Michael Poczynek

What is net worth?

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Net worth is the net balance of your total assets minus your total liabilities.  Or, basically, it is what you own minus what you owe.

Assets include the cash you have on hand in your chequing and savings accounts, investment account balances, salable items like jewelry or a car and, of course, your home and any other real estate you own.

Liabilities include your total debt obligations like car loans, credit card debt, the amount you owe on your mortgage, and student loans.  In addition, liabilities would include any other payment obligations you have, like outstanding bills and taxes.

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How do I calculate my net worth?

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To calculate your net worth, you’ll want to add up all of your assets and all of your liabilities.  Then subtract your total liabilities from your total assets.  The balance represents your current net worth.

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Total Assets – Total Liabilities = Net Worth

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Ready to calculate your net worth?  Contact us to request an easy-to-use worksheet and a free assessment of your home’s current market value!

Keep in mind that your net worth is a snapshot of your financial position at a single point in time.  Your assets and liabilities will fluctuate over both the short term and the long term.  For example, if you take out a loan to buy a car, you decrease your liability with each payment.  Of course, the value of your asset (the car) will typically depreciate over time, as well.  An asset that is invested in stocks or bonds can be even less predictable, as it’s subject to daily fluctuations in the market.

As a homeowner, you enjoy significant stability through your monthly real estate investment, also known as your home mortgage payment.  While the actual value of your home can fluctuate depending on market conditions, your mortgage payment will decrease your liability each month.  And unlike a vehicle purchase, the value of your home is likely to appreciate over time, which can help to grow your net worth.  Right now, your asset may be worth significantly more than it was this time last year.

If you’re a homeowner, contact us for an estimate of your home’s market value so that you can factor it into your net worth calculation.  If you’re not a current homeowner, let’s talk about how homes in our area have appreciated over the last several years.  That way, you can get an idea of how a home purchase could positively affect your net worth.

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How can real estate increase my net worth?

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When you put your real estate dollars to work, it’s possible to grow your net worth, generate cash flow, and even fund your retirement.  We can help you realize the possibilities and maximize the return on your investment.

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Property Appreciation

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Generally, property appreciates in one of two ways: either through changes to the overall market or through value-added modifications to the property itself.

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Rising prices

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This type of property appreciation is the one that many homeowners are enjoying right now.  Buyer demand is at an all-time high due to a combination of low-interest rates and limited housing inventory.  At other times, rising home prices have been attributed to different factors.  Certain local conditions—like a new commercial development, influx of jobs, or infrastructure project—can encourage rapid growth in a community or region and a corresponding rise in home values.  Historically, home prices have been shown to experience an upward trend punctuated by intermittent booms and corrections.

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Strategic home improvements

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Well-planned and executed home improvements can also impact a home’s value and increase homeowner equity at the same time.  The type of home improvement should be appropriate for the home and in tune with the desires of local buyers.

For example, a tasteful exterior remodel that is in keeping with the preferences of local home buyers is likely to add significant value to a home, while remodelling the home to look like the Taj Mahal or a favourite theme park attraction will not.  A modern kitchen remodel tends to add value, while a kitchen remodel that is overly expensive or personalized may not provide an adequate return on investment.

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Investment Property

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You may be used to thinking of investments primarily in terms of stocks and bonds.  However, purchasing a real estate investment property offers the opportunity to increase your net worth both upon purchase and year after year through appreciation.  In addition, rental payments can have a positive impact on your monthly income and cash flow.  If you currently have significant equity in your home, let’s talk about how you could put that equity to work by funding the purchase of an investment property.

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Long-term or traditional rental

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A long-term rental property is one that is leased for an extended period and typically used as a primary residence by the renter.  This type of real estate investment offers you the opportunity to generate consistent cash flow while building equity and appreciation.

As an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant.  Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

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Short-term or vacation rental

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Short-term rentals are often referred to as vacation rentals because they are primarily geared toward recreational travellers.  And as more people start to feel comfortable travelling again, the short-term rental market is poised to become a more popular option than ever in certain markets.  In fact, with travellers continuing to seek out domestic options in lieu of international travel, this may be the perfect time to consider an investment in a short-term rental property.

Investing in a short-term rental offers many benefits.  If you purchase an investment property in a top tourist destination, you can expect steady demand from travellers while taking advantage of any non-rented periods to enjoy the home yourself.  You can also adjust your rental price around peak demand to maximize your cash flow while building equity and long-term appreciation.

To reap these benefits, however, you’ll need to understand the local laws and regulations on short-term rentals.  We can help you identify suitable markets with investment potential.

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The sale of Canadian property and non-resident tax

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If you are disposing of real property situated in Canada, you are subject to a non-resident withholding tax of 25% of the gross sales price.  If, however, the real property is depreciable property (e.g. property that earned rental income), then the required withholding would be 50% of the gross sales price.

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REDUCING WITHHOLDING TAX

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You may request to have the non-resident tax withheld on the net capital gain on the disposition instead of the gross sales price.  This requires filing the appropriate forms with the CRA and also obtaining a Certificate of Compliance.

