Home Sweet (Valu­able) Home Cash­ing in on your house

Make your home’s eq­uity work for you

ZOOMER Magazine - - CONTENTS MARCH 2018 - By Ian MacNeill

“But the com­fort is, you shall be called to no more pay­ments, fear no more tav­ern-bills.” —Wil­liam Shake­speare

THE BARD CER­TAINLY got it right; when it comes to money, noth­ing is more tax­ing than wor­ry­ing about it, ag­o­niz­ing over where it’s to come from and won­der­ing if it will all be enough.

If you’re a home­owner, how­ever, and have worked hard to pay down the mort­gage, at least you can rest a bit easier. Here are the ins and outs of us­ing your home’s eq­uity to make those sleep­less nights a lit­tle easier to bear.

BE­COME A LAND­LORD

Ac­cord­ing to the Canada Hous­ing and Mort­gage Corp, va­cancy rates in ma­jor metropoli­tan ar­eas across Canada are down, down, down. In fact, in the Greater Toronto area, the amount of avail­able rental stock is at a 16-year low. Not only does that mean fewer places to rent, it means record prices. Although the av­er­age rate for a one-bed­room apart­ment is $1,200 a month, swish digs in a trendy neigh­bour­hood or the down­town core will cost you con­sid­er­ably more. Across the coun­try, a two-bed­room and den over­look­ing the cen­tral square in Olympic Vil­lage in Van­cou­ver can set you back $5,000!

That means if you have space avail­able, you could be in the cat­bird seat if you’re pre­pared to rent it out, so long as you don’t mind play­ing the land­lord game, which comes with its com­pli­ca­tions. (“Uh, Ian, I think there’s some­thing wrong with the toi­let.”) There are two ways to go: ei­ther seek out long-term ten­ants or rent short term, a process made con­sid­er­ably easier nowa­days, thanks to the in­ter­net and mar­ket­ing chan­nels like Airbnb. The ad­van­tage to longterm ten­ants is that if you’re lucky enough to find good ones you can sit back and re­lax while the cheques roll in, whereas with short-term rentals, you’re con­stantly clean­ing and pre­par­ing for the next guest. On the other hand, work­ing it can be prof­itable; en­tire homes in Toronto are go­ing from $200 to $300 a night while down­town con­dos can fetch any­where from $50 to $150 and up. You do the math.

If you have the space but it isn’t prepped for ac­tual liv­ing, you’re go­ing to have to con­sider ren­o­va­tions, which, as any ex­pe­ri­enced mar­riage coun­sel­lor will tell you, ranks just be­hind in­fi­delity and golf as the great­est di­vider of holy mat­ri­mony. Ac­cord­ing to Bartek Farafos­zyn of Bartek Con­struc­tion in Metro Van­cou­ver, in­te­rior ren­o­va­tions run any­where from $75 to $150 a square foot, de­pend­ing on what you’re start­ing with, what you want and the kinds of ma­te­ri­als you choose. “If you al­ready have floors and dry­wall and plumb­ing roughed in, it’s go­ing to cost less than if you’re look­ing at bare studs and a con­crete floor,” he ex­plains. Be­fore start­ing, do your home­work – oh boy, do your home­work. Re­search all you can, es­pe­cially about your con­trac­tor. Farafos­zyn says you’ll ob­vi­ously want to feel com­fort­able with the peo­ple you hire and talk to pre­vi­ous clients, but you also have to know if they have ad­e­quate in­sur­ance and if the sub­con­trac­tors they hire are cov­ered by work­ers com­pen­sa­tion. If they aren’t and one of them comes on your prop­erty and breaks a leg, you’re the one that’s on the hook for costs. The good news is that you can cover your­self by tak­ing out WCB cov­er­age your­self; I did it when we were do­ing some renos a few years back, and it wasn’t ex­pen­sive, es­pe­cially af­ter I heard about the doc­tor in North Van­cou­ver who had to sell his home to pay the re­hab costs of a “stu­dent” painter who fell off his roof!

