Edmonton Real Estate Blog

NEW YORK (CNNMoney.com) — Home remodelers are getting less bang for their bucks. For the fourth straight year, renovation jobs have added less to resale values relative to their costs, according to an annual Remodelling Cost vs. Value Report released this week by the National Association of Realtors.

The average remodelling job cost $50,908 in 2009 and added $32,497 to the value of the home, a ratio of 63.8%. That was down from a cost-to-value ratio of 67.3% in 2008, when the average was $49,866 and the added value was $33,568.

One common renovation, a mid-priced bath remodel, for example, runs an average of $16,142 and adds only $11,454 to the resale value of a house — recouping just 71% of its cost. In 2008, the same job cost less — $15,899 — and typically added $11,857 to the home’s value, recouping 74.6%.

The most financially successful jobs are smaller-scale, lower-cost renovations that improve the exterior appearance of homes. In this down real estate market, curb appeal is king.

“Once again, this year’s report highlights the importance of a home’s first impression,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

Ron Phipps, a real estate broker in Rhode Island, said how the house looks from the outside is more important than ever.

“If you’re driving down the street and the house doesn’t have great appeal, it doesn’t matter how nice it is inside,” he said.

But here’s the kicker: Clients are savvier than ever in their shopping. Even though the costs of home improvements are less likely to be returned on resale than they have been in prior years, sellers may still have to bite the bullet and do the remodelling if they want their house to sell at all, he said.

“It’s kind of intriguing,” said Phipps. “Buyers are using the unimproved houses to negotiate lower prices, but they wind up buying the remodelled homes.”

So, if there are two similar houses in the area, buyers will use the listing price of the one that has not gone through a metamorphosis to get the seller of the renovated house to slash their price. Buyers want to pay for the caterpillar but get the butterfly.

Seller must play along if they want to make deals. “You get to sell the house more quickly if you do the renovations,” Phipps said.

Biggest pay-offs

The major job that returns most in resale value is an upscale replacement of siding using fibre-cement. The job costs an average of $13,287 but increases home value by $11,112, or 83.6%. A vinyl siding replacement returns 79.9% of costs.

Adding a basement bedroom is also fairly cost effective, averaging $49,346 but adding $40,992 in value, an 83.1% return.

“Increasing liveable square footage with a new deck or an attic bedroom is usually more valuable than just remodelling existing space,” Phipps said.

The return on investment for some jobs varies greatly by region.

In New England, where winter are long and cold, vinyl window replacements reap a better return than they do in the warm South Atlantic region, where poorly insulated windows don’t mean as much expensive heat leaking away.

So, although replacement windows cost more in New England — an average of $11,155 — they add $9,152 to home values there, recouping 82.3% of their cost. In the South Atlantic states, they cost $9,705 but add just $7,417 to home values, 76.4% of their cost.

On the other hand, buyers in the South Atlantic seem to reward sellers for adding living space more than they do in New England. Maybe thrifty Yankees hate having to heat those extra rooms.

Finishing a basement returns 84.4% of its $55,357 cost in the South Atlantic and only 64% of the $65,715 New Englanders spend for the job.

Among the remodelling jobs faring the worst in return on investment were large, upscale kitchen remodels. They cost an average of $111,794 in 2009 and added $70,641 in recoupable value, just 63.2%.

That was down a whopping 7.5 percentage points from their 70.7% return on investment in 2008 . At the height of the housing boom, in 2005, upscale kitchen renovations returned more than 80% of their costs.

“A lot of the things that, historically, had huge value, don’t have as much today,” said Phipps. “If you want to redo a kitchen, it may no longer make as much sense to use upscale appliances — Viking ranges, Sub-Zero refrigerator. Buyers may not pay any more than they would for a home with GE appliances instead.”

Of course, most remodelling jobs are done to please homeowners. Any increase in home value is a bonus, not an end in itself. But for anyone thinking of selling in the near term, keeping an eye on the bottom line is always a good idea

By Les Christie CNNMoney.com

Well I hope you all had a Happy Holiday!! Now it is time to start thinking about what might happen in the New Year. Current data that I use to forecast the market are skewed right now because of the holiday season so we will wait until we have new data next month to see where the market is going.

It seems the consensus that home values will go up in the New Year, but I don’t think that it will be as much as most people think.

Yes, there are parts of Canada that the market is really getting hot again – but that is only because their home values had dropped more than we had, and their economies were more depressed than what we had experienced here in Edmonton, and Alberta for that matter.

The recovery in the USA isn’t going as well as most people had hoped, and that will slow down any recovery we have here in Canada as they are our biggest trading partner.

I think we will more likely to see a 5% increase in home values as that would be more realistic. We might be able to get lucky and get up to 10%.

But this all could be brought to a halt or slow down as the finance minister is worried that Canadian people have taken on more debt than they ever have in the past. He is thinking about possibly making changes that will affect mortgages and real estate.

Some of the changes they are considering are raising the amount of down payment up from the current 5% to at least 10%. They are also talking about shortening the amortization period from the current 35 years. Another expectation is that the interest rates will be going up this year.

