utilize the services of a qualified home inspector before firming up your purchase.

If I buy an investment property, are there firms who can help me find tenants for it and manage it for me?
There are many firms in Canada’s major cities who deal in property management, helping you to screen prospective tenants, and manage their tenancy.

LEGAL QUESTIONS FOR NON-RESIDENT BUYERS

Where do I find a lawyer who can help me with the purchase as a non-resident?
Canada’s major cities have many lawyers who specialize in real estate.

How do I sign the offer paperwork?
Once again, today’s technology allows to you sign paperwork without actually being present. You can scan and email the forms, or even utilize e-signatures via a tablet or smartphone.

 

INSURANCE QUESTIONS FOR NON-RESIDENTS

How do I get insurance as a non-resident? What are the requirements?
It can be tricky to get home insurance if you don’t reside in Canada, but there are many insurance agents who can help you with this.

How much will home insurance cost?
Costs for insurance depending on what property you buy and where it is.

TAXES & CLOSING COSTS

What kinds of taxes will I have to pay?
If you are buying in the Toronto region, there are four kinds of taxes you need to be prepared to pay: the Non-Resident Speculation Tax, the land transfer tax(es), municipal property taxes and income taxes.

The Non-Resident Speculation Tax is equal to 15% of the price of the property and paid upon closing. You can read all the details here.

When you take possession of the property, you will be required to pay the applicable land transfer taxes, which can be significant. Land transfer taxes are based on a sliding scale dependent on the price of the property.

Every year you’ll need to pay  municipal property taxes – you can get an estimate on the City of Toronto Property Tax Calculator.

The other taxes you need to be aware of must be paid when the property is sold. In most cases, non-residents are subject to tax on any income or gains resulting from the sale of a taxable Canadian property, including residential homes, condos, vacation properties or land. When a non-Canadian-resident sells a property, the Buyer of the property must withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA). Generally this amount is 25% of the gross selling price. (Note that the actual tax owing may be different, this is just to make sure the government will get its money by stopping the money from leaving the country until they can determine what is actually owing.)

Alternatively, a Certificate of Compliance related to the sale of the property can be filed and approved by the CRA to reduce or eliminate the withholding taxes. Upon filing of this Certificate of Compliance, the 25% withholding tax required is calculated on the gross sales proceeds net of the purchase cost of the property (or in other words, the net profit).

Also, non-residents are required to file a Canadian tax return by April 30 following the year they sold their property. Generally, upon filing a tax return, part of the withholding tax is refunded to the Seller as the 25% withholding tax is usually a lot higher than the actual taxes owing. At this point, you can also claim expenses like legal fees and commissions against the income from the sale.

What kinds of closing costs can I expect?
Here are the costs you need to be prepared to pay when buying a property in Toronto.

Before Closing

  • Deposit (usually 5% of the purchase price in Toronto, paid within 24 hours of your offer being accepted)
  • Property Appraisal ($400- $500, occasionally paid by the lender)
  • Home Inspection ($400-$600, paid to the home inspection company at the time of the inspection)

On Closing

  • Balance of the Purchase Price – the purchase price less your initial deposit. Usually, the bulk will come from your lender and become your mortgage.
  • Legal Fees – amount varies depending on purchase price and lawyer (approximately $1,800 for a $500,000 purchase)
  • Title Insurance – sometimes included in your legal fees ($250-$400)
  • Mortgage Broker Commission – if applicable
  • Property Survey – if required  ($1,000-$2,000)
  • Non-Resident Speculation Tax – 15% of the purchase price
  • Ontario Land Transfer Tax – varies depending on purchase price
  • Toronto Land Transfer Tax – varies depending on purchase price
  • Property Tax Adjustment – reimbursement to Seller of property taxes were paid beyond the closing date
  • HST – generally only applicable on new construction condos and houses, and commercial properties
  • Tarion Warranty  Fees – warranty on new construction condos and houses only, not resale, (click here to estimate Tarion Fees)
  • Provincial Sales Tax – only applicable on chattels purchased from vendor (amount varies)
  • Adjustments for Utilities/Condo Fees/etc. – reimbursement to Seller for prepaid utilities, etc.

