Understanding BC’s New Home Flipping Tax: What You Need to Know
The BC government introduced the Home Flipping Tax in early 2024, a move aimed at curbing speculative activity in the housing market. This new measure could have significant implications for property owners, investors, and even some regular homeowners. That tax is now applicable so let’s break it down and see what it means for you.

What is the BC Home Flipping Tax?

The Home Flipping Tax, effective for property sales on or after January 1, 2023, is part of British Columbia’s broader effort to create housing affordability. This tax applies to individuals who sell a property that they’ve owned for less than 2 years (729 days), with certain exemptions for life events.

How Does It Work?

If you sell a residential property within 729 days of purchase, profits made from the sale will be taxed as business income. This means the profit won’t qualify for the principal residence exemption that typically allows homeowners to sell their primary residence tax-free, although sellers that owned their home for more than 1 year and used their home as a primary residence at some point during that period MAY be eligible for a $20,000 principal residence exemption.

How to calculate taxable income;
Proceeds from sale of property
(-)cost to purchase property
(-)cost to improve property
(-)principal residence exemption (if applicable)
______________________________________
= Taxable Income

How to calculate tax rate;
If you own the property for less than 366 days, the tax rate is 20%.

If you own the property for more than 365 days and less than 730 days, the tax rate is reduced until it reaches zero according to the following formula:

Tax rate = 20% × [ 1 - ( (Days held - 365) / 365) ]

Exemptions to the Tax
The government recognizes that not all short-term sales are speculative. Some key exemptions include:

• Divorce or separation

• Job relocation (minimum 40 km move)

• Health-related reasons

• Death in the family

• Threat to personal safety (e.g., domestic violence)

• Insolvency or significant financial hardship

• Natural disasters

These exemptions ensure that people experiencing genuine hardships or life changes aren’t unfairly penalized.

Who Does This Impact?

Investors
If you’ve been flipping homes as part of your investment strategy, this tax is a game-changer. Any profit made within the 2 year period will now be subject to the above tax rates, which could make some flips less profitable. This is particularly important for those who rely on the principal residence exemption as part of their tax planning.

Homeowners
Regular homeowners might also be affected, especially if life circumstances force an unplanned move. While exemptions exist, you’ll need to provide documentation to qualify, so be prepared to prove your case if necessary.

Prospective Buyers
For buyers, the tax could reduce speculative activity in the market, potentially leading to less competition and more stable pricing. However, the broader impact on overall housing affordability remains to be seen.

What Does This Mean for the Market?

The goal of the Home Flipping Tax is to discourage speculative flipping and stabilize the housing market. While it might deter some investors, it could also encourage longer-term homeownership, contributing to a healthier housing supply. That said, the tax is just one piece of the puzzle that the NDP’s are adding to try and address affordability challenges in BC.

How to Navigate the New Rules

If you’re planning to buy or sell a home in BC, here’s what you can do to stay ahead:

1. Plan for the Long Term: If you’re purchasing a home, consider whether it’s a place you can see yourself staying in for at least a year.

2. Understand Your Tax Obligations: Work with a tax professional to understand how the Home Flipping Tax might affect your finances, especially if you’re an investor.

3. Keep Documentation: If you think you might qualify for an exemption, make sure to keep thorough records of the life event prompting your sale.

4. Work with a Realtor: Navigating these new rules can be complex, so having an experienced realtor on your side will help you make informed decisions.

Let’s Build Your Strategy

Whether you’re buying, selling, or simply planning your next move, working with someone that keeps up with the newest regulations in housing is crucial. Let’s sit down and develop a strategy that works for your unique situation.

Reach out today:
Email: kadelacasse@gmail.com
Call/Text: 604-401-9199
Book directly into my calendar HERE

Another Big Move: Bank of Canada Cuts Rates Again by 50 bps

The Bank of Canada did it again! On December 11th, they announced another significant cut to the overnight target rate, slashing it by 0.50%, bringing the rate down from 3.75% to 3.25%. This marks the second consecutive 50 bps cut following the October decision and reflects a clear shift away from a restrictive monetary policy away. For homeowners, prospective buyers, and anyone navigating the mortgage market, this is another game-changer.

What Does This Mean for You?

Variable Rate Mortgage Holders

For those with variable rate mortgages, you’ll notice some impactful changes:

• Fixed Payment Variable Mortgages: If your payment is fixed, your payment remains unchanged. However, a greater portion of your payment will now go toward reducing your principal balance instead of paying interest. For example:

  • A $500,000 uninsured mortgage with a 30-year amortization and rate of Variable Prime - 0.56% had a rate of 5.89% before the October cut with a payment of $2962.48. $508 of which went to principal. After October's cut, $717 of that payment would go to principal, and after December's cut $925 is going towards the principal, effectively dropping your amortization from 30yrs to just under 24yrs.

• Adjustable Rate Mortgages: Your payment will decrease with this rate cut to maintain your original amortization schedule. For the same mortgage, your payment drops to $2,650.60, with $613 now going to the principal. This adjustment provides immediate relief to your monthly budget.

  ** Some banks will allow ‘fixed payment’ variable mortgage holders to adjust their payments. If a lower payment aligns more with your goals than shorter amortization; chat with your mortgage broker or call your bank directly to check your options.

Fixed Rate Mortgage Holders

If you’re locked into a fixed rate, this cut won’t impact your payments directly. However, it might be worth revisiting your options if your term is nearing renewal or if breaking your mortgage to refinance at a lower rate could save you money. Consult with your mortgage broker to analyze potential penalties and savings.

