Friday, January 29, 2016

Title Insurance - Is It Needed and Who Does It Protect?

This is an area generally covered by your lawyer, but it plays a prominent role in a high percentage of real estate sales. Occassionally problems and defects regarding the property are not discovered prior to closing, but become major issues after you complete the purchase. Such matters are often costly to remedy, but more importantly can make the property less marketable when you subsequently look to sell. In short, TITLE INSURANCE provides coverage against such problems and helps cover the financial consequences which arise as a result.

Title insurance can be issued on behalf of both the purchaser and the lender, or both. Lenders will often require title insurance as a condition of approving a mortgage. Types of risk typically covered include:
  • Survey irregularities
  • Removal of existing structures
  • Unregistered easements
  • Set back or side yard non-compliance
  • Zoning restrictions
  • Right-Of-Way matters
  • Fraud or forgery
  • Fundamental Title Issues
As with any type of insurance, certain risks may not be covered. Be sure to discuss with your lawyer what risks are covered/excluded, and take the time to read the policy. Premiums will vary, but it is relatively inexpensive and well worth the investment.

Title insurance can often help ensure that a closing is not delayed due to a defect in title, especially one that arises right at the time of closing. It has become a widely accepted practice throughout the Ontario real estate industry and one that we strongly endorse.

We welcome any feedback that you may have had with Title Insurance – good or bad! And as always just reach out to us, if you would like to get connected to Windsor-Essex and learn more about our local market opportunities.

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434

Tuesday, January 26, 2016

Growing Trends for 2016 Real Estate - The Low Loonie

In case you haven’t noticed, the Canadian dollar has been spending most the last 2 years dropping like a rock, as oil prices have plunged from over $100/barrel to recently under $30/barrel. The “Loonie” has spent much of the last decade around parity with the US Dollar or a $1.00 exchange rate.

This month the exchange rate has fallen all the way to under $0.70. This has been a painful adjustment for certain participants in the Canadian economy, especially considering the speed of this decline. This currency decline also has ramifications for the Canadian real estate markets, which we expect to see play out in 2016:
  1. Canadian assets are on sale to Americans and other international markets. Although Canadian home prices are at all time highs in many markets, they are suddenly a lot cheaper to buyers in stronger currencies. This would seem to indicate strong interest from international investors this year looking to stretch their investment dollars.
  2. Canadians investing in American investment properties or vacation properties should slow markedly or even grind to a halt. With the ‘Loonie’s” strength over the last decade, we have seen huge investment south of the border, especially during their real estate market correction in 2007-10. These dollars will surely see some repatriation and investment within Canada should look more attractive domestically, further increasing demand.
  3. Material costs for renovations and new home or building construction will increase. Many of the materials used in construction in Canada are imported from the US and these costs will be increasing this year. Expect sticker shock on new construction costs.
  4. The Canadian tourism sector should see a good year. Expect Americans to vacation more north of the border with their increased purchasing power. Also expect less Canadians to vacation south of the border and travel more domestically. This will translate into a good year for hotels, resorts, casinos, etc. This effect could be considerably strong in border towns and could also spill down into retail sales from American shoppers.
  5. Manufacturing will look more efficient in Canada. We expect the Canadian industrial to benefit from the low “loonie” and increase production. Therefore we see increased absorption in the industrial market and as the vacancy rate really tightens, new construction in the industrial market.
These are some of the effects we expect to see from the lower exchange rate in 2016. What are the effects you are seeing?

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

Saturday, January 23, 2016

A Real Estate View on Environmental Assessment

Why? Cost? What if Problems Exist? Remediation?

Although we are not engineers in the environmental industry, we do see "Environmental Assessments" as part of the due diligence process. The above questions are a good place to start and gives you a practical "Real Estate View" with respect to EAs.

WHY - any EA (be it a Phase I, 11, or Ill), will identify either actual or potential property/site environmental issues. Some may be minor in nature, whereas others may be seriously problematic and pose major risks to users of the property. Beyond identifying environmental issues, a proper report should provide a series of recommendations to deal with and correct the problems outlined.

COST - will vary based on the type of report required and the depth of analysis needed. Every jurisdiction will have both national and local firms which specialize in EAs. Best practice is to compare services between 2 or 3 providers and be realistic based on the history of the subject property. Lowest fee is not always the way to go - again, you get what you pay for.