SELLING PROPERTY IN CANADA

What happens when I want to sell my property?
If you want to sell your property while you’re a non-resident, you’ll want to partner with an agent who has experience helping overseas sellers.

What kinds of taxes will I have to pay when selling the property?
You’ll want to consult an accountant to get a full understanding of the taxes you will need to pay upon selling your property. Generally, you will be taxed on any income and gains in value of the property. The Canadian Government generally withholds 25% of the gross selling price until the appropriate tax forms have been completed. Alternatively, a “Certificate of Compliance” can be completed to prove the appropriate taxes have been paid, which can reduce or eliminate the withholding taxes.

RENTING YOUR PROPERTY

What is involved if I wish to rent out my property?
There are two parts to renting out your property: finding the right tenant and then managing the property. Renting out your property involves setting a price, marketing the property, showing it to potential tenants, screening them, negotiating a lease and securing a deposit. Ongoing property management involves maintaining and repairing the property and maintaining the relationship with the tenant. How much work this involves depends on the type of property you own (for example, there’s a lot more involved in managing a house than a condo!)

What kinds of returns can I expect?
Investors can have different goals: some are concerned with cash flow, others with the appreciation in the value of the property and other investors are more concerned with building equity in the property via the mortgage being paid by the tenant. Generally, most investors break even with a 20% down payment or are slightly cash flow positive. Gross yields average 4.5-6%.

 

London Property – Leasehold vs. Freehold

Heath Hall London

Leasehold v Freehold – what’s the difference?

It may seem like technical legal language, but there are few things more important about your home than whether it is freehold or leasehold. It makes the difference between owning your own home outright, and having a landlord

What are the different forms of home ownership?

There are two fundamentally different forms of legal ownership: freehold and leasehold. Although estate agents tend to gloss over it, the difference can be between a home that is worth buying and one that isn’t. Many people who don’t sort this out when they buy a home end up regretting it – getting it wrong can be hugely expensive.

What is freehold?

If you own the freehold, it means that you own the building and the land it stands on outright, in perpetuity. It is your name in the land registry as “freeholder”, owning the “title absolute”. Freehold is pretty much always the preferred option: you can’t really go wrong with it.

  • You won’t have to pay annual ground rent
  • You don’t have a freeholder either failing to maintain the building, or charging huge amounts for it
  • You have responsibility for maintaining the fabric of the building – the roof and the outside walls
  • Whole houses are normally sold freehold – there is no reason for a standalone house to be leasehold though there is an increasing trend for leasehold houses, so check before you buy

What is leasehold?

Leasehold means that you just have a lease from the freeholder (sometimes called the landlord) to use the home for a number of years. The leases are usually long term – often 90 years or 120 years but as high as 999 years – but can be short, such as 40 years.

  • A leaseholder has a contract with the freeholder, which sets down the legal rights and responsibilities of either side
  • The freeholder will normally be responsible for maintaining the common parts of the building, such as the entrance hall and staircase, as well as the exterior walls and roof. However, other leaseholders might have claimed their “right to manage”, in which case it is their responsibility
  • Leaseholders will have to pay maintenance fees, annual service charges and their share of the buildings insurance
  • Leaseholders normally pay an annual “ground rent” to the freeholder
  • Leaseholders will have to obtain permission for any majors works done to the property
  • Leaseholders may face other restrictions, such as not owning pets or subletting
  • If leaseholders don’t fulfil the terms of the lease – for example, by not paying the fees – then the lease can become forfeit

    Disputes between leaseholders and freeholders

    It is very common to have tension between freeholders and leaseholders.

