Statistics show that one out of four Canadian households have a part-time or full-time home-based business, and that number is growing.

If you are operating a part or full-time business out of your home, you have already made a conscious decision to reduce the financial risk of having your own business, in terms of low start-up capital and low overhead. But a home-based business is vulnerable to liability risks. Keep in mind that almost all basic homeowner policies specifically exclude any claims for losses incurred in your home or around your property as a consequence of home business activity. Here are a few examples and the types of insurance that would protect you:

• You have an electrical power surge which damages your home office computer equipment and destroys all your clients’ records. (Business property/business replacement cost insurance added to your home insurance.)
• You operate a computer tutoring business and someone who comes to your house slips on the stairs, injures her back and is off work for six months. You are sued. (General liability home insurance with additional coverage for business.)
• You have a short-circuit in your computer equipment, resulting in the house burning down and loss of business revenue. (Home fire insurance coverage with additional business use coverage/business interruption insurance.)
• You have expensive desktop publishing hardware and software in your basement office. Your home is broken into and all your equipment is stolen. (Business property/business replacement cost insurance, added as a supplement to home insurance.)

Now that you are aware of the potential risks relating to having the home office, the next step is to select the right protection.

Your goal is to ensure you are fully covered at all times. This can be achieved by periodically reviewing your risk and keeping your insurance representative promptly informed of any changes in your business that could affect your coverage. Such changes include buying more equipment, building an extension on your home, or using your personal car for business. If you are using your car for business and personal purposes, have your insurance company cover the car for business use. Otherwise, your policy coverage could be void if you have a claim. It’s not worth the risk, and besides, the extra premium is nominal.

You may need to increase your liability limits. Or, a change in circumstances may mean that you no longer need a certain type of insurance or level of coverage. Periodic reviews will save you from being over-insured and help avoid overlaps and gaps in coverage, thereby keeping your risks and premiums lower. This is especially important if your business is growing.

To help plan your insurance program, assess your business and identify the likely risk-exposure areas. Decide which type of protection will work the best for you–absorbing the risk, minimizing the risk or insuring against the risk.

To reduce the cost of insurance, shop around for competitive rates and negotiate for lower premiums if your loss experience is low. If you need a high level of expensive protection, increasing the deductibles should lower the cost of the premium. Look on the Internet, or in the Yellow Pages under “Insurance Brokers”, and contact at least three of them for quotes.

For example, most home insurance companies will provide additional protection, which is referred to in the industry as a “rider” or “endorsement” to your existing home insurance policy. This would cover business equipment losses, or increase the third-party liability coverage to include injury to people on your property for business-related reasons.

These riders generally exclude business-interruption losses, product liability, off-premises loss or disability income coverage. You may therefore want to check out group insurance coverage for other aspects of your home business. Certain organizations have excellent insurance programs for their members. Contact your local Chamber of Commerce, the Better Business Bureau, or the Retail Merchants Association for more information.

Studies show that only one-quarter of home business owners are covered for theft, damage or other loss of business equipment. More than two-thirds have no business interruption insurance. Nine out of 10 have no disability insurance, and most do not insure the business use of their cars. The majority do not have extra homeowner insurance coverage for their home business, and in addition, many homes are underinsured or lack adequate replacement value coverage.

To protect your assets, adequate insurance is a must for the home-based business owner. If you don’t have the proper additional insurance coverage, your claim will very likely be rejected. The premium cost for any additional coverage for business purposes is a 100 per cent tax-deductible expense against your business income.

Many Canadian seniors prefer to remain in their own homes as long as possible for a variety of reasons, including a comfortable feeling of security, familiarity, happy memories and an emotional connection to the neighborhood and community. In addition, many seniors prefer to remain in their home due to the support network built up over the years, through neighbors, friends, church or other regular social activities.

Unfortunately, this desire to stay at home is not always possible in terms of the seniors’ capacity to pay for it. It is not uncommon for seniors to be house-rich and cash-poor.

