Advice on Real Estate

[Jawbone Hill]

Hi all,

I don't usually post here but I come and read the threads on a regular basis, and I'm constantly impressed with the depth of the discussion that goes on here. I've seen some really great adivce posted for other problems, so I thought I'd post mine and see what your great minds have to say!

In September of 2005, I bought a one bedroom condo in a development that has yet to be completed (I should have possession within the next 4 to 6 months). Since that time, the potential value of that condo has doubled. I've based that on what my floorplan has been selling for in earlier phases that have already been completed.

Also in that timeframe, I have married a wonderful woman and we're looking to start a family. We're currently renting a two bedroom condo, and have recently found out our landlords are selling the place in the fall (we're currently month to month). We love the place we're in and we feel a one bedroom place would be too small for us if we were to have a child. So, we're trying to figure out a way that we can buy this place based on the equity that we've built up in the condo that has yet to be completed.

So, I guess my first question would be if anyone knows if this is possible or not. I know people can buy new places before selling their old place, but their old place is usually a completed property! I'm curious to see what ideas or solutions people come up with. I also have the opportunity to borrow money from my parent's line of credit to use as a sort of interim financing.

Thanks for any advice you may have! Feel free to ask any questions, as I'll be checking back on this post regularly!

Scott

[Byrns]

I'm pretty sure you can't sell\mortgage the unfinished condo until you actually have the title.

Why not give your landlords a deposit for this place, continue to pay them rent, and tell them you won't take posession until after your unfinished condo sells. I think if you tell them that you'll do the deal privately they'll go for it. The market has cooled off, and they would be saving thousands in real estate comissions.

[Sylvanfan]

So are you talking about doing a refinance on that other property to get you some down payment money to try and buy the place you're in? Do you want to keep that one bedroom condo that is yet to be completed and buy the two bedroom unit that you are in? Is there a policy with that one bedroom condo that you can not sell it for a full year after it is complete? If your dual income is sufficient to carry the mortgage values for both property's I don't see why you wouldn't be able to do it. I would certainly check with a tax expert though you don't want to be in a position where you're having to pay capital gains on that one bedroom condo starting at the price you first bought it for.

[Jawbone Hill]

Thanks for the quick replies.

Byrns: we've talked to the landlord and they're definitely willing to sell privately. However, I also know they're anxious to reinvest that money into a house to rent so they'll want to sell quickly. They've told us that if we want to wait, they'd be willing but they're asking price would go up. We figured that paying interest on the interim financing would cost us less than what they'd want if we waited.

Sylvanfan: I guess we're trying to find some interim financing to be paid back once we sell the one bedroom condo. We don't want to keep both, and we've decided that the one bedroom would be too small to start a family in. I've poured over the condo forms I signed, and the only thing I can't do is sell before the place is completed. We have checked with an accountant so we're not worried about the capital gains.

[ken0042]

Just playing devil's advocate a bit here......

In less than 2 years you discovered that your condo is too small. So your solution is to buy a slightly bigger condo? Have you looked at other options like a house? What about schools? Where is the condo you are looking at buying- is it possible that while you are comfortable there, will it be a good location to raise a kid? What about access to the car? With a kid/seat/diaper bag how handy will it be to park, walk to the elevator, etc as opposed to walking up the driveway.

Me, I would move into the new place at first when its built, and then list it right away. That way if it takes 4 months to sell you aren't in any sort of a pinch. Then when it sells go and buy the place you want.

[BlackArcher101]

Personally, I would continue renting month-month then move into your new condo. It's not like you have a kid yet, and while living there you can then search for a house that you want since you have time.

[arsenal]

I thought you could sell said property before even taking possession and pay off the mortgage, claim capital gains, and be done with it? I could be wrong though.

[OracleOfCalgary]

The only way out for you would be if you could sell your interest in the condo as an "Assignment" which I have heard of in Vancouver, but I don't believe the developers typically allow this in Calgary.

