Friday, April 6, 2007

Saanich Going Green

As an Easter gift to builders, it appears as though Saanich has created an incentive for small builders to go 'green'. We applaud this, Saanich can afford it, and quite frankly, we can't see anything wrong with consuming less and producing less by-products. If it takes a bit of an incentive to get the ball rolling, then so be it.

That said, how do you feel about green homes? We can't imagine many people would have any issues with the idea of building more efficient houses, but costs could be a deterrent.

Should Saanich have created an incentive for consumers rather than builders? Are you more likely to buy a green home than one that hasn't been built to meet the same standards?

As first time buyers with a bit of an environmental conscience, we'd love to find something in our price range that fits the ticket. The likelihood of that is nil.

We've looked at the Dockside Green development seriously. We like the ideas and think the location and the amenities would be attractive. But we're not big on the prices, the condo lifestyle and couldn't see ourselves stretching into a townhouse there.

Politically speaking, we prefer incentives to regulations. So we think that providing incentives to builders rather than requiring them to build a certain way is a good thing. But we also think Saanich really missed the boat. Why not provide those rebates to the consumer directly: that way we can reno our house (if possible) to meet the standards? That's how the Federal rebate program works; Saanich could have added-on to make the whole thing really attractive to homeowners/buyers, and go beyond changing light bulbs, appliances and furnaces.

Will you buy green? Will you pay a premium to buy green? Will green be worth more in the RE market?

14 comments:

Anonymous said...

No I would not pay a premium to "go green." However, I would be willing to buy an older house and then invest some money in making it more energy effecient.

By the way, why don't you do a post explaining (roughly) what your financial situation is? What is your combined income? How much have you been pre-approved for? How much of a downpayment do you have? What is your maximum price range for a house?

Our maximum price for a house was $400k, and we had a downpayment was 20k (mostly obtained through the RRSP homebuyers plan). We waited until the market slowed down in the fall and then made an offer on a nice 3br 2 ba house in Saanich.

Anonymous said...

Anon, since you have asked about others I hope you don't mind me asking but was your offer accepted? What did you offer on the house?

Just to give you some info. on us, we have not gone to get pre-approved yet as we aren't looking to buy for at least 2-3 years. Also, we may be doing a self-directed mortgage so won't be involving the bank at all.

S2

hhv said...

S2,

Tell me more about self-directed mortgages, please?

Anonymous said...

A self-directed mortgage is one where you use your RRSP to purchase the home. In effect you are giving yourself a mortgage rather than using a bank or credit union.

Of course, you would have to have built up your RRSP to a large sum that would either cover the purchase of the entire home or a significant amount of say 50% and then blend this self-directed amount with bank financing.

This self-directed mortgage will have to be administered by CMHC and fees will have to be paid.

Since you are borrowing money from yourself and paying the money back into your RRSP, you want the interest rate on the self-directed mortgage to be as HIGH as possible but permissable by Canada Revenue Agency rules - after all you are paying it to yourself.

Since you are borrowing money for an investment. The interest portion of the loan is tax deductible.

If you decide to blend the self- directed RRSP with a bank loan, then you will be able to shorten the time it takes to pay off the bank debt. Since your RRSP will be growing each year from your payments and market appreciation, eventually you will be able to pay off the bank portion of the loan with the growth from your regular RRSP.

It may sound strange, but you have to think like a lender. You want the interest rate as high as possible and the term as long as possible. Which is the opposite from what you want if your're borrowing the money from a bank, where you want the lowest rate and shortest ammortization period.

What you are doing is making your home an investment that pays you rather than a debt you pay to someone else! For example, during the course of a bank loan for the purchase of a $500,000 you will pay back the $500,000 and interest on the debt of some $400,000 for a total of $900,000. If you give yourself a mortage. At the end of the 25 years you will have an unmortgaged home of whatever the future amount is, and an RRSP with $900,000 and whatever the appreciation has been and you will have been able to deduct the interest portion of the self- directed loan from your taxes.

Contact either or all of the following: your financial advisor, lender, and accountant to see if this would be suitable scenario for you and your family.

Siobhan

hhv said...

Cheers, Siobhan.

I'm assuming that one would need to have the vast majority of their purchase price already inside their RRSP to get into something like this.

I like it. Maybe we'll save for the next two years to make this happen (in my dreams unfortunately).

Anonymous said...

Housing is not the beginning and end of setting up your future.

There are three forms of investment:

1) RRSP and non-RRSP (generally considered to be the bond and equity markets.

2) fine arts (ie paintings, antiques)

3) housing

Contrary to popular belief, as you start in your career you should be aggressive in the equity markets - at a young age you can afford to lose and gain frequently. Furnish your rental home with fine art and antiques, such as that 1965 corvette and keep it in the garage, all of which can be sold in the future at auction (no capital gain taxes here). Build up your RRSP - give yourself a mortgage. Marry once for love and twice for money. Retire to a beach, always drink expensive scotch - and most important of all, always, always use sunscreen.