For many seniors, their home is their only major asset. It cannot be readily converted into income–in the perception of many–unless the home is sold and the senior moves out. Naturally, this can be a very stressful scenario. On the other hand, there are seniors who, by circumstance or choice, elect to sell the home and buy a condominium in a retirement area, and have a considerable amount of cash left over for their financial and lifestyle needs.

There are options for seniors who want to stay in their own homes but need or wish to supplement their income. One option is to rent out a self-contained basement suite to a student. Another option is to rent out spare rooms in the house–in other words, have boarders who share common kitchen facilities and washrooms. In many cases the income is not taxable, either because the income can be offset by a per cent of the house expenses, or because of the low amount of income involved.

The above options are attractive to some seniors, as they may provide additional benefits in the form of companionship and the feeling of security. This latter benefit could be particularly attractive, especially if the owner is often away on trips. On the other hand, these options may not be attractive because of the loss of privacy. There could also be municipal by-law regulations that technically restrict having tenants. In many cases these regulations are flexible, depending on various factors such as current municipal policy regarding enforcement, and the extenuating circumstances of the owner.

There are options, such as the “reverse mortgage”, which are designed to help senior homeowners unlock the equity in their homes and convert it into income. There are pros and cons of reverse mortgages, and they are not for everyone. You need to obtain independent legal advice before you commit to any reverse mortgage. In other cases, debt could be deferred so that existing income is not diluted. In this example, some provinces have established a property tax deferment program for seniors. In addition, loans obtained by a homeowner from the Canada Mortgage and Housing Corporation (CMHC) for rehabilitation or improvement of the home could be waived or deferred.

Equity is the net value of a home after all debts against the home have been deducted (an outstanding mortgage, for example). If this equity can be converted into cash or income, without the owner having to sell the house and/or relinquish possession (using a reverse mortgage, for example), many seniors would be able to afford to stay in their homes. In this situation, a lump-sum and/or regular income stream is obtained, and no payments are made until the home is sold.

Although this improvement in cash flow provides a higher standard of living and meets other personal or financial needs, it may also reduce the amount available to be left to the seniors’ estates. This may or may not be an issue of concern to the seniors or the beneficiaries. A more detailed discussion of reverse mortgages is covered in a separate article.

Keep in mind that CMHC and provincial programs vary from province to province and are constantly changing, so it is important to obtain a current update.

There are distinct advantages to having a realtor acting for you in buying or selling a property. With careful selection, you can benefit greatly from the skills of a knowledgeable and sincere realtor. There are a number of approaches to finding a good real estate agent. For example, friends, neighbors, and relatives may have the names of agents that they have dealt with and would recommend. Open houses also provide an opportunity to meet realtors. Newspaper ads list the names and phone numbers of agents who are active in your area. “For Sale” signs provide an agent’s name and phone number. And real estate firms in your area can be located through the Yellow Pages. Any of course, the Internet is one of the most popular methods of research of realtors and properties.

Before you meet several realtors who could potentially meet your needs, make sure you have clearly defined what these needs are. Prepare a written outline of your specific criteria in order to assist in shortlisting prospective homes. If you are going to be living with another person, each of you should prepare a written list of needs and wants, compare them, and then come up with a consensus list. For example, determine how much financing you are able to get, the maximum purchase price you are prepared to pay and the type, age, features and location of the home you are seeking. Here are some guidelines to assist you with your selection. Look for an agent who is:

• a good listener. You want a realtor who will pay attention when you speak, and ask questions which indicate sincere concern about your needs and wishes. This will help in the selection process and save time;
• familiar with the neighborhood you are interested in. Such an agent will be aware of the available listings, will know comparable market prices, and can target the types of property that meet your needs as you have explained them;
• familiar with the buying and selling of residential real estate;
• experienced and knowledgeable in the real estate industry;
• prepared to pre-screen properties so that you are informed only of those that conform to your guidelines for viewing purposes;
• familiar with the various conventional and creative methods of financing, including the effective use of mortgage brokers;
• thorough about the details of homes you are keen on, such as length of time on the market, reason for sale, and price comparisons among similar properties. A realtor who is familiar with the Multiple Listing Service (MLS) system can find out a great amount of information in a short period of time, assuming the property is listed on the MLS;
• candid with you in suggesting a real estate offer price, willing to explain the reasons for the recommendation, and honest with you in terms of advising you whether it is a good time to buy in a particular geographic area you are interested in;
• an effective negotiator, to ensure that your wishes are presented as clearly and persuasively as possible;
• more interested in a long-term relationship than a short-term one. In other words, it is more important to have a satisfied client rather than a quick sale;
• working on a full-time basis, not dabbling in real estate part-time;
• upgrading professional skills and expertise through professional development programs and training;
• good with numbers and familiar with financial calculations

If you are using a realtor for selling your property, you want to know in writing what the marketing plan will be for your property.

Because of the time commitment involved, once you select a realtor you should give him or her your exclusive business. Keep the agent informed of any open houses in which you are interested, and advise other agents that you already have one working for you. If for any reason you are dissatisfied with the realtor who is assisting you, find another realtor.

There are obvious benefits to using a realtor, as outlined in the previous points. One of the key benefits is that the realtor you select (referred to as the “selling” realtor) can act as an intermediary between you and the listing broker. This “arm’s length” negotiating position is an important strategic tactic that can benefit you. As you probably know, the seller pays the sales commission, not the buyer.

Another advantage to the buyer is the opportunity for the realtor to access an MLS computer, which can provide instant, thorough and accurate information on properties that might interest you. Without a realtor searching on your behalf, you seriously minimize your range of selection and the prospect of concluding the deal at a price that is attractive to you. A realtor can find out research data from the MLS system more extensively than what is available to the public through access to the www.mls.ca site.

There are extensive benefits to listing your property with a realtor rather than attempting to sell it on your own. Realtors can:

• list your property on the MLS, which provides extensive exposure throughout and beyond your market area;
• attempt to qualify and screen potential home buyers in order that only serious buyers who have the interest and financial resources present an offer;
• provide information to the purchaser on matters such as financing and other assistance programs that could facilitate the sale of your property;
• suggest methods of improving the appearance of your property in order to maximize the positive impression and subsequently increase the potential buyer’s interest and sale price;
• explain the real estate market in your area, and do so in a graphic fashion by providing you with MLS computer printouts of comparable listings or sales patterns in your area, and keep you on an email immediate notification of listings that fit your needs. They can also supply other facts and figures to assist you in realistically establishing a market price;
• free up your time, by using their contacts and marketing techniques in order to facilitate the sale of your property;
• negotiate an agreement on your behalf and according to your instructions, while you remain at arm’s length from the one-on-one negotiating. This improves your negotiating position.

Whether using a realtor to purchase or sell, remember to compare at least three realtors before deciding which one to use. You are looking for the five Cs–chemistry, confidence, competence, credibility, and commitment.

The small business sector is a dynamic, innovative, and growing force that provides challenge, fulfillment, and financial security to millions of Canadians. Studies show that over 75% of these small businesses have under five employees, and various studies estimate that there are approximately 2.2 – 2.5 million Canadians working from home. This would include part-time or full-time self-employed people, as well as moonlighters.

Some of the trends which have encouraged the start-up of home businesses are:

Cocooning. Many people are preferring to centre their leisure time around the home. This lifestyle trend has been labelled “cocooning” and comes from the desire to eliminate a lot of outside stresses. This is reflected throughout the economy in an increase in the number and variety of goods and services available, such as home improvements, gardening equipment and supplies, delivery services, home electronics, home gymnasiums, and home entertainment.