Prospective Buyers

• Going Fixed: Fixed rates aren’t directly impacted by these cuts as they follow bond yields. Influenced by recent domestic political uncertainties, such as the recent resignation of Canada's finance minister, and global economic concerns impacting investor sentiment, the bond yields have only seen very slight downward trends when compared to the Bank of Canada decisions . If fixed is your preference, lock in your rate now but keep on your mortgage broker to push for better rates once you're under contract. 

• Going Variable: Your purchasing power continues to grow as variable rates drop. This rate cut boosts borrowing capacity by another 4-5%. With more cuts potentially on the horizon, the trend is clear: Variable borrowers are in a strong position. But remember, as your buying power increases, so does everyone else’s. Acting now can help you beat the rush as sellers with listings that have sat over the holidays may be keen to move on to their next property.

Will There Be Another Cut on January 29th?

Looking ahead, the market is pricing a 60% chance of a 25 bps cut and a 40% chance of no cut at all, based on the forward contracts on the Canadian Overnight Repo Rate Average (CORRA) as of December 28th. Factors influencing this decision include:

• Inflation Trends: Core inflation has been cooling but remains slightly above the Bank’s target range. Further cuts will depend on whether this trend continues.

• Economic Growth: Recent GDP data suggests slowing growth, which supports further easing.

• Global Influences: The Bank is also monitoring international monetary policies, particularly in the U.S., as well as global financial stability.

Should You Wait or Buy Now?

Every situation is unique, but here are some things to consider:

• Ready to Buy: December and January are typically great times to be active as a buyer. This year inventory levels remain high, and many sellers are motivated. Acting now could give you a significant edge over spring competition.

• Waiting for Another Cut: If your down payment or finances aren’t ready yet, there’s potential for rates to drop further. However, the spring market typically brings more competition and potentially higher home prices, offsetting the benefit of lower rates.

• Mixing Fixed and Variable: Some buyers are opting for variable rates now and planning to lock into a fixed rate later in 2025. Discuss this strategy with your broker to ensure it aligns with your financial goals.

Let’s Build Your Plan Together

The recent rate cuts have reshaped the housing market landscape, creating opportunities for homeowners looking to make a move and buyers alike. Whether you're planning to buy your first home, upsize or downsize it’s crucial to have a tailored strategy with an advisor you can trust.

Reach out today to discuss your goals and take advantage of the changing market:

Email: kadelacasse@gmail.com
Call/Text: 604-401-9199
Book directly into my schedule HERE

And What Landlords, Buyers, and Tenants Should Know

The Residential Tenancy Act in BC has recently undergone some significant changes impacting landlords, buyers, and tenants. This is not an exhaustive breakdown of the changes but these are the key changes that could affect the everyday real estate transaction.

Notice Periods
The most significant change is the extended notice period for tenants. Landlords are now required to give a four-month notice to vacate for personal or caretaker use, up from the previous two months. This change came into effect on July 18th, 2024.

It's important to note that notice is still effective on the final day of your rental period (the day before rent is due). So, if you are in a month-to-month lease paying rent at the beginning of the month and receive notice on September 10th, you won't be required to vacate until January 31st, 2025.

However, it seems the Government of BC acted recklessly by announcing these changes without properly consulting the industries impacted. Initially, the four-month notice period also applied to landlords serving notice on behalf of new buyers intending to move into the home and requesting vacant possession. The issue with including primary residence purchases is that rate holds—when a buyer’s lender pre-approves them at a certain interest rate—are typically valid for only 90-120 days, with rare exceptions. For example, if a buyer was just pre-approved at the end of August, their rate hold would expire by the end of December, leaving them vulnerable to rate shifts that could affect their mortgage qualification. Unfortunately, major banks, being national entities, are unlikely to adjust their policies based on one province’s legislative changes so they would not provide any workarounds. While I understand their intention to enhance tenant protections, the originally introduced extended notice period would disproportionately penalize first-time buyers, who have no options to bridge their mortgage from an existing property. 

The solution? After lobbying from mortgage brokers and the real estate industry, the BC Government announced an amendment reducing the notice period for landlords instructed to provide notice for a purchaser when they or their close family member will live in the property, from four months to three months. This amendment was effective August 21st.

So, if you are in a month-to-month lease and your landlord, after a buyer has removed subjects and instructed them to provide notice to vacate, serves that notice on September 2nd, you would be required to vacate by December 31st, 2025.

Fixed-term tenancies can be served notice to vacate, but the three-month notice still applies, and the effective date to vacate cannot be before the end of their fixed term.

Web Portal: A New Tool for Transparency
Landlords are now required to use the Landlord Use Web Portal to generate the Notice to End Tenancy. This creates a tool for regulators to register and track evictions, increasing transparency in the process. Additionally, notices generated due to a new buyer requesting vacant possession will now require a copy of the Contract of Purchase and Sale to be included.

Initial Length of Use
They have increased the length of time a landlord must use a rental unit for personal or caretaker use following the eviction of a former tenant. This period is up from 6 months to 12 months. If a landlord fails to demonstrate personal use or caretaker use for 12 months, they may be liable to pay an evicted tenant 12 months’ rent as compensation.

Dispute Period
The deadline for a tenant to dispute has also increased to;
-21 days when receiving 3 months notice
-30 days when receiving 4 months notice.

