New Home Outlook for 2011

In 2010, the Ottawa new home/condo market had a slight resurgence predicted to close the year at nearly 5,900 units, with the condo market owning a 24% share of the new construction in the City of Ottawa. Which is a significant increase compared to last year, where the condo market only had 19% share of the new homes division.

With the trends in Ottawa starting to lean towards multiple unit structures, we can expect town homes and condos to earn an even bigger market share of the new homes development in 2011. According to CMHC, the strong activity in the re-sale market in Q1 and Q2 of 2010, increasing mortgages rates projected for 2011 and along with higher housing prices, the demand for single-detached homes will be reduced for 2011. CMHC predicts that single construction will continue to fade in the next several years to the point where singles will only represent 4 out of every 10 homes in Ottawa.

With the average home increasing in value of approximately 6.27% a year, many potential buyers are looking for more affordable housing, leading them directly to the condominium market. Also increasing the demand for condo are the growing number of empty nesters who are slowly but surely making the shift from the large single to the care-free condo as well as young urban professionals who are looking for housing to be within proximity of all the happening things that Ottawa has to offer.

According to the City of Ottawa Official Plan, the main objective is to ‘‘grow in, not out’’. Thus utilizing existing infrastructure to develop higher-density residential housing units. Meaning developers will continue to use infill projects to conform to the Official Plan. CMHC predicts that the downtown core will continue to outpace other regions in the city since it can support high density developments. Which will in fact help to attract urban professionals with high incomes.

These days buyers are looking for housing to compliment there lifestyle that are in proximity of cultural amenities, restaurants, shops and public transportation, and these buyers are no longer buying simply based on square footage. To learn more about the Ottawa condo market, please contact the Bennett Real Estate Professionals today!

Steps from the Canal - Elgin Street and the Glebe

Let me register you today for this new condo development starting from approximately $235k near the Canal and Elgin coming in October. Amenities will include a roof top terrace with views of the Canal, fitness center, party room, outdoor garden area.

This building will be mixed use, likely 6 stories with ground floor commercial including a coffee shop. Units will be ranging between 650 sqft to over 1000 sq.ft. Great location, walking distance to Elgin and the Byward Market, as well as great Queensway access. Great builder and great specs

101 Richmond

Quite simply, 101 Richmond Road exemplifies the ultimate urban development in the ultimate urban location. Inspired by Ashcroft President, David Choo’s unrelenting desire to achieve the highest standards of quality and architectural excellence, 101 incorporates exceptional design married with mixed-use functionality, to create a powerful synergy destined to transform one of Ottawa’s trendiest urban villages. No matter if it’s a best friend, a soul mate, or new acquaintance, 101 makes entertaining easy. Whether it’s in the comfort of your residence, the elegant party or dining room, or the spectacular roof top patio, the impromptu times are often the best!

Using Leverage in Real Estate

In this new real estate market, the early bird gets the worm. Being well educated and knowing how to use leverage effectively will be a key part of any real estate investor's life. Everyone has his or her personal risk tolerance level, and this will play a major role on how much leverage to use. The investor must find a balance between reducing his or her down payment and reducing his or her positive cash flow. Positive cash flow is always the primary goal in any investment, that's why negative cash flow should be avoided because it will force you to find other areas to produce income to overcome the monthly deficit. It will also dramatically reduce your chances of obtaining another mortgage on future investments. Negative cash flow can also turn you from investor to speculator. Being a speculator is not the goal.

One of the goals when using leverage is to have a good return on investment (ROI). The higher the ROI, the higher the risk. Maximizing your ROI should not be your main focus, nor should reducing your down payment to nothing. The ultimate goal is to find the perfect balance between both. With the help of three different scenarios, I will give you examples on how this can apply to real property on a property purchased at $200,000 with net pre-tax income of $1,200 per month. Now using Ottawa's excellent appreciation rate of roughly 6.27% annually we can now calculate our unit's forecasted value by the time you sell in 5 years. Also will use a typical mortgage for this exercise of $160,000 at 5 years fixed at 5.49% over 25 years.

Scenario #1, Purchased with all cash

Sold five years after purchase

Purchase price: $200,000

Sale price: $271,071

Net pre-tax capital gain: $71,071

PLUS

Net pre-tax income(rent): $72,000

($1,200 x 60 months)

EQUALS

Net pre-tax capital gain: $71,071

Net pre-tax income(rent): $72,000

Pre-tax profit: $143,071

Overall (not annualized) ROI 72%

Scenario #2, Purchased with 20% cash down

Sold five years after purchase

Purchase price: $200,000

Sale price: $271,071

Net pre-tax capital gain: $71,071

Down payment: $40,000

(20% of $200,000)

PLUS

Net pre-tax income(rent)

($1,200 - $975 mortgage payment)

($225 x 60 months) $13,500

EQUALS

Net pre-tax capital gain: $71,071

Net pre-tax income(rent): $13,500

Pre-tax profit: $84,571

Overall (not annualized) ROI 211%

Scenario #3, Purchased with 20% down from Line of Credit

Sold five years after purchase

Purchase price: $200,000

Sale price: $271,071

Net pre-tax capital gain: $71,071

Down payment: $40,000

(20% of $200,000)

Down payment cost $6,400

(106.67$ LOC payments x 60 months)

PLUS

Net pre-tax income(rent)

($1,200 - $975 mortgage payment)

($225 - $106.67 x 60 months) $7,100

EQUALS

Net pre-tax capital gain: $71,071

Net pre-tax income(rent): $7,100

Pre-tax profit: $78,171

Overall (not annualized) ROI 1221%

As you can see there are many parts of this equations that can vary that can include:

-Cash available

-Source of down payment

-Net income after expenses

-Interest rates

-Potential sell price

-Overall cash flow goals

Each investor will be in a different situation, so there is no exact answer for everyone. Even if the properties do not increase in value as much as Ottawa's excellent appreciation rate predict they will, there is still the possibly of making a significant investment. Try it out for yourself.

In conclusion, using all of your capital to avoid a mortgage is not always an advantage and the best option so find the right option that works for you and that will bring you positive cash flow. Negative cash flow you will not let you have the financial freedom and you will have to find another source of income to make up for the losses. Real Estate investing is not a get rich quick scam, its a long term process that can bring wealth creation. It's best to treat it like a business and to deal with knowledgeable sales people who have the inside edge on investing.

Nick Labrosse