LEARN NEW TAX RULES

Rent­ing out space in your home is go­ing to at­tract the in­ter­est of the tax man. Ac­cord­ing to the Canada Rev­enue Agency (CRA), the minute you start rent­ing out space, you are con­sid­ered to have sold that por­tion of your home at what­ever the cur­rent mar­ket value was at the time. It ceases to be a part of your prin­ci­pal res­i­dence and is li­able for cap­i­tal gains tax when you sell your home.

The CRA is get­ting more so­phis­ti­cated catch­ing tax avoiders, us­ing al­go­rithms and other com­puter ho­cus pocus. Con­sider the case of the man who sold his home and in­stead of the $4,980 he could have paid in cap­i­tal gains was gob­s­macked with a bill for $26,500 af­ter the usual penal­ties, in­ter­est and lead pipe beat­ings the CRA spe­cial­izes in on oc­ca­sions when it doesn’t like the cut of your ac­count­ing jib. Don’t for­get: it was tax cheat­ing that got Al Capone put away into Amer­ica’s more in­fa­mous re­tire­ment home – Al­ca­traz.

Although you can­not deduct ren­o­va­tion ex­penses from your taxes, you can deduct on­go­ing main­te­nance costs and other items – suf­fice to say, it’s another area you want to hire a tax spe­cial­ist. And fi­nally, civic and provin­cial gov­ern­ments ap­pear to be de­cid­ing that be­lea­guered home­own­ers and spec­u­la­tors alike us­ing chan­nels like Airbnb should pay the ap­pro­pri­ate tithe. New reg­u­la­tions in Van­cou­ver will com­pel hosts to pay $54 to reg­is­ter and an an­nual fee of $40. Sim­i­lar mea­sures are be­ing mulled in Toronto, while Que­bec is opt­ing for a 3.5 per cent tax on hosts to fund “re­gional tourism.”

USE YOUR EQ­UITY

Another way to get value out of your home is to bor­row on it. My mother used to call this the leavenoth­ing-to-your-kids strat­egy. A pop­u­lar op­tion is a home eq­uity line of credit (HELOC). This al­lows you to bor­row against the value of your home and, ac­cord­ing to

the Fi­nan­cial Con­sumer Agency of Canada (FCAC), Cana­di­ans owed a whop­ping $211 bil­lion on three mil­lion lines of credit in 2016. With the av­er­age loan run­ning around $70,000, they rep­re­sent a sig­nif­i­cant por­tion of house­hold debt. Open­ing a HELOC means get­ting a line of credit you can tap into when­ever you want, and con­sumers like them be­cause, in most cases, all you have to pay is the in­ter­est. On the up­side, they al­low ac­cess to ready cash, but that’s also the down­side; easy ac­cess can lead to im­pul­sive spend­ing, and sud­den in­ter­est-rate in­creases can leave many bor­row­ers vul­ner­a­ble. In­ter­est rates vary, de­pend­ing on the type of lender, so po­ten­tial bor­row­ers are ad­vised to shop around.

If you’re 55 or older and own your home, another op­tion is a re­verse mort­gage. Ac­cord­ing to FCAC, the older the bor­rower and the more eq­uity they pos­sess, the larger the amount of money avail­able, which can be taken as a lump sum or in pay­ments over time. The ad­van­tages in­clude: you don’t have to pay a dime un­til you sell or move, at which time bor­row­ers are li­able for the amount owed plus in­ter­est; the money is non-tax­able and does not af­fect OAS or GIS. In short, you get to keep your home. On the down­side, says FCAC, “Costs as­so­ci­ated with a re­verse mort­gage are usu­ally quite high com­pared to a reg­u­lar mort­gage,” and that in­cludes the in­ter­est rates.