The clock starts as soon as the notice is deemed received. (more info about serving notice here)

Landlords: Navigating the New Landscape
Even with the latest amendment reducing notice to three months, selling a unit with a tenant has gotten stickier. Currently, inventory is above seasonal averages, and most investors are on the sidelines due to high interest rates which means the active buyers are looking for vacant possession not taking over tenants.

Landlords should be aware of the challenges they may face when selling a tenanted property, including:
-smaller buyer pool due to expiring rate holds, risks assuming tenancy
-long completion
-not staged well
-inflexible showing times

In a busier market, your property will still move, but what are you leaving on the table?
In slower markets, your property sitting on the market will only lead buyers to look for more of a deal.

Buyers: Understanding the Risks
Don't shy away from a property just because it is tenanted, but make sure you understand the risk of buying a tenanted property. If you're getting good value, need a long completion, or have found a unique property then I understand but otherwise, why deal with the additional stress of a tenanted property?

Tenants: Leverage the New Rules
Yes, your notice period has extended, which is valuable to help you find a home in a typically terrible rental market. But the blessing in this amendment is your increase in leverage. Once you know of your landlord’s intention to sell; using the knowledge that a vacant home will sell easier, you may be able to get more than the Tenancy Act entitles you to...
How you ask?

Cash for Keys, baby! A Potential Win-Win Solution
The term "Cash for Keys" refers to an agreement where a tenant agrees to vacate a property on a specific date in exchange for a payment from the landlord. This arrangement can be beneficial for both parties:

Sellers/Landlords  have a vacant property that they can stage and market which will no longer deter buyers who are averse to the completion length.

Tenants could leave on their own terms with more money in their pocket to help ease the cost of moving and off-set your potential increase in rent.

Final Thoughts
These changes to the Residential Tenancy Act have shifted the landscape for landlords, buyers, and tenants in BC. It's important to be informed about these changes and understand how they may impact your real estate decisions and the best way to make sure you stay informed is to work with a professional that is on top of the latest regulations and helps you make informed decisions.

https://calendly.com/kadelacasse_realtor/

Again, this is not an exhaustive breakdown; you can find much more information regarding Bill 14 by typing "bill 14 residential tenancy act" into your favourite search engine.

Announced the morning of Oct 16, 2023;
The latest housing legislation introduced by the province is aimed specifically at short term housing within the province as municipalities across the BC deal with long term rental shortages causing record increases in monthly rent. 

The Gov't of BC plans to phase-in the legislation over 2 years. You can find the full details at the link below but here are my highlights;

1. Primary Residents Only: The legislation appears to restrict short-term rentals to primary residents, meaning those who live in the property as their main residence. Secondary suites on the same property may be allowed for short-term rentals.

2. Fines and Data Sharing: The legislation includes provisions to increase fines for operators of short-term rentals. It also requires platforms such as Airbnb and VRBO to share data with local and provincial government authorities, which can help in monitoring and enforcement.

3. Host and Platform Registry: The province plans to establish a provincial host and platform registry by late 2024, which is aimed at enhancing accountability in the short-term rental market.

4. Compliance and Enforcement Unit: A provincial short-term rental compliance and enforcement unit is to be set up. This unit will be responsible for ensuring that the rules and regulations are followed by short-term rental operators.

Enforcement is a significant concern, as many cities, including Vancouver, already have bylaws that are stricter than the ones introduced in this Act. Vancouver, for instance, requires short-term rental operators to be primary residents, have a business license, and restricts the rental of secondary suites unless they are the primary residence. However, enforcement has been a challenge in these municipalities and they have been asking the province for assitance.

The BC Hotel Association's report, authored by McGill University Professor Dr. David Wachsmuth, released in September 2023 highlights that a significant portion of short-term rental revenue comes from commercial operators who do not live in the properties they rent out. If the province can effectively enforce the new regulations and penalize violators, homes could return to the long-term rental market, alleviating a bit of the pressure related to long-term rental shortages and rising monthly rents in major municipalities. 

To stay informed on the latest, make sure to sign up for my newsletter.

Kade

To learn more about new short-term rental rules in B.C., visit: https://gov.bc.ca/ShortTermRentals

Full "The housing impacts of short-term rentals in British Columbia’s regions" report found here:
https://upgo.lab.mcgill.ca/publication/strs-housing-bc-2023-summer/Wachsmuth_BC_2023_08_10.pdf

In the first three weeks of working with new clients in the Vancouver market, like clock work; they'll send me an amazing property that popped up in their budget. "Is this place for real? Ideal location, 2 balconies and we'd have a guest room! Tell us this is for real!"

Short Answer: Let’s jump on a call.

Long Answer: It is for real but it may not be for you…

When you purchase a leasehold strata; you do not own the land or the building but are purchasing the rights to exclusively occupy your unit or home through a lease granted by the landlord. The initial length of the term can vary but is typically 99 years and can be bought or sold like any other home up until the expiration date. The landlord could be the City of Vancouver like the publicly owned land in South False Creek and the River District or privately owned land.

The lease may be pre-paid or not pre-paid and due monthly along with your monthly maintenance fees. Upon expiration of the lease, the leaseholder and landlord will either renegotiate a new term or an end to the tenancy depending on the details of the lease.

The positives; Leasehold properties are valued below Freehold properties giving buyers with smaller budgets the opportunity to avoid a commute, stay close to the neighbourhoods they’ve previously rented in and afford a home that is bigger with room to grow for a family. Also, if rentals are allowed then, depending on the area and your downpayment, you may be able to turn a leasehold into a cash-flowing asset*.