    • Fees are a major source of contention, with leaseholders often feeling their freeholder is over charging, but being able to do little about it. While the ground rent usually costs in the region of £100-250, even on ordinary flats the annual charges can amount to over £1000 a year
    • Leaseholders often complain that freeholders don’t maintain the building to a sufficiently high standard, or keep common areas clean and tidy
    • Freeholders often complain that leaseholders breach the terms of their lease, for example by making too much noise or not getting permission for building works

      The declining value of leaseholds

      When the term of the leasehold goes down to zero years, then the property reverts to the freeholder. So, if you have a 40 year leasehold, you only have the right to use the property for 40 years before it goes back to the freeholder. A lease with a term of zero years is clearly worthless, and all other things being equal, the shorter the lease, the less it is worth. The value of long leases stays fairly stable, but the value of short leases can drop rapidly. For example, a flat with a lease of 60 years is worth more than 10 per cent less than if it had a lease of 99 years – you might think that a flat is worth £200,000, but actually it is worth less than £180,000, with the difference in value being owned by the freeholder.

      Should I avoid buying a property on a short leasehold?

      Leases of less than 90 years can start to be problematic for leaseholders, and should be approached warily. Certainly, any lease of less than 80 years can start to significantly affect the value of the house. If you have a short lease, the property can decline in value even if property prices in your area are generally rising. This means that fewer people will want to buy it when you resell; it also means that mortgage companies might be reluctant to lend on it.

      Extending your lease

      A series of Government acts have given leaseholders protection against short leases, by giving them the right to extend their lease or the right to buy the property – but this can be very expensive indeed. The law is slightly different depending on whether you have a house or flat:

      Flat:

      • You normally have the right to extend your lease by 90 years on top of your unexpired term
      • If so you won’t have to pay any more ground rent and you can negotiate new terms for the lease, like who pays for works on the flat
      • However, you only have the legal right to do this if you have held the lease on the property for 2 years and it was originally leased on a “long lease”, usually more than 21 years.
      • You will have to pay a premium for extending the leasehold.
      • Many people considering buying a short leasehold property (generally less than 80 years) insist that the leaseholder extends the lease before they buy it.
      • After you tell your landlord that you qualify for the right to extend the lease they can accept your offer, negotiate, or reject your offer. If they do the latter you can challenge them in court

      House:

      • You might have the right to extend your lease by 50 years on your house
      • If so you can renegotiate the terms of your lease, like who pays for works on the house
      • However, you only have the legal right to do this if you have held the lease on the property for 2 years and it was originally leased on a “long lease”, usually more than 21 years
      • Unlike flats, you don’t have to buy a lease extension for a house, but your ground rent is likely to go up
      • You should get a professional to help you extend the lease. For example, if you live in a converted house the rules for extending a lease on a flat might apply instead
      • After you tell your landlord that you qualify for the right to extend the lease they can accept your offer, negotiate, or reject your offer. If they do the latter you can challenge them in court

        Buying the freehold on a leasehold property

        You might also have the right to buy your house or flat outright, so that you own the freehold. This is called ‘enfranchisement’. While there are complicated legal procedures and legal costs involved this process of enfranchisement can be invaluable. Again, the law depends on whether you have a house or flat. Ensure you get professional advice and assistance.

        What is commonhold? 

          • Commonhold is a variant of freehold, created by the Leasehold Reform Act of 2002, which overcomes some of the worst aspects of leaseholds.
          • Commonhold is where a multi-occupancy building is divided into a number of freehold units, so each individual flat owns its own freehold. The common parts (staircases and hallways etc) are owned and managed by a Commonhold Association, a company that is itself owned by the freeholders of the flats.
          • This means there is no superior freeholder, but rather the owners of the flats manage the common and external parts of the property jointly. This protects people both from greedy landlords, and from the problems of short leases.
          • But, as with any form of community ownership, problems and conflicts can arise between members of the Commonhold Association. Moreover, only about 15 to 20 commonholds have been completed in the UK.

article originally published by hoa.org.uk

Dubai Freehold Property

dubai freehold property

Dubai has become one of the world’s most sought after places for foreign investors. In the last few years there have been changes to the law which have made Dubai freehold property available to foreign investors. It is now fairly easy to purchase real estate in Dubai, subject to the usual conditions such as the ability to finance. Always get expert advice to help you negotiate the local laws and regulations in this booming middle east country.