PLAY THE MAR­KET

There is another op­tion for those look­ing to ex­tract value from their home, which is to sell and ei­ther rent or down­size to a condo or town­house. We’ve al­ready al­luded to the paucity of rental stock in Canada (see side­bar), but if you don’t mind sell­ing and mov­ing out of the high-priced area you’re liv­ing in – where it may be easier to win Lotto 6/49 than to find an af­ford­able apart­ment – your dol­lars can go a lot fur­ther. I’ve al­ways had a soft spot for St. John’s where two-bed­room apart­ments are go­ing for an av­er­age $941 as op­posed to $1,392 in the GTA or $1,552 here in Van­cou­ver. Other pos­si­bil­i­ties in­clude: Monc­ton, Gatineau, Wind­sor or Leth­bridge, although I un­der­stand that the prob­lem with Leth­bridge is that you have to root for the Cal­gary Stam­ped­ers. Re­lax, I’m just kid­ding!

Or you could de­part home and na­tive land al­to­gether; they can mail your CPP to Quito as eas­ily as they can to Que­bec City. Plenty have taken this route, and there are Cana­dian ex­pats do­ing fine the world over.

You can also cash out, flog the manse and buy a condo. Say good­bye to shov­el­ling snow but say hello to condo fees, which seem to go up ev­ery year. How­ever, in to­day’s cocka­mamie real es­tate world, condo prices have been sky­rock­et­ing as the mar­ket gets “com­mod­i­fied” by in­vestors and des­per­ate young peo­ple scram­bling to get into the hous­ing mar­ket “be­fore it’s too late.” It’s ironic be­cause you’d think with all the condo tow­ers go­ing up prices would sta­bi­lize but, in Toronto alone, they’ve risen 21 per cent over the past year with av­er­age prices hov­er­ing around the $500,000 mark.

AGE IN PLACE

In­stead of mov­ing, some want to stay where they are, in fa­mil­iar sur­round­ings. But, as the years roll by, the stairs seem to get steeper and the bath­room with all its slip­pery sur­faces starts to re­sem­ble a mine­field on the West­ern Front. For­tu­nately, there are all kinds of hard­ware doo-dads and ren­o­va­tions that can make homes both safer and more age friendly. To as­sist in in­cor­po­rat­ing them, the fed­eral govern­ment of­fers a home ac­ces­si­bil­ity tax credit (HATC). Cana­di­ans aged 65 and older or who are dis­abled can claim a 15 per cent non­re­fund­able tax credit for ex­pen­di­tures made to in­crease the safety of their homes or their mo­bil­ity within them. The max­i­mum ex­pen­di­ture per dwelling is $10,000, which re­duces fed­eral tax payable for the year by $1,500. It must be a prin­ci­pal res­i­dence, but it can also be claimed by fam­ily mem­bers ren­o­vat­ing their own homes for ag­ing rel­a­tives to live in. The num­ber and types of im­prove­ments and ren­o­va­tions that can be made to a home are end­less, rang­ing from grab bars to light­ing.

Tech­nol­ogy is also lend­ing a hand. Cam­era sys­tems can be in­stalled that al­low rel­a­tives to keep an eye on el­der re­la­tions, while ac­celerom­e­ters can be used to de­ter­mine if they’ve suf­fered a fall. And ac­cord­ing to MIT Tech­nol­ogy Re­view, de­vices like Ama­zon’s Alexa are be­ing used to al­le­vi­ate lone­li­ness, set med­i­ca­tion re­minders and op­er­ate en­ter­tain­ment de­vices us­ing voice com­mands. This tech is also work­ing its way into ex­tended care fa­cil­i­ties. A friend of mine with a rel­a­tive in a re­tire­ment res­i­dence who was the vic­tim of on­go­ing petty theft, in­stalled a cam­era and the pil­fer­ing abruptly stopped. “And it wasn’t ex­pen­sive,” he re­ports.

“It may be easier to win Lotto 6/49 than to find an af­ford­able apart­ment”

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