Computerization. This trend has had a profound impact on home-based businesses. Equipment such as fax machines, photocopiers, personal computers, modems, and specialized software is not only smaller and more compact but affordably priced. Cellular phones, voice mail, memory pagers, and answering machines also make it possible to provide accessibility to the business world. A home office can have all the technical sophistication and professional image of a traditional business office outside the home.

Combining roles of career and raising a family. Many parents prefer to raise a family and operate a part-time or full-time business from home at the same time. There are many examples of both spouses operating businesses at home, either the same business or separate businesses.

Growth of the service industry. Many home businesses are ideally suited for this industry. They generally require less start-up capital, have lower ongoing operational expenses, and have minimal equipment cost.

But though there are many benefits, there are also risks and frustrations. Many people have an idealized picture of the rewards and pleasures of running their own business. It is important to objectively look at both sides of the issue of small business ownership in order to make a realistic decision.

Home-office benefits
Home-based business ownership offers some distinct advantages:

Start-up and operating costs are much lower, and therefore the business is easier to get established and less risky.
Commuting time and expense are reduced or eliminated
There are more opportunities for your business to grow because of fewer financial constraints. Therefore, you can expect to turn a profit sooner and increase your chances of success.
Such a business provides an atmosphere where commitment to a family and a career can be combined for the benefit of both.
Spouse and family members can be employed by the business.
There are tax write-offs that you can take for expenses you are already incurring relating to your home.

Home-office drawbacks
Operating your business from home has some disadvantages. However, many of these can be anticipated and thereby avoided.

There may be isolation from the companionship of and interaction with colleagues or fellow workers.
There is a risk of working too hard because of a lack of separation between the work and home environments.
Space may be cramped or inappropriate for an ideal working environment or for growth purposes. Your inventory storage and work area may spill over into your living space.
Personal or family lifestyle patterns or priorities may be disrupted or have to be set aside.
Distractions and disruptions due to the nearness of family or friends may interfere with concentration.
Tensions and frustrations may develop because of work blending into the family relationship.
It may be difficult to hire employees due to limited or inappropriate space.

Running a home-based business is not for everyone. What may be an advantage to one person may be a disadvantage to another. You will need to carefully assess your personal situation to decide whether the disadvantages are major or minor obstacles for you.

Many Canadians own U.S. recreational property near border states. Retired Canadians who are seasonal residents of the U.S., or “Snowbirds” frequently own property in the U.S.

If either of the above situations applies to you, you may be renting out your U.S. property on a part-time or full-time basis when you are not using it. If so, you are considered a “non-resident alien” by the IRS (the U.S. Internal Revenue Service) and you are subject to U.S. income tax on the rental income.

Tax on gross rental income
The rent you receive is subject to a 30 per cent withholding tax, which your tenant or property management agent is required to deduct and remit to the IRS. It doesn’t matter if the tenants are Canadians or other non-residents of the U.S., or if it was paid to you while you were in Canada. The Canada-U.S. tax treaty allows the U.S. to tax income from real estate with no reduction in the general withholding rate. As rental income is not considered to be effectively connected, it is subject to a flat 30 per cent tax on gross income, with no expenses or deductions allowed. The 30 per cent withholding tax would therefore equal the flat tax rate.

Tax on net rental income
Since a tax rate of 30 per cent of gross income is high, you may prefer to elect to pay tax on net income, after all deductible expenses. This would result in reduced–and possibly no–tax. The Internal Revenue Code permits this option, if you choose to permanently treat rental income as income that is effectively connected with the conduct of a U.S. trade or business. You would then be able to claim expenses related to owning and operating a rental property during the rental period, such as mortgage interest, property tax, utilities, insurance and maintenance.

You can also deduct an amount for depreciation on the building. However, the IRS only permits individuals (rather than corporations) to deduct the mortgage or loan interest relating to the rental property if the debt is secured by the rental property or other business property. If you borrow the funds in Canada, secured by your Canadian assets, you would not technically be able to deduct that interest on your U.S. tax return. Obtain strategic tax planning advice on this issue.