These factors will have a great impact on the ability for people to buy homes, especially for first time buyers. They will now have to wait longer to save for a down payment and they will now qualify for less of a home because of the lower amortization period.

The real estate cycle starts with the first time buyer. They need to get into the market so that everyone else can sell their home and move up into a bigger or more expensive home.

In my opinion if any of these changes are implemented you can expect the real estate market to slow down and curb the chances of valuations to go up.

So if you are a first time buyer I would advise you to do everything in your power to buy sooner than later. We might be able to help you with this process including helping you to get pre-approved with the lowest rates possible ( in many cases lower than the banks), and we can send you a first time buyer package.

To receive the package call Kate at my office at 780-643-8151 or send her an e-mail @ teamleadingedge@shaw.ca

Lets see what this month will give us and hopefully we will have a better indication as to what we can expect in this springs marketplace, and that is my two cents… Serge

Having kids? Here are 10 money tips to guide you.

It can be expensive to have a kid, especially saving for their education. Here are some tips to help.

After entering the work force and getting married, the next stage to start in life for many people is parenthood. Get the wallets out for this one. Parents have to dole out cash to insure yourselves against mortality risk, to start a college fund for the children, and to buy a family home.

These imperatives call for smart investment decisions – choosing where to allocate your funds to maximize returns for a given level of risk.

Here are 10 tips to help out with the decisions. They might not turn a parent into a Warren Buffett but could nonetheless leave their kids saying: “Thanks, Mom and Dad!”

1. To insure or self-insure?

“One of the first things I did when I found out my wife Edna was pregnant with my eldest daughter was to rush out and get some life insurance,” notes York University professor Moshe Milevsky. As he discusses in his book, Wealth Logic: Wisdom for Improving your Personal Finances , his own father had died early without life insurance while several of his children were still dependent on his income.

Mr. Milevsky and his siblings were nevertheless spared destitution because their father had accumulated a sizable estate through frugal living and investing in a diversified portfolio of financial assets. “In the insurance lingo, my father had decided to self-insure,” Mr. Milevsky reports.

Self insuring can be riskier than buying life insurance right off the bat. If the father had died earlier, his estate might not have been sufficient. However, someone who had aggressively saved prior to marriage (see Part 2 of the Investing for Life series: Getting married? Ten money tips ) would have minimized this early-stage risk (with a will in place). An aggressive saving and diversified investing plan early in a marriage might be another option for couples with frugal tendencies and an aversion to insurance premiums.

2. Best place for an education fund

One of the best places for a child’s education fund is inside a registered education savings plan (RESP). The government throws in grants of up to $7,200 through the Canada Education Savings Grant (CESG) plus additional grants for low-income families. Funds compound tax free and are taxed at the child’s lower marginal rate when they are withdrawn for post-secondary education.

It helps to become familiar with how the plans work. For example, some have higher administration fees than others. And not all providers transfer the low-income grants into the plan – so if your family is of modest means, “first ask the provider if they offer the extra grants before you sign up,” warns Mike of the Four Pillars blog.

In short, it is a good idea to know the nooks and crannies of RESPs. Sources include the RESP section on the Four Pillars blog, online discussion forums, CanLearn, and Human Resources and Skills Development Canada. And get an early start on opening an RESP to give time for the compounding of returns to work.

3. What will the kids think?

Some parents believe in a conservative approach when investing for their children’s sojourn in the halls of higher learning. Lower returns are acceptable to them as a trade-off for minimizing the risk of losses – something their kids might not look kindly upon.

“I look at it like I am the trustee of the funds and have a responsibility to be prudent with the investment choices,” explains Jim Yih, a fee-only financial adviser with financial firm Retirement Think Box in Edmonton. He has put half of the RESP funds for his four young kids into a balanced mutual fund and the other half into fixed-income instruments.

In the end, whether a parent goes with a high or low allocation to volatile investments such as equities is a matter for risk tolerances. Those who go with higher allocations will likely wind up ahead of the game given the superior long-run returns of stocks – see Jeremy Siegel’s Stocks for the Long Run – but the price of admission is a greater risk of ending up with sub-par returns.

4. Become a couch potato

A popular choice within the Canadian personal-finance blogosphere for investing RESP funds appears to be the Couch Potato Portfolio. It spreads money over a diversified basket of low-cost index funds. According to MoneySense magazine, the “classic” version has generated average annual returns greater than 10 per cent over the past three decades.

One of the more popular instruments for implementing the Couch Potato portfolio in an RESP is the TD e-Series Funds, a family of index mutual funds only available online – but at the lowest of annual fees for mutual funds. The Pre-Authorized Purchase Plan (PAPP) allows investors to automatically invest small amounts at regular intervals, without commissions.

The Couch Potato Portfolio from the author of the Million Dollar Journey blog is diversified across Canadian equity (30 per cent), U.S. equity (30 per cent), international equity (30 per cent), and Canadian bonds (10 per cent). It’s rebalanced annually. At the 10-year mark, the asset mix will begin a transition to a more conservative stance, which by the 18th year it will consist of guaranteed investment certificates (75 per cent) and money-market funds (25 per cent).