Siobhan and S2

hhv said...

S2&S:

Sage advice. We're DINKS. We're not so much focused on living in the lap of luxury; we just want to make sound financial decisions and attain a small measure of financial security.

We're both heavy into equities. I have a stomach for more risk than my partner, but she puts more away than I do at this point.

I'm two months from graduating. We've managed to make between $60-70K combined for the past two years, I'd expect that to change to $80K this year and close to $100K next. We'll have some student related debt to retire by 2009.

We're pretty cheap at this point. We started this blog because we have to move at the end of this month and were trying to sort out if we could buy without having to double our 'rent'. We had thought that a mortgage helper and moving a friend or relative in with us for a year or so would mean our 'rent' wouldn't increase.

We haven't found any properties that come close to making that scenario a reality. So we'll wait. We may regret it, but I'm happy with our investments in equities at this point and think we'll do better there in the next couple of years than we would in RE.

Anonymous said...

At any point in your life, you can buy a home.

Someone once asked me when should they buy a home. I told them when you turn 65 and retire - then you buy it with cash. Of course, this is an extreme, but really if your're under 35 and without children housing should not even be in your portfolio. Start investments compounding for you early in life, so that the money works for you instead of you working for the money.

You can't eat door knobs and carpets. Many Oak Bay pensioners are sitting in their $750,000 homes but are pinching pennies for groceries. Tell me why, oh why would you give up an investment that pays you - PAYS YOU - 10 percent to take on a debt that costs you 5 percent. That's an absolute loss of 15 percent!

Stop following the herd thats heading for the cliff.

So, worse case scenario and housing continues to rise ad infinitum. That Oak Bay home is now a billion dollars and your're pinching pennies for groceries. Or, you have developed an income stream from your investments to allow you to live in Victoria for six months and Barbados for the other six. Tell me - which is the better scenario?

Siobhan

Anonymous said...

SEZ WHO???? ANON said: "Furnish your rental home with fine art and antiques, such as that 1965 corvette and keep it in the garage, all of which can be sold in the future at auction (no capital gain taxes here)."
That is incorrect advice. First, any item you sell, on which you make $1000 or more, IS considered a capital gain, unless the Tax Law has changed lately without my knowledge! Half your profit is supposed to be included and reported on Schedule 3 (Capital Gains),as income when filing for the year the asset was sold.
Secondly, I disagree with advising struggling workers to invest in art and collectibles, unless they're picking up very desirable and therefore unaffordable artwork. The danger is that the collectibles market changes so frequently. Yesterday's pricey items are today's garage-sale junk in many cases.You have to study those investments really well, and get expert advice.

Anonymous said...

Oops, we were mistaken. Thanks for the info. I just looked on the Canada Revenue Agency site at Schedule 3. Thank heavens we haven't yet sold any of our aquistions or we would have been in trouble with the tax man and that is never a good thing. We'll definately talk to our accountant about Schedule 3 when the time comes.

Having said that though, I am still willing to have our various investments and pay capital gains on those than throw all our money into a house that just costs and costs.

I really believe that the best thing young people could do is set up their retirement fund early and get that all squared away and then buy a house. So often, once a house is bought that is where the money goes and there is not a lot left over for saving for the future.

S2

JMK said...

Since you are borrowing money for an investment. The interest portion of the loan is tax deductible.

Hi S2 and Siobhan,

Is there more information on this? I don't understand how administering your own mortgage makes the interest you pay "investment interest" rather than "mortgage interest". The non-blog articles I found on the internet do not mention this tax saving (i.e This article doesn't mention it and gainsays that you can charge any interest rate you want)

I understand that this is a nice way to keep your money sheltered while still being able to buy a house, particularly for non-first time buyers, but the way you've described it, it sounds like a pretty big tax loophole.

And it has the disadvantage that you've tossed all your money into your home. Even with the tax benefit, you'd probably be better off paying 25% down, letting the bank loan you the rest at 5% and keep the bulk of your RRSP growing at 10%. But I haven't run the numbers on that.

Thanks for any further info you can provide.

Anonymous said...

As a developer, I'm curious about what kind of innovations we can do to a house to make it more affordable. WOuld you be interested in a house where the interior was only finished sufficiently to allow for an occupancy permit? And finish it off yourselves over time as your funds/energies allowed? This might mean no cabinetry....no fancy light fixtures....other items that would not stop you from living in the house but it would not have all the finishing details that often drives up the price of a home. A second floor could even be entirely open - no walls no doors just a support wall as needed.
If a developer could shave 50-70,000 off a house...is there any appeal to this or are lifestyles today far too busy to take on this kind of 'project'?

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