The negatives; Leasehold properties will not appreciate at the same rate as Freehold. Where Freehold properties in Vancouver have doubled since 2015, some Leasehold properties with longer terms have seen appreciation from 20-50% while those nearing their expiration in False Creek have seen modest appreciation and even a possible loss with the uncertainty of renewal and the cost of renewal. Leaseholds are also harder to sell as not every buyer is interested in that product.

Barriers; financing is more difficult with leaseholds than freehold. Your lender may have different minimums for downpayment as well as maximum amortization terms (the length of your mortgage) equalling higher payments. Chat with your Mortgage Broker about whether your finances line-up for a Leasehold **


With the above in mind, buyers with a healthy budget that are looking for a way into the market to move up the property ladder or investors looking to leverage credit for equity short-term instead of long term cash-flow should stick with Freehold. But, Buyers with a tighter budget who have location and size as the top priorities should take a serious look at leasehold properties. Your mortgage payments are contributing to your principal and your equity is growing year-over-year even with modest appreciation so they are still a much better alternative to renting.

As always, get a hold of me with any questions by filling in the Let's Connect form below or text/call me directly at 604-401-9199 and let's talk freehold vs. leasehold.

- Kade Lacasse | Vancouver Realtor

* A Cash-flowing asset is one in which the revenue (rent) exceeds the expenses (mortgage+fees)

** If you don’t have a great broker that you can ask about how leaseholds may or may not work for you financially, send me a text at 604-401-9199 and I’ll get you connected Because You Deserve a Knowledgable Mortgage Broker!

Let’s set the stage; you see a stunning listing on REW.ca, you send it to me (your reliable and responsive Realtor), we go view it and you decide YOU WANT IT. Exciting, let’s get to work!

It’s a 35 year old building with 60 units spread out over 4 floors so we have some due diligence to do in order to ensure this purchase would be a sound investment.

Why? Because when you buy into a strata, you own;

The strata lot which is defined by a strata plan. (Usually a strata lot’s boundaries are at the center of walls, ceilings and floors, but these boundaries will be different if the strata plan shows a different boundary.)

AND a share of the common property and assets (which includes any liability) of the strata corporation that is based on their unit entitlement which is based on the square footage of your unit vs. the total square footage of the strata plan.

It is almost as if you're buying a business as well as your strata lot so the structure and the finances are very important to consider. 

Strata Maintenance Fee 

Due monthly, at minimum this fee funds the annual operations budget by way of the operations fund but should also have an amount set aside to contribute to the Contingency Reserve Fund (CRF). Very rarely will this amount go down and you should prepare for this to increase by at least 1 or 2% annually.

While a low Strata fee may seem attractive, this is only part of the overall financial picture and a low fee may mean below average contributions to the CRF. A 'pro-active Strata' will use the maintenance fee to be diligent about building maintenance and make healthy contributions to the buildings CRF over time which will mean less out of pocket for owners in the long-run. 

Operating Fund

The operating fund is used to run the building including scheduled repairs and maintenance, shared utilities, insurance premiums, etc. and is funded directly by the monthly maintenance fees based on the annual budget proposed and passed by vote at the Annual General Meeting. An older low-rise building’s annual operating budget is about $6/sqft.

Contingency Reserve Fund (CRF)

The CRF is like the strata corporation’s savings account and is used to fund any unexpected or large expenses and projects. By law, this account needs to be at least 25% of the Annual budget (otherwise there may be a drastic increase in maintenance fees or a special levy in order to reach 25%)

Each Strata will have a spending restriction that caps the amount the council may spend on unexpected expenses and amounts above that will require a majority vote at a General Meeting to approve.

The CRF may also be used to bump up the operating fund if that Strata is over budget for the year and the operating fund is inadequate for operating expenses.

An average CRF of an older low-rise building is 97% of the annual operating budget.

Special Levy or Assessment 

This is a payment owed by each owner based on their unit entitlement. A special levy needs to be voted by a 3/4 majority at an Annual General Meeting or a Special General Meeting. This is used to fund necessary projects that either the CRF will not cover or that the owners vote to pay out of pocket to maintain the level of the CRF. The person who owns the strata lot when the vote is passed for a levy is the person responsible for paying that levy, even if they sell the strata lot before the payment is due. Although you may not have to pay a special levy that was recently passed, it is important to note that a special levy was either needed OR was the preferred method of funding a project by the majority of the building because you will be responsible for any special levies passed while owning the lot (whether you vote for it or not).

To determine the above, we are given access to the finances, budget, any recent engineering reports, and Council minutes from the meetings in the last two years of the Strata Corp. When possible we do this before we write an offer or we write it in the offer as a condition, meaning we need to receive and approve these documents before you as the buyer are under legal obligation to fulfill the contract (firm deal).

We also want to evaluate the age of the most substantial items;

Elevator, Parking, Roof, Plumbing and Envelope. 

If the CRF is healthy but none of these have been replaced recently or there is mention in the minutes about upcoming work on these big ticket items that has yet to be voted on; PAY CLOSE ATTENTION.

On the other hand, if the CRF is depleted due to recent upgrades and the big ticket items are in good condition, the strata is contributing over 10% of the annual operating budget to build it back up then this building and Strata may still be a sound investment.

This is just the tip of the due diligence iceberg; another great reason to work with a knowledgable Realtor.

If you found this helpful, send it to a friend who also needs a little Strata Finance 101.

Let's talk Strata bb.