5. Automate asset shifts

Shifts in the asset mix of an educational fund from the aggressive to conservative, as described in the above tip, seek to maximize returns while controlling for the volatility of equities as your children’s university or college enrolment dates approach. Target-date funds automate this shift in asset mix. An example is the RBC Target 2025 Education Fund.

They offer the convenience of one-stop shopping to investors who don’t have the time or inclination to do their own research. In return, there are some trade-offs. One is higher fees. Another is that the fund’s asset mix may not be suitable for a family.

6. Fine tune the asset allocation

Mr. Milevsky urges investors to think of their total wealth as including their human capital (discounted value of salary, wages, and other income earned over one’s working life). “While conceptually this asset is different from your tangible, financial assets, it should be considered and diversified in tandem with your financial capital,” writes Mr. Milevsky in his book, Are You a Stock or a Bond?

Thus, the rule of thumb is to have an allocation to stocks equal to “100 minus your age” can be fine tuned. Couples with secure jobs, like tenured professors, could allot more to equities than what the rule suggests for their age group. Couples with variable commission income, such as stockbrokers, should go with lower equity allocations.

Another consideration is that the age-related rule of thumb is usually applied more to investing for retirement, where the investing horizon is 25 to 40 years. For children’s educational funds, the horizon usually runs from 10 to 15 years, which is less time for the superior returns on stocks to take shape. Lower equity allocations may perhaps be more prudent within this time frame.

7. Put those child benefits to work

Many parents funnel the Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit (UCCB) into RESPs to get the government grants. However, if a family has a good income and savings rate, they could consider maxing out the RESP with their own funds and investing the CCTB/UCCB outside of the RESP.

That’s because income earned from investing the CCTB/UCCB in a separate account for a child is not attributed to the parents but to the child. The returns will compound virtually free of tax.

Charlene Walker of Nepean, Ont. directed monthly family allowance cheques after her daughter’s birth into a separate bank account and then into shares of Bell Canada through its Dividend Reinvestment Plan (DRIPs allow investors to automatically reinvest dividends and buy new shares at no cost). A few years later, Ms. Walker diversified into DRIPs at six companies. By 2008, her daughter’s nest egg was worth nearly $85,000.

8. Other ways to launch the kids

There are a number of ways to invest in children’s futures beside RESPs, as certified financial planner Alexandra Macqueen discusses in the February, 2009, edition of the Canadian MoneySaver magazine. The benefits of these alternatives include no limit on contributions and flexibility in the use of funds (which can be used to supplement RESPs or finance other ambitions such as starting a business).

One of the more popular seems to be informal in-trust accounts, which are easier to set up than formal trusts. Interest income is attributed to the contributing parent but capital gains are taxed in the child’s hands. Consequently, growth investments would appear to be more appropriate for this channel.

Paying down mortgage and other debt is desirable in itself but it can also be a strategy for helping one’s children get through college. That’s because extinguishing debt frees up cash flow that can be directed as required during the post-secondary years. Other methods include juvenile life insurance (savings component grows tax free and can be withdrawn), tax-free savings accounts (TFSAs) and the indoctrination of your offspring on the importance of saving allowances and working at part-time or summer jobs.

9. Let’s give them a really good start

Some families have more options for assisting their children. “Our kids have RESPs but we haven’t been diligent about maxing them out. We have also purchased income property for our kids’ futures,” says Dana from Ajax, Ont.

She expects the multi-residential properties will be paid off by the time each child is finishing high school. “They can use the income from the property to cover their expenses, or sell the property and use the proceeds to fund their endeavours, or live in one unit and use the cash flow from the others.”

“Not everybody pursues traditional post-secondary education and we want our kids to have an option should they decide to go into business for themselves, work or learn abroad, or pursue graduate programs that their RESPs and other savings wouldn’t have covered.”

10. Buy the house right

Ask people what their best or worse financial moves were and some aspect of buying a house is a frequent response.

“My best move would be never spending too much on a home,” says Tim Stobbs, author of the Canadian Dream: Free at 45 blog.

“We saved in our RRSPs for years and then bought a modest house [which was later sold]. On the next house, we made sure to keep the mortgage to around $150,000. We will likely be mortgage-free by the end of current term, which would mean we only had a mortgage for less than 10 years.”

Margot Bai, author of a personal-finance book, Spend Smarter, Save Bigger , says both her best and worse financial moves were directly related to buying a house.

“When I bought my first home, I locked in my mortgage for five years, a mistake that ultimately cost me about $10,000. By paying a penalty to break my mortgage contract, I was able to recover the penalty and gain another $5,000 over the next two years. Now I stick with open variable mortgages.”

This article is the fourth in a series on personal finance and investing at different stages of your life. As some issues may overlap the different stages of life, they could be covered in a prior or subsequent article.

By Larry MacDonald