If disposing of real property that you have been renting, you must have filed your Section 216 returns reporting the rental income and expenses up to the disposition date and paid all of the tax due.  CRA will issue the clearance certificate only after all your Canadian taxes have been paid, including any taxes on rental revenue.

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REQUIREMENT TO NOTIFY CRA

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Even if you choose not to obtain a clearance certificate in advance of the sale in order to reduce your tax withholding, you are still required to notify the CRA within ten days of the disposition of the property.  If you fail to notify the CRA within ten days, you will be assessed a penalty of $25 a day for each day the notification is late, with a minimum of $100 and a maximum of $2,500.

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CANADIAN TAX RETURN REQUIRED

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You are required to file a Canadian tax return for the taxation year in which the disposition took place.  You will be able to deduct the adjusted cost basis of the property and receive credit for your expenses of sale, which could result in a refund of a portion of the tax withheld.

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If you have any questions, please get in touch with your lawyer, your accountant, or CRA.

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How is your property like a $30 steak?

You’re at the local farmers’ market looking for some quality steaks to serve for dinner. You want to impress your guests, and the price is not an issue. You aren’t leaving the market without hundreds of dollars worth of beef.

There are two local beef vendors to choose from. You ask to see the best steak each of them has to offer.

The first farmer puts on a pair of gloves, reaches into the display case and carefully pulls out a perfectly marbled filet mignon wrapped in butcher paper.

The second farmer has filet mignon to show you, too. He reaches into a faded old beer cooler and pulls out a black garbage bag. Do you stick around to see what those steaks look like?

Chances are, you’ve returned to the first farmer who understands the importance of packaging.

The presentation is essential whether you’re dealing with steak or PEI Real Estate.

If you’re considering selling your property in Prince Edward Island, I want you to call me. Not only do I have serious buyers ready to buy now, but I am going to market your property so that it’s irresistible to buyers.

Would you rather be the steak wrapped in butcher paper and twine or the one in a garbage bag?

There is more to selling a property than sticking a “For Sale” sign in your yard and placing it on MLS®.

Selling PEI properties is not easy. (Neither is selling $30 steaks.) If your property isn’t appropriately packaged for sale, chances are, it will be on the market for longer than it should be, and if it sells, it won’t be for top dollar.

It would be best if you had an aggressive marketing plan, and your property needs to be packaged right for your audience.

Anyone can list a property, but it takes a seasoned marketing and advertising professional to sell it.

TIMEFRAME

New Build: Nationally, the average timeline to build a home has more than doubled over the past 20 years from 9 to 21 months. And rising costs have led some builders to raise prices or cancel contracts—extending the timeline even further. We can help minimize surprises by negotiating better terms and advising you about the potential risks involved.

Existing Home: You can typically move into a resale home on your closing date. While closing on an existing home can take anywhere from a few weeks to a few months, it's almost always faster than building a new one.

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LOCATION

New Build: Canada is undergoing a major residential construction boom. Rural and smaller urban communities have been the first to benefit—primarily because the single-detached homes in those areas take less time to build. If you opt for a new single-family home, you could be facing a long commute and ongoing construction for some time.

Existing Home: An existing home is more likely to be located close to town in a neighbourhood with mature trees, established schools, and a deeply-rooted community. As a result, you may find the neighbourhood's trajectory to be more predictable than an up-and-coming area.

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MAINTENANCE

New Build: When you build a home, everything is brand new. Therefore, you can expect less required maintenance and repairs in the beginning. However, some home builders have reputations for shoddy construction, which can lead to unexpected issues down the road. We can help you identify the quality builders in our area.

Existing Home: While an older home is more likely to need repairs, there are ways to prepare for these expenditures. We always recommend that our buyers hire a certified home inspector, whether they buy a new or existing home. Once we have the inspector's report, we can negotiate with the seller on your behalf for reasonable repairs or concessions.

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ENVIRONMENTAL IMPACT

New Build: If energy efficiency is a top priority, a new home with a low EnerGuide Rating may be a good choice. Natural Resources Canada administers the EnerGuide label and measures a home's energy performance against a benchmark.

Existing Home: A basic tenant of sustainable living is: reduce, reuse, and recycle. And since a resale home already exists, it automatically comes with a lower carbon footprint. Research has also shown that remodelling or retrofitting an older home is often greener than building one from scratch.

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DESIGN

New Build: Builders tend to put a lot of emphasis on visual details and follow the latest design trends. However, some buyers complain of a cookie-cutter feel, as new homes are often built with a similar aesthetic. We can help you negotiate custom features and upgrades to personalize the space and make it feel like your own.

Existing Home: While some buyers prefer an older home's traditional look and character, others crave something more modern. If that's the case, we can help you find a resale home that leaves enough room in your budget to renovate it to your liking.

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WHICHEVER PATH YOU CHOOSE, WE CAN HELP

We are knowledgeable about both the new construction and resale home options in our area, and we can help you make an informed decision, negotiate a fair price, and avoid mistakes that can cost you time and money. And in many cases, our homebuyer guidance and expertise are available at no cost to you. So give us a call today to schedule a free, no-obligation consultation—and let's start searching for your next home!

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