Kade Lacasse

More Information; Government of BC-Understanding Stratas

Understanding BC’s New Home Flipping Tax: What You Need to Know
The BC government introduced the Home Flipping Tax in early 2024, a move aimed at curbing speculative activity in the housing market. This new measure could have significant implications for property owners, investors, and even some regular homeowners. That tax is now applicable so let’s break it down and see what it means for you.

What is the BC Home Flipping Tax?

The Home Flipping Tax, effective for property sales on or after January 1, 2023, is part of British Columbia’s broader effort to create housing affordability. This tax applies to individuals who sell a property that they’ve owned for less than 2 years (729 days), with certain exemptions for life events.

How Does It Work?

If you sell a residential property within 729 days of purchase, profits made from the sale will be taxed as business income. This means the profit won’t qualify for the principal residence exemption that typically allows homeowners to sell their primary residence tax-free, although sellers that owned their home for more than 1 year and used their home as a primary residence at some point during that period MAY be eligible for a $20,000 principal residence exemption.

How to calculate taxable income;
Proceeds from sale of property
(-)cost to purchase property
(-)cost to improve property
(-)principal residence exemption (if applicable)
______________________________________
= Taxable Income

How to calculate tax rate;
If you own the property for less than 366 days, the tax rate is 20%.

If you own the property for more than 365 days and less than 730 days, the tax rate is reduced until it reaches zero according to the following formula:

Tax rate = 20% × [ 1 - ( (Days held - 365) / 365) ]

Exemptions to the Tax
The government recognizes that not all short-term sales are speculative. Some key exemptions include:

• Divorce or separation

• Job relocation (minimum 40 km move)

• Health-related reasons

• Death in the family

• Threat to personal safety (e.g., domestic violence)

• Insolvency or significant financial hardship

• Natural disasters

These exemptions ensure that people experiencing genuine hardships or life changes aren’t unfairly penalized.

Who Does This Impact?

Investors
If you’ve been flipping homes as part of your investment strategy, this tax is a game-changer. Any profit made within the 2 year period will now be subject to the above tax rates, which could make some flips less profitable. This is particularly important for those who rely on the principal residence exemption as part of their tax planning.

Homeowners
Regular homeowners might also be affected, especially if life circumstances force an unplanned move. While exemptions exist, you’ll need to provide documentation to qualify, so be prepared to prove your case if necessary.

Prospective Buyers
For buyers, the tax could reduce speculative activity in the market, potentially leading to less competition and more stable pricing. However, the broader impact on overall housing affordability remains to be seen.

What Does This Mean for the Market?

The goal of the Home Flipping Tax is to discourage speculative flipping and stabilize the housing market. While it might deter some investors, it could also encourage longer-term homeownership, contributing to a healthier housing supply. That said, the tax is just one piece of the puzzle that the NDP’s are adding to try and address affordability challenges in BC.

How to Navigate the New Rules

If you’re planning to buy or sell a home in BC, here’s what you can do to stay ahead:

1. Plan for the Long Term: If you’re purchasing a home, consider whether it’s a place you can see yourself staying in for at least a year.

2. Understand Your Tax Obligations: Work with a tax professional to understand how the Home Flipping Tax might affect your finances, especially if you’re an investor.

3. Keep Documentation: If you think you might qualify for an exemption, make sure to keep thorough records of the life event prompting your sale.

4. Work with a Realtor: Navigating these new rules can be complex, so having an experienced realtor on your side will help you make informed decisions.

Let’s Build Your Strategy

Whether you’re buying, selling, or simply planning your next move, working with someone that keeps up with the newest regulations in housing is crucial. Let’s sit down and develop a strategy that works for your unique situation.

Reach out today:
Email: kadelacasse@gmail.com
Call/Text: 604-401-9199
Book directly into my calendar HERE

Another Big Move: Bank of Canada Cuts Rates Again by 50 bps

The Bank of Canada did it again! On December 11th, they announced another significant cut to the overnight target rate, slashing it by 0.50%, bringing the rate down from 3.75% to 3.25%. This marks the second consecutive 50 bps cut following the October decision and reflects a clear shift away from a restrictive monetary policy away. For homeowners, prospective buyers, and anyone navigating the mortgage market, this is another game-changer.

What Does This Mean for You?

Variable Rate Mortgage Holders

For those with variable rate mortgages, you’ll notice some impactful changes:

• Fixed Payment Variable Mortgages: If your payment is fixed, your payment remains unchanged. However, a greater portion of your payment will now go toward reducing your principal balance instead of paying interest. For example:

  • A $500,000 uninsured mortgage with a 30-year amortization and rate of Variable Prime - 0.56% had a rate of 5.89% before the October cut with a payment of $2962.48. $508 of which went to principal. After October's cut, $717 of that payment would go to principal, and after December's cut $925 is going towards the principal, effectively dropping your amortization from 30yrs to just under 24yrs.

• Adjustable Rate Mortgages: Your payment will decrease with this rate cut to maintain your original amortization schedule. For the same mortgage, your payment drops to $2,650.60, with $613 now going to the principal. This adjustment provides immediate relief to your monthly budget.

  ** Some banks will allow ‘fixed payment’ variable mortgage holders to adjust their payments. If a lower payment aligns more with your goals than shorter amortization; chat with your mortgage broker or call your bank directly to check your options.

Fixed Rate Mortgage Holders

If you’re locked into a fixed rate, this cut won’t impact your payments directly. However, it might be worth revisiting your options if your term is nearing renewal or if breaking your mortgage to refinance at a lower rate could save you money. Consult with your mortgage broker to analyze potential penalties and savings.