Buying Dubai Freehold Property

Determine what type of property you are interested in. Foreign buyers often choose to purchase either apartments, townhouses, or villas, which are generally located in secure complexes with elaborate leisure facilities such as tennis courts, swimming pools and gyms.

  • In 2002, by royal decree, foreign nationals became eligible to buy and own property in Dubai.
  • Ensure you are looking at an area in which foreigners are allowed to buy property.
  • Some of the most popular, luxurious and expensive developments include Emaar Towers, Jumeirah Gardens, International City and Al Hamra Village.

Start your search online. As with any property search, a good place to start is online. There are numerous agencies and real estate agents that list properties for sale in Dubai online. You can buy properties through a real estate agent or direct from a developer. Real estate agents generally sell resale properties, which are properties that have been built and have previous owners. Developers sell pre-construction properties off of a plan, and these may be prior to any construction, or still under-construction.

Contact a local real estate agent. If you want help with your search, you will need to speak to someone with specialist local knowledge about the property market in Dubai. It’s always best to employ a real estate agent to work with, as they can help you to find properties and explain your options to you. Big real estate companies are used to dealing with foreign buyers and will speak English.

  • Laws and regulations can change quickly in Dubai, so hiring an agent will help you avoid any potential pitfalls.
  • In Dubai, the buyer pays the real estate commission; you can expect to pay a fee of between 2% and 5% of the value of the property.
  • You should always check the credentials of anyone you hire. The regulatory body for Real Estate in Dubai is the Real Estate Regulatory Agency (RERA).

Attend property fairs. The property market in Dubai is still relatively young, although growing fast. As a result, a significant amount of property bought by foreigners is bought pre-construction from developers. Property fairs are a popular way for developers to present their proposals and meet potential buyers. These property fairs are held all over the world, so look for one visiting a city near you.

Visit Dubai. Before you think about making a move for a property be sure that you have spent a little time in Dubai. If you are buying a resale property ensure that you view as many properties as you can, and ask the same questions you would ask if you were buying property anywhere else in the world.

  • If you are buying off-plan or construction is not complete, make sure you go to see similar properties by the same developer that are finished.
  • When you are in Dubai, you will also have access to paper listings in specialist local newspapers and magazines, and be able to attend the property fairs that continue all year.

 

Meeting Eligibility and Financial Requirements

 

Have the required ID and visa documents. Since a change to the law in 2002, it has become possible for foreigners to buy and rent Dubai freehold property. You will, however, still need to present a valid passport to prove your identity. You are not required to hold any type of residency permit in order to buy property, but assuming you want to stay there you will have to have this available.

  • The UAE government has a six month visa for property buyers, called the “Property Holders Visa.”
  • This allows foreign investors to stay in Dubai for six months while they investigate possible purchases.
  • To qualify for this, the property you buy must have a value greater than 1 million dirhams, which is equal to about $272,000 U.S. dollars.
  • You must be buying as an individual, and not as a company.

Determine the full costs. You need to be certain that you can afford the property and meet all of the costs attached to the purchase. When you are determining the overall cost of the property you should include the purchase price, the deposit, transfer fees, real estate agent fees and the potential for currency exchange rates to fluctuate.

  • It is not legally necessary, but it is highly advisable to employ a lawyer to help you negotiate all the paperwork.
  • Include the costs of a lawyer in your calculations.
  • A new-build property will likely require a land registration fee of around 2%

Get a mortgage in Dubai. Mortgages can be difficult to obtain in Dubai. Non-status/self-certification mortgages are not available and the amount of red tape and paperwork involved can be off-putting to those accustomed to a less rigorous system. In some cases, buyers may be required to put down between 20% and 50% of the value of the mortgage in cash.