You can't mortgage the property because you don't have legal title to it. In fact, you may not even get title for your condo until quite some time after you take physical possession. It is not uncommon for developers to allow you to take possession of your unit well before they are in a legal possession to pass title to you. (The entire project/complex must be finished before this can happen, and you essentially rent from them until they are done.)

[photon]

For a while developers weren't allowing assignments and even requiring an affidavit that you would move into the property, but many I've spoken with have gone back to allow assignments.

I've never done one though, so I'm not sure if you could sell the place through assignment and get your money right away, or if you'd still need to wait until you get title.

[Jawbone Hill]

Thanks again for all the replies

One of the problems with moving into the one bedroom condo is that for a few months we'll essentially be homeless. If our landlords sell the place this fall, we'll get our 30 day notice and be without a place of our own. My wife's family have graciously offered us a room at their place, but they have a large family and a small house. And, to be honest, it would be really nice not to have to move at all.

Another problem with our one bedroom condo is location. Our condo is located right by Anderson station (Gateway Southcentre), whereas we're currently up in Arbour Lake. My wife's family lives in the northwest, our church, my wife's work, and all of our friends live in the northwest. While the distance isn't horrible, to have to travel back and forth across Calgary daily would be quite taxing on a one car family.

In terms of selling the place, I know that we cannot sell until we have taken possession. However, there seems to be no restrictions once we have the place. We definitely don't have to wait until the building is finished, as there are other condos in earlier phases of the complex that have been listed and sold.

Currently we're only interested in older two bedroom condos b/c they are in the same approximate price range as our new one bedroom condo. We want to be a single income family (as tough as that can be now in this city), so we're trying to keep our costs down as much as possible right now.

Anyways, thanks again for all of your thoughts and advice! It certainly helps to hear other people's perspectives on the situation.

[Winsor_Pilates]

You do not own that developing place right now. You only own a right to the title upon completion. I don't believe any creditors would give you loans against it for that reason. It is officially not yours yet.

as for assignments, you are basically transfering that right to get the place. The assignee still won't own the place until completion and if they fail to fulfill on the final payments you are still liable. Many people think once they've assigned they are scott free, and this is not the case. Also, there is restrictions to advertising assignments, periods for doing assignments and usually fees for assignments. Something like 1.5% of the purchase price but it varies.

check the assignment section in the addendum to your contract for more details about your specific contract.

I do assignments/contract stuff for a presales company, so feel free to PM me if you have any specific questions about your contract.
which developement is it by the way? I may even have your contract in my office and know everything about you. (insert evil laugh)

[Winsor_Pilates]

Originally Posted by photon

For a while developers weren't allowing assignments and even requiring an affidavit that you would move into the property, but many I've spoken with have gone back to allow assignments.

I've never done one though, so I'm not sure if you could sell the place through assignment and get your money right away, or if you'd still need to wait until you get title.

The assignee pays you for your deposits and a "lift" negotiated between the 2 of you. so basically you do get your money right away if that's how you negotiate it between yourself and the assignee and then they assume the rest of the balance still owing.
The beauty of an assignment if done right, is that you never even need to get a mortgage. You just need the 10% or so for deposits and then you enjoy the lift if the value goes up.

[ken0042]

Originally Posted by jinxx123

Thanks again for all the replies

One of the problems with moving into the one bedroom condo is that for a few months we'll essentially be homeless. If our landlords sell the place this fall, we'll get our 30 day notice and be without a place of our own. My wife's family have graciously offered us a room at their place, but they have a large family and a small house. And, to be honest, it would be really nice not to have to move at all.

I was sure that a landlord must give you 90 days notice, and if they are evicting you to convert to condos or renovate they now have to give you 1 year notice.

Now I'm not an expert on the following subject, but if you sell the rights to your uncompleted condo, doesn't that fall under capital gains? So if I'm right, and you sell it making $50K and get taxed @ 25%, you lose $12.5K by doing it that way. (Somebody please tell me if I'm right or wrong.)

[Cowboy89]

Originally Posted by arsenal

I thought you could sell said property before even taking possession and pay off the mortgage, claim capital gains, and be done with it? I could be wrong though.

