Friday, April 30, 2010

Paperwork galore

There definitely seems to be a tonne of paperwork that must be done for an investment real estate transaction. I just thought I would list the things that have to have your john hancock that I can remember:

Before offer Acceptance:
- Agreement with Real Estate Lawyer to represent you.
- Agency Agreement with Real Estate Agent (I think there were a couple forms)
- Conditional Offer
- Removal of Conditions
- Cheques for all inspections (home, sewer, furnace)

After Offer Acceptance:
- Property Insurance
- Property Taxes Monthly installment plan with City
- Property Management
- SaskPower Landlord Agreement
- SaskEnergy Landlord Agreement
- Mortgage Agreement with Bank
- New Account sign up with Bank
- Pre-authorization Transaction/Direct Deposit forms (in place of a Void Cheque for Property management company, Insurance company, City taxes)

Still stuff to come:
- Possession and stuff with lawyer
- Renovations, etc.

Seems to be a storm of paper just for this one "simple" transaction. Signing your life away a little at a time =)

Wednesday, April 28, 2010

Scotia Bank - Good Mortgage, Bad Accounts

Sorry for being away for the past month. I was sick for most of April so didn't really feel like doing an update, but now I'm back for a week or two before my vacation in May. Guess I'll update you on what I've been up to. You might be wondering what the title of this post is all about. Of course that's what this post will be about.

I have a Scotia Bank Scotia Total Equity Plan (STEP) mortgage for the property I recently bought in Regina. It is a good little mortgage for investors because it allows access to anything over the 20% equity you have in a property right away... whether as a Line of Credit or another mortgage. It also looks like as long as you qualify you can have as many of these STEP mortgage setup as you qualify for. (But with the new mortgage rules good luck getting qualified for more than 3 properties...)

One thing about the STEP mortgage is that because it is for the lifetime of the property they must do an appraisal which is an extra cost that would not be incurred in other traditional mortgages. They must be able to show that the economic life of the property is 30 years or later. The appraisal cost $300, but I believe it is worth it for this very flexible mortgage. I also got a locked in 5 year fixed of 3.95%. (Won't be able to get that from them anymore as the rates have raised since). Anyways this was one of the top 3 mortgages for investors as detailed by the Canadian Real Estate Magazine. It allows easy access to your equity so you can start financing other deals without having to remortgage and doing all the legal footwork.

So of course the Mortgage is a good... even GREAT product.

Now for the accounts. Following something I read by Don Campbell of the Real Estate Investment Network I decided to make a new account for each property I buy so that all the accounting details are fairly easily tracked. My property manager disagrees saying that they just run everything out of one account and that all revenue Canada would need from me would be the monthly accounts statements they would send me. That's besides the point. I'll figure out what can scale and works. There are definitely pros and cons to either approach. I decided to open up an account at Scotia because my mortgage was there so I just thought it would be easier. My banker was able to get the account setup for me but I had to actually go to the teller to pick my password.

Anyways while standing in line to change the password on the ATM card we noticed that the tellers took a fairly long time with each client and that they seemed to always have to go to this cabinet or some other office to find files they require for the client to sign or whatever. Just all seemed rather manual... and it caused me to be late for work after lunch...

Later that day I was filling out my contract to the property manager and saw that they did not do direct deposits to Scotia Bank. Obviously this came as a surprise to me as I had just opened up an account at Scotia for just this purpose. Of course I asked why. So this was her reply:

"Actually, I do go to Scotia, but I try to encourage new clients to NOT sign up for the direct deposit with Scotia because Scotia does not actually do a direct deposit by computer like the other banks. I do have 4 long-term clients that I currently go to Scotia for and Scotia is THE SLOWEST, most tedious bank and it just takes up too much time while they hand-write a bunch of deposit papers and then they don't actually direct deposit it - they send it in a mail bag to the appropriate branch, which takes a couple of days (I've heard)... so for me, I prefer to just mail the cheque directly to the client and they take to their own bank. But if you really need a deposit (through their inter-branch mail bag), I can add you to the Scotia list, but as I said, I don't usually offer to new clients because there is no way I could do a hundred of them, such as other banks. So, please be aware, you will not actually see your money in your bank on the 25th, because of their system. So if you want, please attach a copy of the cheque with your contract."

Looks like they have a fairly manual process still for their interbank exchanges(amongst other things...) and as such I decided to just open up another account at my TD Canada Trust branch and close the account there. Please note that Scotia has a 30 day policy where they will charge you $20 if you close an account within 30 days. Fortunately my banker waived this for me.

That's the story of the Good Mortgage, Bad Accounts... don't have anything for ugly... so in short I recommend a STEP Mortgage with Scotia, but not opening up an account at Scotia for investment purposes.