  • Mortgages in Dubai are paid in monthly installments, with 15 year terms the most common. Residents of India cannot mortgage their property in Dubai and raise loans. Indian residents are also not permitted to give a guarantee to any loan from a non-resident.
  • The maximum length of mortgage term in Dubai is 25 years.
  • Mortgage repayments, combined with any other monthly expenses, must not exceed 35% of net monthly income.
  • As foreign exchange can be tricky, it is advisable to obtain professional advice before deciding to take out any mortgage in a foreign currency.
  • Mortgage rules have been known to change in Dubai, so try to keep up-to-date by consulting local news and the Central Bank of the UAE.

Buying Pre-Construction in Dubai

 

Submit an application form to the Developer. If you are buying pre-construction property, the first step once you have decided on the property you want and secured all the financing, is to submit a completed builder’s form. This form will summarize the basic terms and conditions of the sales agreement, including information on the payment plan, and personal information from all parties.

  • You will be required to submit your passport along with the reservation form.
  • Be aware that some developers are still selling leasehold rather than freehold titles. If this is the case, the title is valid for the period stipulated in the lease agreement.
  • Ensure you fully understand the details of the contract and have it checked by your lawyer.
  • If the property is not yet complete, make sure you know what responsibilities the developer has if it is delayed for any reason.

Pay the deposit. Once the reservation document has been accepted you will have to pay the reservation deposit. The amount will be stipulated in your application, but it will typically range between 5% and 15% of the purchase price. Developers will often not draw up the official sales and purchase agreement until this deposit has been paid, and will sometimes charge up to 20% or more.

  • When buying pre-construction, you should ensure that the deposits and payments you make are paid into a RERA-approved trust account.
  • These payments are then transferred to the developer as the construction work is completed.

Complete a formal sales and purchase agreement. The formal and legally binding contract is the sales and purchase agreement. Make sure this specifies the date by which the property should be completed, and what penalties the developer will incur if it is delayed. Have a lawyer look over the contract with you, and check all the details, terms and conditions.

  • If the property is supposed to be furnished, ensure that a date for when that will be done is included in the agreement.

Transfer of the deed. To complete the purchase there is a transfer of deed into your name. This is the point at which you will be required to pay 100% of the purchase price. The deed will not be transferred, and you will not own the property until you have paid, so you must have financing in place.

  • If the property has been fully completed, the transfer will happen at the Land Department Office.
  • If it is yet to be finished, you will transfer the deeds at the developer’s office.
  • You will then generally be invited to inspect the property and highlight any final issues or deficiencies that the developer needs to address.

Buying Resale Property

 

Sign a Memorandum of Understanding. To purchase resale property in Dubai you must agree to terms with the seller, and record this in a Memorandum of Understanding (MOU). This is a basic document that outlines the terms and conditions, including the price and closing date of the purchase. It is not legally binding, but is a necessary first step to buying resale property.

Pay the initial deposit. Once the MOU is signed, the purchaser will have to pay the deposit, typically around 10% of the purchase price. This deposit is normally non-refundable, unless there is a particular reason why the seller is unable to bring the transaction forward.

  • At this point you will also have to pay the real estate commission, normally between 2% and 5%.

Obtain the deed. Once you have an agreement and financing in place, you can move on and complete the purchase. As an expat you will be required to pay 100% of the purchase price before the deed is transferred, just as if you were buying a pre-construction development. To do this, you may need to attend an appointment at the Land Department and present all the paperwork.

  • The buyer, the real estate agent, and the loan officer from the lender who is financing the purchase may all be required to attend the meeting at the Land Department.

We hope you have found this guide to buying Dubai freehold property both useful and interesting.