I have not been too inspired as of late to write – feel there is too much bad news floating around as the rules keep changing and on the broker channel things have gotten a bit challenging. However, in light of the fact that I feel it is my responsibility to keep educating my clients, I am back with another post, I hope you will like.
If you have been living under a rock or ignoring what has been happening as of late – I know I tried – the rules are changing yet again on January 1, 2018.
What does this mean and how does it impact you? Let’s take a look!
If you’re looking to buy or if you are considering refinancing, then you might want to do so before January 1, 2018. Why?
On October 17, the Office of the Superintendent of Financial Institutions (OSFI) released new guidelines for residential mortgage underwriting at all federally regulated financial institutions. Beginning January 1, 2018, a new ‘stress test’ will be applied to all new conventional mortgages – and not just those mortgages that require mortgage insurance (down-payment or equity of less than 20%).
Everyday, I open up my inbox and I see countless messages or promotions from Private Lenders – both individual’s and institutional privates, seeking to compete in this ever-changing mortgage landscape.
Gone are the days, you could call a private lender and ask them to fund your client’s troubled file. Now they are also requiring more paperwork (even when they say they don’t) and their rates and fees are getting higher and higher! Private Lenders are feeling the squeeze too!
Why is this?
For one the market cannot rebound or absorb the over-inflated numbers we were seeing from the last two years. For instance, clients who were over-bidding on properties and in some cases paying over $100,000 to get into that property are now looking for a way out. However, they are in negative equity situations, which means they are stuck with the their current lending options or selling at a loss to get out from the overwhelming debt.
As a mortgage broker, I always strive to think out of the box, in order to stay competitive.
With that in mind, over two years ago, I went to the US (specifically Florida) and started making contacts with realtors, other mortgage brokers, lenders and wholesalers, just to name a few.
Once I had my contacts established and verified, meaning I would only work with referral sources that had been verified and could back up their offerings with proper protocols in place, I was then able to hit the Canadian market and start marketing this source of business. It has not been easy and has taken a lot of work but in the end, it has definitely worth it, as I have been assisting countless investors in Canada to invest in both residential and multi-family properties.
Many real estate investors start out with a dream of owning many properties but ultimately, many things can sway the dream or the well-thought out plans, such as low inventory, high prices, low cash flow and the inability to qualify.
So you have money but can’t get the returns you want, or you cannot find a property within your budget, so how can you make that money work for you? There are many different options available.
Booya and the Government changes the mortgage rules again!
This past week the Trudeau Government took us all by surprise by announcing new mortgage qualification rules. The mortgage industry and the media have gone wild with speculation and concern about the future of our industry, but what does this mean for you and how do you navigate these changes going forward?
Currently in place, the Government has required homeowners with less than 20% down to qualify at the BOC rate of 4.64% for any term less than a 5-year fixed rate. Effective October 17, 2016, this requirement will apply to all insured mortgages, including fixed-rate mortgages with terms of five years or more.
Recently I was approached to finance a commercial building in Hamilton, Ontario.
The property was a vacant and former rooming house and the clients wanted to transform it into a retirement home. The clients were a retired nurse and two personal support workers, all of whom had experience working with seniors, however they did not have experience operating a retirement home.
In Canada we have two past times or conversations that get people heated up! One is the weather and the other is real estate. The last few years have given people lots to talk about – even those that are not directly in the real estate industry.
We speculate when the market crash or softening will happen; where prices and interest rates are headed and what will happen when the market does soften. We have all come to expect bigger and better, even when bigger and better is not necessarily affordable.
I personally don’t want bigger and better as I don’t want to be burdened with a huge mortgage but what do you do when you live in a house that you are outgrowing? What are your options?
Every once in a while as investors, we come across an amazing deal and usually that deal is a deal because it needs a lot of work – otherwise known as a “handyman special”.
Then the question becomes what is the best way to financing this opportunity and which lenders will consider the “after repair” value and not the “as is” value. Currently there are very few options that exist to renovate properties using the “after repair” value.
Options using the “as is” value literally suck! You can do a purchase plus mortgage, where the lender will give up to 10% or $40,000 max. of the “as is” value for renovations and after all is said and done, you get to include that cost into the mortgage. However the caveat is that you must have those funds in your pocket to begin with. Another way might be to take it out of your existing HELOC or unsecured LOC, but then you are worried about timelines, paying it back, over-extending your lines of credit and worse if another opportunity comes along you have now tied up that money into the current property, waiting to flip it!
Furthermore, how far is 10% of the value going to get you? Not very far in most cases! The rest comes from your own pocket and if you are like me there are typically other uses for that money.
As a real estate investor I dreamed of having a horde of rental properties but with prices where they are, down payment requirements, land-lording issues in some cases and finding good deals, I turned instead to private lending.
I liquidated my last property after completing two Rent-to-Own deals but have kept my Four-Plex as it is a JV deal that is too good to get rid of plus it keeps me in the game so to speak.
At this point in my life, I am looking to put more focus on my retirement goals and initially I thought I could do that by having rentals, however I realized that I like the low-key approach to investing rather than looking for great deals, trying to find partners with money and chasing down tenants for rent.
Private Lending has become a hot topic of late! Due to a variety of reasons, borrowers may need private loans due to insufficient income to qualify for a mortgage, debt consolidation, damaged credit and even people looking to borrow money against their equity. However in many cases the existing lender may not be willing to lend against that equity and therefore people turn to private loans for a solution. But it’s not always that easy or clear on how they work so let’s unravel the private lending world.
In Part 1, I will speak about the borrower and private lender. In Part 2, I will speak about how you as an investor can loan your money in private lending as an alternative to owning property.