Once you have made the election, it is valid for all subsequent years, unless approval to revoke it is requested and received from the IRS. However, you do need to file an annual return.

If you want to be exempt from the non-resident withholding tax and are making that election, you have to give your tenant or property management agent a Form 4224, Exemption from Withholding Tax on Income Effectively Connected with the Conduct of a Trade or Business in the U.S. Contact the IRS for further information.

When you file your annual return, show the income and expenses, as well as the tax withheld. If you end up with a loss after deducting expenses from income, you are entitled to a refund of the taxes withheld. The due date of your return is June 15th of the following year.

It is important to file on a timely basis. If you fail to file on the due date, you have 16 months thereafter to do so. If you don’t do so, you will be subject to tax on the gross income basis for that year, that is, 30 per cent of gross rents with no deduction for any expenses incurred, even if you made the net income election in a previous year. This is an important caution to keep in mind. Many people don’t arrange to have tax withheld at source, or file any U.S. tax forms, on the premise that their expenses exceed the rental income and the net income election is always available.

Filing requirements
You are required to report the gain or loss on sale by filing Form 1040 NR, U.S. Non-Resident Alien Income Tax Return. You would have to pay U.S. federal tax on any gain (capital gain), and if you own the real estate jointly with another person, such as your spouse, each of you have to file the above form. For more information, contact the IRS.

In addition, you would have to report any capital gain on the sale of your U.S. property in your next annual personal tax return filing with Revenue Canada. Remember, you have to report your worldwide income and gains and pay tax on 75 per cent of any capital gain, converted to the equivalent in Canadian dollars, at the time of sale.

Since tax laws, regulations and filing forms can change at any time, make sure you speak to a professional accountant who is skilled in U.S. tax matters.

There is a tremendous amount of competition and money available at present in the mortgage lending market. Lenders want your business, and will offer you many incentives to entice you, especially if you are willing to transfer your existing mortgage financing. For example, some lenders are willing to absorb your legal, appraisal and/or transfer fees, up to a certain limit.

When your mortgage term expires, the full amount of the outstanding mortgage principal, as well as any accrued interest, is deemed to be immediately due and payable. Various options will be open to you, including renewal for a further term with the same lender or refinancing with a different lender. By having a better understanding of the process, you can make the right strategic decisions for your needs, and negotiate the best deal.

Here are the key strategies to consider:

• refer to weekly mortgage interest tables in your local paper as a starting point for comparison.
• compare and contrast the features and benefits of a minimum of three competitive offerings. The interest rate is only one factor. Other factors include: fixed or variable rate, open or closed mortgages, penalties or portability (i.e., the ability to transfer your existing mortgage to another property when you sell your home). Make sure you fully understand the implications of the mortgage features that you select.
• if you are arranging for an accelerated mortgage, ask the lender to provide you with a chart so that you can see how quickly the extra payments (weekly payments, for example) will speed up the payment of the mortgage. Some “quick pay” types of mortgages are paid out faster than others, depending on how the lender calculates the reduction of principal, and the amount of your payment.
• consider the benefits of using a “no-fee” mortgage broker. You don’t pay a commission if they arrange financing for you. Look in the Yellow Pages.
• attempt to negotiate a better deal than the official rate. Many lenders have the discretion to offer you a lower rate to get or keep your business, based on various factors. Success in renegotiating a deal can depend on your “leverage”, your negotiating skills, and on how much the lender wants your business. For example, if you have been a customer for a long period of time and use other services offered by the lender such as bank accounts (personal and business), loans, or RRSPs, the lender may be more willing to budge on the rate.
• if you are a new customer and would be prepared to use other services, that is also a factor. Depending on the banker and the circumstances, you might be able to negotiate a reduced interest rate of one-half per cent or more.