WHAT IF PROBLEMS EXIST - from a transactional standpoint, this is why you have a DUE DILIGENCE REVIEW built in to your offer. Beyond the problem(s) identified, there is going to be a cost to correct. Options may include:
  1. terminate the deal
  2. request the cost to correct be at the expense of the Seller
  3. accept the problem and assume the liability
  4. review all details and any proposed resolution with the lender
REMEDIATION - this is the common term for correcting the problem, and applies more in the event of complex matters - ie. contaminated soil,asbestos removal, underground tanks etc. Two key points here:
  • ensure the engineer who created the report remains involved through the remediation period
  • ensure a final report clearing the matter is obtained upon completion of the work
Again, the lenders need to be on-board with all matters relating to the EA, otherwise your financing could be at stake. Would love to hear about your experiences on EAs - and yes - the good, the bad, and the ugly.

As always, feel free to connect with us on Commercial Properties here in Windsor - Essex!

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434

Wednesday, January 20, 2016

Growing Trends for 2016 Real Estate - Crowdfunding

Have you ever wondered what it would be like to own a large commercial property (i.e. retail plaza, office complex, high rise apartment building), but unfortunately don’t have the millions of dollars in the bank to make it a reality? Well the rise of crowdfunding in real estate might just be the opportunity you’ve been looking for.

But first, what exactly is crowdfunding and how does it work?

You might be familiar with fundraising sites such as Go Fund Me or Kickstarter, or US based peer-to-peer lending sites such as Prosper or Lending Club. Crowdfunding for real estate is similar to these platforms and the basic premise is simple. An investor can access individual real estate properties through an online platform and pool money with other investors to invest the required funds for a property. Say for example, the property cost $10 million dollars, it could be split into 10,000 shares of $1,000 each or 0.01% ownership for each share.

Real estate crowdfunding falls into two sub-groups: debt and equity.

In debt crowdfunding the investors act as a lender for, rather than as, the owner of the property. In such circumstances, the investment would be secured by the property and the investor would be entitled to monthly interest and a return of principal, but not to any benefit from property appreciation.

In equity crowdfunding, the investor becomes an indirect owner of the property by obtaining shares, limited partnership units, or other securities in the entity that owns the property/project. This form of investment carries inherently more risk, but also a potential greater return as a result of a direct interest in the property appreciation.

Crowdfunding for real estate is still in its early days in Canada. However, it has been making significant inroads in the US. The Ontario Securities Commission has been reviewing the industry as it matures and tries to regulate to protect investors. So check back often on the regulations as the industry matures in 2016.

Though crowdfunding will allow more people access to the commercial real estate market, for companies being able to solicit investments in projects from the general public online both greatly increases companies’ ability to raise the capital they need, from a greatly expanded pool of potential investors, but may also greatly increase the likelihood of lawsuit, especially if the investment performs poorly.

So there you have it. We are on the precipice of “the democratization of the real estate investment opportunity”. Are you excited?

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

Saturday, January 16, 2016

Mistakes to Avoid with Building Inspections

Obtaining a detailed building inspection in purchasing an investment property is an important step as you move through the due diligence process. The objective should be to get a thorough assessment of the property ‘top to bottom’ and gain a good understanding of its major physical elements.

Some of the BIGGER MISTAKES we see include:

Selecting the WRONG INSPECTOR/FIRM – in order to obtain a full physical review, you want an inspector who is competent, thorough, and trustworthy. Look beyond their website/resume – meaning you want to check with past clients and references, ask for credentials/professional affiliations, and their network of trade specialists (ie. Roofers/ HVAC Techs) which they can call on if needed. They should also carry sufficient insurance which they can provide proof of.

Going with the LOWEST PRICE – the least expensive is often the least experienced and often times provides the poorest service. Not an area where you want to be focused on saving a couple hundred dollars – remember you get what you pay for!

Not doing a WALK – THRU with the Inspector – in our experience the time spent at the property with the inspector (be it 1-2-3 hours), is invaluable and a key step of the inspection process. You get to experience the assessment of the property, through the eyes and words of the inspector. It also provides an excellent opportunity for Q & A, as you re-visit the property with more of a critical view of its condition. As well, It often times makes the review of the written report much easier

Not following up on INSPECTOR’S RECOMMENDATIONS – as deficiencies are identified, a set of recommendations (fixes) should also be outlined. This may involve bringing in other specialists (ie. HVAC techs), in order to determine repair estimates as identified. Once these costs are determined, you are then in a position to either accept them, or look to the seller to correct or compensate for them . Best practice is to resolve matters relating to ‘identified deficiencies’ within the due diligence period – not waiting until after closing.