Prospective Buyers

• Going Fixed: Fixed rates aren’t directly impacted by these cuts as they follow bond yields. Influenced by recent domestic political uncertainties, such as the recent resignation of Canada's finance minister, and global economic concerns impacting investor sentiment, the bond yields have only seen very slight downward trends when compared to the Bank of Canada decisions . If fixed is your preference, lock in your rate now but keep on your mortgage broker to push for better rates once you're under contract. 

• Going Variable: Your purchasing power continues to grow as variable rates drop. This rate cut boosts borrowing capacity by another 4-5%. With more cuts potentially on the horizon, the trend is clear: Variable borrowers are in a strong position. But remember, as your buying power increases, so does everyone else’s. Acting now can help you beat the rush as sellers with listings that have sat over the holidays may be keen to move on to their next property.

Will There Be Another Cut on January 29th?

Looking ahead, the market is pricing a 60% chance of a 25 bps cut and a 40% chance of no cut at all, based on the forward contracts on the Canadian Overnight Repo Rate Average (CORRA) as of December 28th. Factors influencing this decision include:

• Inflation Trends: Core inflation has been cooling but remains slightly above the Bank’s target range. Further cuts will depend on whether this trend continues.

• Economic Growth: Recent GDP data suggests slowing growth, which supports further easing.

• Global Influences: The Bank is also monitoring international monetary policies, particularly in the U.S., as well as global financial stability.

Should You Wait or Buy Now?

Every situation is unique, but here are some things to consider:

• Ready to Buy: December and January are typically great times to be active as a buyer. This year inventory levels remain high, and many sellers are motivated. Acting now could give you a significant edge over spring competition.

• Waiting for Another Cut: If your down payment or finances aren’t ready yet, there’s potential for rates to drop further. However, the spring market typically brings more competition and potentially higher home prices, offsetting the benefit of lower rates.

• Mixing Fixed and Variable: Some buyers are opting for variable rates now and planning to lock into a fixed rate later in 2025. Discuss this strategy with your broker to ensure it aligns with your financial goals.

Let’s Build Your Plan Together

The recent rate cuts have reshaped the housing market landscape, creating opportunities for homeowners looking to make a move and buyers alike. Whether you're planning to buy your first home, upsize or downsize it’s crucial to have a tailored strategy with an advisor you can trust.

Reach out today to discuss your goals and take advantage of the changing market:

Email: kadelacasse@gmail.com
Call/Text: 604-401-9199
Book directly into my schedule HERE

And What Landlords, Buyers, and Tenants Should Know

The Residential Tenancy Act in BC has recently undergone some significant changes impacting landlords, buyers, and tenants. This is not an exhaustive breakdown of the changes but these are the key changes that could affect the everyday real estate transaction.

Notice Periods
The most significant change is the extended notice period for tenants. Landlords are now required to give a four-month notice to vacate for personal or caretaker use, up from the previous two months. This change came into effect on July 18th, 2024.

It's important to note that notice is still effective on the final day of your rental period (the day before rent is due). So, if you are in a month-to-month lease paying rent at the beginning of the month and receive notice on September 10th, you won't be required to vacate until January 31st, 2025.

However, it seems the Government of BC acted recklessly by announcing these changes without properly consulting the industries impacted. Initially, the four-month notice period also applied to landlords serving notice on behalf of new buyers intending to move into the home and requesting vacant possession. The issue with including primary residence purchases is that rate holds—when a buyer’s lender pre-approves them at a certain interest rate—are typically valid for only 90-120 days, with rare exceptions. For example, if a buyer was just pre-approved at the end of August, their rate hold would expire by the end of December, leaving them vulnerable to rate shifts that could affect their mortgage qualification. Unfortunately, major banks, being national entities, are unlikely to adjust their policies based on one province’s legislative changes so they would not provide any workarounds. While I understand their intention to enhance tenant protections, the originally introduced extended notice period would disproportionately penalize first-time buyers, who have no options to bridge their mortgage from an existing property. 

The solution? After lobbying from mortgage brokers and the real estate industry, the BC Government announced an amendment reducing the notice period for landlords instructed to provide notice for a purchaser when they or their close family member will live in the property, from four months to three months. This amendment was effective August 21st.

So, if you are in a month-to-month lease and your landlord, after a buyer has removed subjects and instructed them to provide notice to vacate, serves that notice on September 2nd, you would be required to vacate by December 31st, 2025.

Fixed-term tenancies can be served notice to vacate, but the three-month notice still applies, and the effective date to vacate cannot be before the end of their fixed term.

Web Portal: A New Tool for Transparency
Landlords are now required to use the Landlord Use Web Portal to generate the Notice to End Tenancy. This creates a tool for regulators to register and track evictions, increasing transparency in the process. Additionally, notices generated due to a new buyer requesting vacant possession will now require a copy of the Contract of Purchase and Sale to be included.

Initial Length of Use
They have increased the length of time a landlord must use a rental unit for personal or caretaker use following the eviction of a former tenant. This period is up from 6 months to 12 months. If a landlord fails to demonstrate personal use or caretaker use for 12 months, they may be liable to pay an evicted tenant 12 months’ rent as compensation.

Dispute Period
The deadline for a tenant to dispute has also increased to;
-21 days when receiving 3 months notice
-30 days when receiving 4 months notice.