If you decide to accept the renewal from your current lender, select the term, interest rate and payment frequency from the options set out by the lender. If the interest rate you select drops or increases between the date of signing and the actual renewal date, the lower rate shall prevail. Make sure that the rate is in writing, along with any other features you want modified, such as the amortization period, interest rate, obtaining more funds or waiving of certain charges.

Overall, remember to determine your needs, understand your options and their implications and comparison shop.

Have you thought about the idea of remaining in your home, getting some cash out of the equity to enhance your lifestyle needs, and not having to make any payments on the loan or repay the loan until your surviving spouse dies? If you or your parents are 62 years of age or older, this is an option you may wish to explore. The concept is referred to as a “reverse mortgage”.

Reverse mortgages are becoming more popular, and are available to many people across Canada, particularly in the major cities. Many retirees have built up considerable equity in their homes, and may prefer to turn their largest asset into immediate cash and/or ongoing revenue and still remain in the home. People frequently prefer to remain in their own home, because it is in an established and familiar neighborhood, or close to family and friends. At the same time, they may also need cash or additional monthly income to meet personal needs such as travel, renovations, a new car or helping their children, but they don’t want to make monthly loan payments or pay tax on additional income.

The basic concept behind a reverse mortgage is simple. You take out a mortgage on part of the equity of your home, and in exchange, receive a lump sum of money and/or a monthly income for a fixed period or for life. If you are married, this would be for the life of the surviving spouse. This latter example is sometimes referred to as a “reverse annuity mortgage” or RAM, as part of the money obtained from the mortgage is used to purchase an annuity.

When you die (or if you are married, when your surviving spouse dies), the mortgage plus accrued interest must be repaid. You do not have to make any payments in the meantime. If there is any balance left in terms of residual equity in the home after the sale, it would belong to the senior’s estate. If there is a shortfall, you want to make sure the company absorbs that loss, not your estate.

Make sure that the reverse mortgage company has obtained an opinion from Revenue Canada that the lump sum payment and monthly annuity payments are tax-free, as long as you live in your home. You want to be assured in writing that the current ruling on the various means-tested programs, such as the federal Guaranteed Income Supplement (GIS), is that receiving the annuity will not interfere with your eligibility for, or reduction in, the GIS.

Since you still retain home ownership, you benefit from any appreciation in value of the home over time–that is, you get an increase in equity. For example, if your property goes up 10 per cent a year in value, and you locked in the mortgage on your property for the reverse mortgage or RAM at eight per cent, then you are technically ahead in terms of the interest differential.

In reality, however, because you are not making regular payments on your mortgage, the accumulating interest is being compounded, eroding away from the increasing equity. The reduction could be offset substantially by an attractive average annual appreciation in property value. Conversely, a low or zero property appreciation could result in the equity being eroded away rather quickly.

The good news, given today’s low-interest environment, is that you are paying less interest on the money that you are borrowing. The bad news is that if you obtain an annuity, you are receiving less return on that annuity investment. There are variables between reverse mortgages and RAMs on the issue of interest rates and other specific conditions.

Here are some points to consider and questions to ask:

What are the age requirements for the lump sum or annuity plan?
• Do you need to have clear title on your home?
• Can you transfer the mortgage to another property if you move? Are there any tax or financial issues involved?
  What percentage of your home equity is used to determine the reverse mortgage or RAM, and what percentage of that is available for a lump sum payment and annuity?
• Is the interest rate on the mortgage fixed for the duration of the annuity, or is it adjusted? And if adjusted, how regularly, and using what criteria?
• If the reverse mortgage and lump sum are for a fixed term, what are the various terms available (l5, 20, 25 years)?
  

Over time, you have probably heard about various financial institutions in Canada having problems or even going under. How do you find out what protections you have for savings or chequing account deposits in a bank, trust company or credit union?

You should be cautious about where you put your money. Many people assume that their deposit funds are safe and protected, and they may well be, up to a certain amount. With foreknowledge and proper planning, you can protect all of your deposit money. Here is an overview of deposit money protection in Canada and where you can get further information.