Expecting the INSPECTOR TO PREDICT THE FUTURE- even the best are no better at predicting the future, then economists or sports handicappers. Matters relating to the life expectancy of HVAC units and roofs, are educated guesses at best, and should be viewed as such. Your expectations should be focused on the ‘here and now’ and plan on getting the best assessment of the condition of the property today.

Just a final comment on’ hiring an inspector’ – remember their work is not at all dependent on the deal going forward and the transaction closing. You pay the fee regardless of the outcome of the deal and their interests as a result, are truly in line with yours and they work on your behalf!

Tell us about any inspection experiences within your market – the good , the bad, and the ugly… And as always , just reach out to us if you’re interested in investment properties in Windsor-Essex.

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434

Wednesday, January 13, 2016

Growing Trends for 2016 Real Estate - Electronic Signature

With technology changing the way we work and play, it is only natural to see advances relating to the real estate industry. One new development from last year that we are excited about is electronic signatures. This paperless option should increase productivity across the board and significantly reduce waste (saving trees).

Already sweeping through a myriad of other industries, electronic signatures became legally binding in Ontario real estate transactions on July 1, despite the province’s initial trepidation. Ontario joins British Columbia, Alberta, Saskatchewan, Qu├ębec, New Brunswick, Newfoundland and Prince Edward Island as provinces that allow e-signatures in real estate transactions. **
The amendment to the Electronic Commerce Act originally was expected to occur under Dalton McGuinty’s government, but his resignation and the election tabled the motion. An unusually long subsequent review by the Law Society of Upper Canada caused further delay.

Rightful concerns over security have been allayed. E-signature companies adopt the same impervious security measures that banks use for their online services, rendering hacking virtually impossible. Many electronic signatures companies are cloud-based. A built-in feature for all these products is an audit trail. As soon as sales agents or customers log in, everything they do – whether providing signatures, initials or simply changing pages – is time stamped right down to the second. Their IP addresses are also recorded. Everything is meticulously recorded, should a transaction become subject to litigation.

Our office has chosen to use DealTap’s software. Additional features included for the benefit of agents and buyers/sellers:
  1. Sign on any device without apps
  2. Sign cursively or with a keyboard
  3. Guided client sign highlighting so nothing is ever signed wrong again
  4. Keep everything all in one place so no paperwork is ever lost
  5. Easy archiving
So next time you are finished booking your next vacation stay on Airbnb, while waiting for the ride you requested on Uber, you can sign the offer your realtor put together for your dream property, from your smart phone or tablet.

Increased productivity anyone?

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

Thursday, January 7, 2016

Property Due Diligence

In considering the acquisition of a property, it's wise to take the time to evaluate the building/site on a top-down basis. Typically this is done during a 'conditional period' within your Agreement of Purchase and Sale, and it facilitates your investigation of the property on a number of fronts.

Some of the more common elements of a due diligence review can include the following:

Physical Condition - which should be undertaken by a qualified building inspector or possibly an engineer/architect. Normally this is centered around issues relating to the structural condition (i.e. roof) of the building, electrical/plumbing systems, heating/cooling equipment, and site improvements (i.e. parking lot). The goal is to do a 'top -down' review of the property to determine any deficiencies which will be assumed PRIOR to firming up your purchase agreement. Keep in mind that any deficiencies which are assumed, become expenses which ultimately get added to the acquisition cost.

Environmental Review - normally handled by an environmental consultant within your jurisdiction. Even though it is generally a requirement for mortgage financing purposies, it is generally a good idea to complete one in order to establish a 'base line' position on the property on a go-forward basis. The details of such reports will vary from property to property, as will the costs to complete them. Environmental problems can be expensive to remediate and correct after the fact, so the reviews are most often well worth the investment.

Title Review - this is an exercise best completed during the due diligence process. It should reveal any easements, property restrictions, and lien/encumbrances which affect the property and ultimately your use of it. The bottom-line here, you want to ensure that there are no title matters affecting the property that you are ultimately UNABLE or UNWILLING to accept. It's a good practice to complete it during the conditional period.

Other reviews might include building code/zoning matters, special designations (i.e. heritage), equipment inspections (i.e. cranes).

Dollars spent in conducting good due diligence, is generally money well spent and well worth the investment. 'Caveat Emptor' lives on in the real estate world ... be an Aware Buyer!

Feel free to comment on any of your recent experiences with property due diligence -- the good, the bad, and the ugly. Look forward to connecting with you on any investment opportunities here in Windsor-Essex -just give us a call or connect through our website.

Mark Lalovich
Office: (519) 966-0444
Cell: (519) 259-5434