Depends on if the purpose is to be done with it or effectively manage money. Sounds like the poster of the thread still has options and is fairly flexible. It's probably best if he lives in it for a year so he can claim it as his primary residence and thus not have to pay capital gains on it at all, and then at that time go out and shop for a new home because the capital gain if he sells it for double ACB will be over $100,000. Pay tax on half of that gain and you're out a lot of money. That's leaving a lot of cash on the table for a quick fix.

[Nikki]

Originally Posted by Cowboy89

It's probably best if he lives in it for a year so he can claim it as his primary residence and thus not have to pay capital gains on it at all

Do you have to live in it for a full year to avoid paying the tax?

[photon]

Originally Posted by Winsor_Pilates

The assignee pays you for your deposits and a "lift" negotiated between the 2 of you. so basically you do get your money right away if that's how you negotiate it between yourself and the assignee and then they assume the rest of the balance still owing.
The beauty of an assignment if done right, is that you never even need to get a mortgage. You just need the 10% or so for deposits and then you enjoy the lift if the value goes up.

Awesome thanks. Yeah I've spoken with a few people that have done that and I wasn't quite sure how it worked.

[Jawbone Hill]

In terms of capital gains, I've talked to my brother in law who is an accountant and has taken tax courses fairly recently, and he explained it to me this way...
- One Bedroom Condo (bought but unfinished) = Condo A
- Two Bedroom Condo (that we are renting now, hoping to buy) = Condo B

In year 1, we purchase Condo B while waiting for possession of Condo A.
In year 2, we take possession of and sell condo A.
In year 5 (way down the road) we sell Condo B.

In year 1,3,4 & 5 we list Condo B as our primary residence (no secondary residence). In year 2, we list condo A as our primary residence, with condo B as our secondary residence.

From how he explained it to me, we would be taxed on the capital gain of condo B for 1 of 5 years, which is much better than being taxes on the entire gain of condo A.

Hopefully this makes sense... both my dad and I had to listen to him explain it twice before we could make sense of it. Logistically it makes sense, but when has Revenue Canada relied on logic?

As an aside, capital gains tax is a really frustrating tax! We didn't do this to try and make a quick buck - we did this so that we'd have a place to live in Calgary that we could afford. So, on a certain level why should I be penalized when all I want to do is reinvest in a place where I can actually afford to have a family? Sorry... little rant...

Thanks for all the advice guys... this is great stuff!

[Cowboy89]

Originally Posted by Nikki

Do you have to live in it for a full year to avoid paying the tax?

My bad. You don't have to live in it the full year, but you must actually live in it for 'some time' during the year. However the cavet being that if you just do a quick flip could have implications on the 'number of years of principle residence' on your next property and would effect its taxation when that one's sold. Which could be soon if a two-bedroom apartment isn't sufficient for a larger family.

http://www.cra-arc.gc.ca/tax/individ...hat/how-e.html

[photon]

Originally Posted by ken0042

I was sure that a landlord must give you 90 days notice, and if they are evicting you to convert to condos or renovate they now have to give you 1 year notice.

Good call, yeah the landlord has to give 90 days notice.. though he did say about it being sold "in the fall", so that may have been the notice.

And yes too to the part about renovating, it has to be 1 year notice and no rental increases are allowed during that year.

For the capital gains, that's a bit of a grey area... your example makes sense, but I've spoken with people who did that and still had it denied because if you are buying it for the purposes of selling it, that's not an investment it's a business and fully taxable. But given your life situation change I don't think you'll have a problem with that.

[Nikki]

Originally Posted by Cowboy89

My bad. You don't have to live in it the full year, but you must actually live in it for 'some time' during the year. However the cavet being that if you just do a quick flip could have implications on the 'number of years of principle residence' on your next property and would effect its taxation when that one's sold. Which could be soon if a two-bedroom apartment isn't sufficient for a larger family.

http://www.cra-arc.gc.ca/tax/individ...hat/how-e.html

Phew, thanks! You had me worried.