Deposits in a Canadian bank or trust company
These are protected by the Canada Deposit Insurance Corporation (CDIC), up to a certain amount. In Quebec, it is referred to as the Quebec Deposit Insurance Board. Funds are automatically insured for up to $60,000 for each separate account. If you have more than $60,000 deposited, you can divide your funds among several CDIC members who are separate financial institutions. Some banks and trust companies have subsidiaries that are separate CDIC members, resulting in a ceiling of $60,000 each. For information, brochures and confirmation that your deposits are covered, contact CDIC at 1-800-461-2342 (Canada only) or at (613)996-2081.

Deposits in a Canadian credit union
These are protected by a deposit insurance plan that is specific to each province. Each province can vary in its protection for savings or chequing deposits. Depending on the province, the protection could be from $60,000 up to unlimited protection–that is, 100 per cent. Contact a credit union in your province to enquire, or phone the CDIC number to obtain contact numbers for the credit union deposit insurance head office in your province. Ask your credit union for an informational brochure and protection confirmation.

This is a very important feature to have in your mortgage if it is a closed mortgage. If your mortgage is open you can pay in part, or in full the balance outstanding on the mortgage at any time without penalty. If, on the other hand, you have a closed mortgage that does not have any prepayment privileges, you are locked in for the term of the mortgage (three years, for example) without the privilege of prepaying without penalty.

You may therefore wish to have a mortgage that, although it is called a “closed” mortgage, is in fact partly open and partly closed. It permits prepayment at certain stages and in a certain manner, but not at other times. For example, you may be permitted to make a prepayment of between 10 and 20 per cent annually on the principal or original amount outstanding, depending on the terms of your mortgage. This could be made once a year on the anniversary date of the mortgage, or at any time during that year, depending on the terms of your mortgage.

Another variation would also give you the option of increasing the amount of your monthly payment by 10 to 20 per cent or more once a year, or at any time in the year. You can see the incredible difference this would make in terms of saving on interest and reducing the amortization period. Every time a prepayment is made or you increase your monthly payments, the balance owing, and thus the monthly cost of interest, is reduced.

The net effect is that a larger portion of each payment will be applied toward the principal, since monthly (or otherwise agreed-upon) payments usually remain the same. Make sure that you completely understand your prepayment options, as they could save you a lot of money. There is a considerable variance between lenders with regard to mortgage terms, so make sure you “comparison shop”.

For example, you may want to have these options: to pay up to 20 per cent any time in that year rather than waiting for the anniversary date of the mortgage, to have the pre-payment amount based on the original amount of the mortgage rather than on the outstanding principal at the time, and to increase your monthly payments by up to 20 per cent at any time in the year rather than only on the anniversary date. In other words, you may want to have it all! Make sure that the mortgage commitment letter you receive from the lender clearly spells out the options that you want.

A lender may be prepared to give you a “side letter” which confirms a modified term arrangement. For example, the lender may have pre-printed mortgage documents and a standard policy that is not as attractive an arrangement for you. The form might say “10 per cent pre-payment annually”, but the side letter could say you are permitted to pay up to 15 or 20 per cent. If you negotiate effectively, you may be able to get them to modify the terms in order to remain competitive and get your business. On the other hand, their policy may not permit a modification of the standard terms.

If you are buying a home to live in, you probably want to have as many pre-payment options as possible, especially if you know you will have extra money available from various sources. This will save you a lot of interest over time.

On the other hand, if you are buying real estate strictly for investment purposes, you may have a policy of not paying down the principal outside of the normal payments. Presumably you would be debt-servicing all expenses, including mortgage-related costs from your rental revenue. This would preserve your cash and make it available for other purposes such as other real estate investments, for example. In this scenario, you would presumably be counting on equity appreciation over time.