The clock starts as soon as the notice is deemed received. (more info about serving notice here)

Landlords: Navigating the New Landscape
Even with the latest amendment reducing notice to three months, selling a unit with a tenant has gotten stickier. Currently, inventory is above seasonal averages, and most investors are on the sidelines due to high interest rates which means the active buyers are looking for vacant possession not taking over tenants.

Landlords should be aware of the challenges they may face when selling a tenanted property, including:
-smaller buyer pool due to expiring rate holds, risks assuming tenancy
-long completion
-not staged well
-inflexible showing times

In a busier market, your property will still move, but what are you leaving on the table?
In slower markets, your property sitting on the market will only lead buyers to look for more of a deal.

Buyers: Understanding the Risks
Don't shy away from a property just because it is tenanted, but make sure you understand the risk of buying a tenanted property. If you're getting good value, need a long completion, or have found a unique property then I understand but otherwise, why deal with the additional stress of a tenanted property?

Tenants: Leverage the New Rules
Yes, your notice period has extended, which is valuable to help you find a home in a typically terrible rental market. But the blessing in this amendment is your increase in leverage. Once you know of your landlord’s intention to sell; using the knowledge that a vacant home will sell easier, you may be able to get more than the Tenancy Act entitles you to...
How you ask?

Cash for Keys, baby! A Potential Win-Win Solution
The term "Cash for Keys" refers to an agreement where a tenant agrees to vacate a property on a specific date in exchange for a payment from the landlord. This arrangement can be beneficial for both parties:

Sellers/Landlords  have a vacant property that they can stage and market which will no longer deter buyers who are averse to the completion length.

Tenants could leave on their own terms with more money in their pocket to help ease the cost of moving and off-set your potential increase in rent.

Final Thoughts
These changes to the Residential Tenancy Act have shifted the landscape for landlords, buyers, and tenants in BC. It's important to be informed about these changes and understand how they may impact your real estate decisions and the best way to make sure you stay informed is to work with a professional that is on top of the latest regulations and helps you make informed decisions.

https://calendly.com/kadelacasse_realtor/

Again, this is not an exhaustive breakdown; you can find much more information regarding Bill 14 by typing "bill 14 residential tenancy act" into your favourite search engine.

Announced the morning of Oct 16, 2023;
The latest housing legislation introduced by the province is aimed specifically at short term housing within the province as municipalities across the BC deal with long term rental shortages causing record increases in monthly rent. 

The Gov't of BC plans to phase-in the legislation over 2 years. You can find the full details at the link below but here are my highlights;

1. Primary Residents Only: The legislation appears to restrict short-term rentals to primary residents, meaning those who live in the property as their main residence. Secondary suites on the same property may be allowed for short-term rentals.

2. Fines and Data Sharing: The legislation includes provisions to increase fines for operators of short-term rentals. It also requires platforms such as Airbnb and VRBO to share data with local and provincial government authorities, which can help in monitoring and enforcement.

3. Host and Platform Registry: The province plans to establish a provincial host and platform registry by late 2024, which is aimed at enhancing accountability in the short-term rental market.

4. Compliance and Enforcement Unit: A provincial short-term rental compliance and enforcement unit is to be set up. This unit will be responsible for ensuring that the rules and regulations are followed by short-term rental operators.

Enforcement is a significant concern, as many cities, including Vancouver, already have bylaws that are stricter than the ones introduced in this Act. Vancouver, for instance, requires short-term rental operators to be primary residents, have a business license, and restricts the rental of secondary suites unless they are the primary residence. However, enforcement has been a challenge in these municipalities and they have been asking the province for assitance.

The BC Hotel Association's report, authored by McGill University Professor Dr. David Wachsmuth, released in September 2023 highlights that a significant portion of short-term rental revenue comes from commercial operators who do not live in the properties they rent out. If the province can effectively enforce the new regulations and penalize violators, homes could return to the long-term rental market, alleviating a bit of the pressure related to long-term rental shortages and rising monthly rents in major municipalities. 

To stay informed on the latest, make sure to sign up for my newsletter.

Kade

To learn more about new short-term rental rules in B.C., visit: https://gov.bc.ca/ShortTermRentals

Full "The housing impacts of short-term rentals in British Columbia’s regions" report found here:
https://upgo.lab.mcgill.ca/publication/strs-housing-bc-2023-summer/Wachsmuth_BC_2023_08_10.pdf

In the first three weeks of working with new clients in the Vancouver market, like clock work; they'll send me an amazing property that popped up in their budget. "Is this place for real? Ideal location, 2 balconies and we'd have a guest room! Tell us this is for real!"

Short Answer: Let’s jump on a call.

Long Answer: It is for real but it may not be for you…

When you purchase a leasehold strata; you do not own the land or the building but are purchasing the rights to exclusively occupy your unit or home through a lease granted by the landlord. The initial length of the term can vary but is typically 99 years and can be bought or sold like any other home up until the expiration date. The landlord could be the City of Vancouver like the publicly owned land in South False Creek and the River District or privately owned land.

The lease may be pre-paid or not pre-paid and due monthly along with your monthly maintenance fees. Upon expiration of the lease, the leaseholder and landlord will either renegotiate a new term or an end to the tenancy depending on the details of the lease.

The positives; Leasehold properties are valued below Freehold properties giving buyers with smaller budgets the opportunity to avoid a commute, stay close to the neighbourhoods they’ve previously rented in and afford a home that is bigger with room to grow for a family. Also, if rentals are allowed then, depending on the area and your downpayment, you may be able to turn a leasehold into a cash-flowing asset*.

