As many of you know, at the end of the month I’m moving to Brisbane, Australia, to live with my fiancee. Any Australians in the crowd likely know that interest rates in Australia are much higher than here (around 7% I believe) and most of the country also happens to be in a housing boom.

My fiancee’s lease expires at the end of June, and we’ve decided to move into something a little bit bigger with my arrival at that time. We’ve already started looking at places to rent which are currently available and one of the major things I’ve noticed is that a number of places will list the weekly price and in the description write “price to increase x number of dollars in July 2008″. This is incredibly frustrating, but so normal in the area. My fiancee’s rent went up $15/week recently, and he’s far from the only one.

I just find it horribly annoying that places are advertising the lower price then have listed that they’re increasing the rent $20-$30 in the next couple of months.

Apart from this rant, however, I will add in a lesson about renting: always search early. We are currently looking not only to see what’s generally on the market at the price we’re looking for, but also to pick out a few potential places we like. When we find one of these, we bookmark them. In a month or so, when we’re seriously ready to find a new place, we’ll be going back to these saved properties: if any are still on the market, our options for negotiation are much better. Even though the market is booming there is still a vacancy rate and some very nice places are in less desirable locations (such as near a major road) may not be filled. Since the owners want to be paid as soon as possible, if the place has been on the market for a while, they may accept a $20-$30/week discount in exchange for us moving in immediately. A $30 per week discount would save us $1500 on the year.

While it’s not always possible to know when you’ll be moving, if you do know and you’re looking to rent elsewhere, you should always look ahead of time in the hopes of finding a property that won’t be taken. It can save you a fair chunk of money every year! It’s tougher in markets like Brisbane’s, with a very high occupancy rate and virtually impossible in Vancouver, but there are a number of areas where searching ahead and then getting a discount is very feasible.

Popularity: 2% [?]

I’ve seen a number of people in a variety of forums recently mention “well I could buy a house, the mortgage payment would only be a few hundred dollars more than my current rent”. Unfortunately, what many people don’t realise is the associated costs of home ownership. Here are some of these costs which you should consider in your pre-purchase budget:

Before you move:

• Down Payment: While it is very possible to get a home loan without a down payment these days, having one brings a number of advantages: first of all, you’ll pay less. If you purchase a house at $250 000 with no down payment, you’ll be paying $1600 per month (at 6% interest). However, with a $25 000 down payment, you’ll only be paying $1439 per month, saving almost $200. This will save you an enormous amount of money. Also, the bank is more likely to give you a better rate if you have a large down payment, which can reduce your costs. Having a down payment is definitely a good idea. I would strongly recommend having at least $5000 to put down.
• PMI: However, if you don’t have a 20% down payment, you’ll likely have to pay PMI Insurance, which essentially insures the loan for the bank if you are unable to make the repayments. This will have to be factored in to your budgeting as well.
• Closing costs. These are generally 2-7% of the value of the home you’ve purchased, and have to be paid before you move into the home. This includes taxes, title insurance, financing costs and other settlement costs.

While you move:

• Furniture. If you’re going from a bachelor apartment to a 2-or-3 bedroom house, chances are you’re not going to have enough furniture to fill the place. You will most likely end up in IKEA, trying to find some stuff to fill up the space, and it will cost you money. If you do have the willpower to not purchase anything else, that’s excellent! You’re part of the minority and you can ignore this part.
• Moving costs: If you’re moving across the country this can get expensive, especially if you’re not the type to rent a budget truck and hire actual movers.

After you move:

• Property taxes: Many people completely forget that they have to pay taxes on their property. Furthermore, as your home’s value increases, so do your property taxes. While there may not be a huge risk of that if you’re in the USA, in certain parts of Canada you can be paying a significantly larger amount of money in the future for your property taxes.
• Maintenance costs: Things break down in houses. Unfortunately, now that you own yours, it’s not up to your landlord to pay those costs anymore. You’ll need to be able to spend a little bit of money when something inevitably goes wrong, and you need to budget for that scenario.
• Insurance: you need fire insurance, flood insurance, etc. These costs can add up, and they are required. Be sure to shop around and make sure you do some research before purchasing any sort of home insurance.

There are a number of costs involved in home ownership on top of the actual mortgage payment. You need to be sure that you had adequate savings to be able to afford a home and that you will be able to continue the repayments in the future. It’s entirely possible: millions of people have done it. You just need to step back, look at the big picture, and perhaps buy a townhouse instead of a house, or a smaller one which in ten years you can upgrade from. Just consider all of the costs, for your financial security’s sake.

Popularity: 9% [?]

Real Estate Investment Trusts, or REITs, are becoming a more popular investment these days for people looking for an alternate source of dividend income. In order to qualify as an REIT, a company must pay out at least 90% of its taxable income to investors. This prevents the trusts from having to pay corporate income tax. This allows investors to invest in these funds as though they themselves owned the property.

It is a great way for people to invest in Real Estate without actually owning a few properties themselves. In Canada, RioCan is one of the largest Real Estate Investment Trusts around. One of the strip malls in your area is probably owned by them. There are three main types of REITs:

1. Equity REITs: These companies purchase properties such as houses, apartment complexes and commercial buildings and lease them to companies in order to generate a cash flow. This is what most people think of when told about Real Estate Investment Trusts. They function much in the same way as individual Real Estate investors, but on a much larger scale.
2.  Mortgage REITs: This form of Real Estate Investment Trusts invest in mortgage securities. These companies invest in long term bonds by using short term funds, and make money from the differences in yields. These companies make a lot of money when times are good, but as soon as that yield curve flattens, or decreases, they lose money. These are much riskier investments, and not a good option in today’s market.
3. Hybrid REITs: As the name suggests, these are Real Estate Investment Trusts which hold a combination of Mortgage and Equity REIT investments.

Real Estate Investment Trusts generally make for a good investment, as does Real Estate in general. Dividend income is relatively stable (as would rent be if you owned an individual investment property). If you’re looking to a good alternative for dividends from a different source than stocks, I would suggest looking into a well-managed Real Estate Investment Trust.  However, I would stay away from Mortgage REITs for the time being, until the yeild curve increases favourably and the market in the United States stabilizes. Invest only in Equity REITs for the time being, unless you have a very high tolerance for risk.

Popularity: 14% [?]

The other website that I run is Real Estate related, as that’s one of my biggest interests. One question I get asked all the time, being a Canadian, is “do you think our housing prices are going to drop like the American ones did?” The answer to this is quite simple: absolutely not!

While over the next few years we may see a slight correction in the market due to the recession which it would be silly to say Canada will avoid, we won’t be seeing anything like what is happening in the USA, mainly for one reason: Canada never had sub-prime mortgages, at least not at a mainstream level like what has taken place in the United States.

Sub-prime mortgages offered people who otherwise wouldn’t be able to afford a home the opportunity to buy one anyways. This artificially inflated demand, which created upwards pressure on prices and led to high housing prices in the USA. Canada has also had a housing boom, but it wasn’t artificial, the economy has been good and as such people have been buying more.

In short, while the American demand was artificial, Canada’s is very real. We will likely see a slowdown in growth, and potentially even a small decrease in housing prices, but it definitely won’t be for the same reason as the American real estate market is in trouble.

Popularity: 11% [?]