When the time comes to sell your home, you may be tempted to sell it yourself. There is only one reason for doing so, and that is saving on a real estate commission. Other motivation could be a personal challenge or learning experience, but basically the desire to save money is the main motivator. You may indeed save money, but on the other hand, the saving could be an expensive illusion.

Based on my personal and professional experience, there are some general disadvantages of selling a home yourself, as opposed to using a carefully selected and experienced realtor. The following remarks are not intended to dissuade you from attempting to sell your own home, but rather to place the process in a realistic perspective. These comments apply whether you are selling your own home or an investment property. In the end, you will have to balance the benefits and disadvantages of course, and decide what is best for you.

Inexperience
If you don’t know all the steps involved, from the pre-sale procedures and strategies to completing the deal and receiving the money, you could, and probably would make potentially costly mistakes.

Emotional roller coaster
Many people, especially with their own home, tend to get emotionally involved in the sale process because of the direct interaction with the prospective purchasers. For example, frustration can be experienced due to rejection of the house, negative comments or fault-finding, people whose personality you don’t like, or people who negotiate toughly on the price. These one-on-one direct dynamics or comments can sometimes be taken personally, and therefore be a cause of stress.

Time commitment
You have to hold open houses, as well as show your property at times that may not necessarily be convenient to you. In addition, you will have to spend time preparing the ad copy and staying at home to respond to telephone calls or people knocking on the door.

Expense, nature and content of advertising
Costs include all the daily or weekly newspaper classified and/or box ads, as well as a lawn sign. You would pay for these yourself. In addition, you may not know what types of advertising would be appropriate for your type of property, how to write ad copy that would grab the attention of a reader and prospective purchaser or how to identify and emphasize the key selling features of your property.

Limited market exposure
There are considerable differences in market exposure between advertising by yourself and the types of advertising and promotion a realtor could provide. There is obviously a direct correlation between the nature and degree of market exposure and the end price. Clearly, limited market exposure means limited prospective buyers.

Potential legal problems
The prospective purchaser may supply you with his own agreement of purchase and sale. This contract may have clauses and other terms in it that could be legally risky, unenforceable, unfair or otherwise not beneficial to you. You may not recognize these potential problems or risks. In addition, you could end up agreeing to take back a mortgage (vendor-back mortgage) when it would not be necessary or wise, or accept a long-term option or other legal arrangement that could be risky.

Lack of familiarity with market
You may not have a clear or objective idea of exactly what a similar property in your market is selling for, or the state of the real estate market at that point in time. This can place you at a distinct disadvantage. For example, if you are being unrealistic in your pricing, along with limited advertising exposure, you could literally price yourself out of the market. Prospective purchasers may not even look, let alone make an offer. You may eventually sell your property, but only after several price reductions and a long period of time.

Of course, this depends on the market and the nature of your property. You could have a property with unique features or potential that could justify a higher sale price than you might realize.

No screening of prospective purchasers
You would not generally know the art of screening prospects over the phone. The end result could be that you waste your time talking to people over the phone or showing them through the house, when they are not and never will be serious prospects. You could also end up accepting an offer from someone who does not realistically have a chance of financing the house, or who asks for unrealistic time periods for removing purchaser conditions, which effectively would tie up your property during that time.

Offer price not necessarily the best
You may think the offer given is the best offer from that (or any) prospective purchaser, and therefore accept it. Unfortunately, that price may not be the best price at all. You may have started too low or too high for your initial asking price, based on emotion or needs rather than reality. You may have received a “low-ball” offer from a prospective purchaser that was never intended to be accepted but was designed to reduce your expectations. You may be inexperienced in applying real estate negotiating skills, or you may be subjected to effective closing skills on the part of the prospective purchaser.

Lack of negotiating skills
This problem was referred to in the previous point. You may lack any negotiating or sales skills and feel very uncomfortable or anxious in a negotiating context. As a consequence, the price and terms you eventually settle on may not be as attractive as they otherwise could be.