The negatives; Leasehold properties will not appreciate at the same rate as Freehold. Where Freehold properties in Vancouver have doubled since 2015, some Leasehold properties with longer terms have seen appreciation from 20-50% while those nearing their expiration in False Creek have seen modest appreciation and even a possible loss with the uncertainty of renewal and the cost of renewal. Leaseholds are also harder to sell as not every buyer is interested in that product.

Barriers; financing is more difficult with leaseholds than freehold. Your lender may have different minimums for downpayment as well as maximum amortization terms (the length of your mortgage) equalling higher payments. Chat with your Mortgage Broker about whether your finances line-up for a Leasehold **


With the above in mind, buyers with a healthy budget that are looking for a way into the market to move up the property ladder or investors looking to leverage credit for equity short-term instead of long term cash-flow should stick with Freehold. But, Buyers with a tighter budget who have location and size as the top priorities should take a serious look at leasehold properties. Your mortgage payments are contributing to your principal and your equity is growing year-over-year even with modest appreciation so they are still a much better alternative to renting.

As always, get a hold of me with any questions by filling in the Let's Connect form below or text/call me directly at 604-401-9199 and let's talk freehold vs. leasehold.

- Kade Lacasse | Vancouver Realtor

* A Cash-flowing asset is one in which the revenue (rent) exceeds the expenses (mortgage+fees)

** If you don’t have a great broker that you can ask about how leaseholds may or may not work for you financially, send me a text at 604-401-9199 and I’ll get you connected Because You Deserve a Knowledgable Mortgage Broker!

Let’s set the stage; you see a stunning listing on REW.ca, you send it to me (your reliable and responsive Realtor), we go view it and you decide YOU WANT IT. Exciting, let’s get to work!

It’s a 35 year old building with 60 units spread out over 4 floors so we have some due diligence to do in order to ensure this purchase would be a sound investment.

Why? Because when you buy into a strata, you own;

The strata lot which is defined by a strata plan. (Usually a strata lot’s boundaries are at the center of walls, ceilings and floors, but these boundaries will be different if the strata plan shows a different boundary.)

AND a share of the common property and assets (which includes any liability) of the strata corporation that is based on their unit entitlement which is based on the square footage of your unit vs. the total square footage of the strata plan.

It is almost as if you're buying a business as well as your strata lot so the structure and the finances are very important to consider. 

Strata Maintenance Fee 

Due monthly, at minimum this fee funds the annual operations budget by way of the operations fund but should also have an amount set aside to contribute to the Contingency Reserve Fund (CRF). Very rarely will this amount go down and you should prepare for this to increase by at least 1 or 2% annually.

While a low Strata fee may seem attractive, this is only part of the overall financial picture and a low fee may mean below average contributions to the CRF. A 'pro-active Strata' will use the maintenance fee to be diligent about building maintenance and make healthy contributions to the buildings CRF over time which will mean less out of pocket for owners in the long-run. 

Operating Fund

The operating fund is used to run the building including scheduled repairs and maintenance, shared utilities, insurance premiums, etc. and is funded directly by the monthly maintenance fees based on the annual budget proposed and passed by vote at the Annual General Meeting. An older low-rise building’s annual operating budget is about $6/sqft.

Contingency Reserve Fund (CRF)

The CRF is like the strata corporation’s savings account and is used to fund any unexpected or large expenses and projects. By law, this account needs to be at least 25% of the Annual budget (otherwise there may be a drastic increase in maintenance fees or a special levy in order to reach 25%)

Each Strata will have a spending restriction that caps the amount the council may spend on unexpected expenses and amounts above that will require a majority vote at a General Meeting to approve.

The CRF may also be used to bump up the operating fund if that Strata is over budget for the year and the operating fund is inadequate for operating expenses.

An average CRF of an older low-rise building is 97% of the annual operating budget.

Special Levy or Assessment 

This is a payment owed by each owner based on their unit entitlement. A special levy needs to be voted by a 3/4 majority at an Annual General Meeting or a Special General Meeting. This is used to fund necessary projects that either the CRF will not cover or that the owners vote to pay out of pocket to maintain the level of the CRF. The person who owns the strata lot when the vote is passed for a levy is the person responsible for paying that levy, even if they sell the strata lot before the payment is due. Although you may not have to pay a special levy that was recently passed, it is important to note that a special levy was either needed OR was the preferred method of funding a project by the majority of the building because you will be responsible for any special levies passed while owning the lot (whether you vote for it or not).

To determine the above, we are given access to the finances, budget, any recent engineering reports, and Council minutes from the meetings in the last two years of the Strata Corp. When possible we do this before we write an offer or we write it in the offer as a condition, meaning we need to receive and approve these documents before you as the buyer are under legal obligation to fulfill the contract (firm deal).

We also want to evaluate the age of the most substantial items;

Elevator, Parking, Roof, Plumbing and Envelope. 

If the CRF is healthy but none of these have been replaced recently or there is mention in the minutes about upcoming work on these big ticket items that has yet to be voted on; PAY CLOSE ATTENTION.

On the other hand, if the CRF is depleted due to recent upgrades and the big ticket items are in good condition, the strata is contributing over 10% of the annual operating budget to build it back up then this building and Strata may still be a sound investment.

This is just the tip of the due diligence iceberg; another great reason to work with a knowledgable Realtor.

If you found this helpful, send it to a friend who also needs a little Strata Finance 101.

Let's talk Strata bb.

Kade Lacasse

More Information; Government of BC-Understanding Stratas