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.
I got a call today from an investor client, who is tired of losing out on bidding wars for existing homes and is considering putting an offer on a pre-construction stacked townhouse. Last year she had purchased a pre-construction condo as an investment but this year she was purchasing a stacked townhome as a second home for her son, who had just graduated school and did not have a job yet, which meant he could not qualify for a mortgage on his own. She had a pre-approval in place for 5% down on a purchase.
She was concerned that even with the 5% down she planned to put down. the builder was insisting on a 20% down payment and all of it was due in 90 days, with no firm closing date. She asked if there was a work-around. I suggested she show the pre-approval to the builder and see if she could reduce it.
She was taken by surprise by the demand for a 20% downpayment and so I thought this would be a timely article as many people are unaware of all the costs and demands that come with pre-construction. Here are some things to consider.
As a real estate investor, I took the time to get educated in various aspects of real estate before proceeding with my first investment property purchase. However, at some point I knew that getting educated was only part of the process – at some point I would have to pull the trigger, so to speak and actually purchase the property to meet my investing goals.
Everybody has reasons for starting their real estate investing career – mine started because I thought it would be a great way to supplement my income. I never expected to evolve and learn what I have learned to date. I keep expanding my goals and hopefully this post will inspire to keep expanding yours as well. I am now involved in residential, commercial and private lending for other investors and with so many different ways to invest the overall goal is to not only grow my own passive income but to also enjoy the journey.
This story takes place in modern day times! The story is about a real estate investor who has to decide between two properties. One property is in the bustling and over-priced city of Toronto and the other property is in a smaller community to the west known as Kitchener.
The Toronto property is in Guildwood – a sought after area of Scarborough but backs on to a Go Train track. The home is beautiful and offers a main floor with the potential for a basement apartment but it would need renovations to make it happen. The price is $749,000.
The property has been sitting on the market for 31 days in a sought after area because of it’s close proximity to the train tracks. What happens in a few years when my client wants to sell this property – will he have the same issues as the current owner? Even in a seller’s market? Probably!
The Kitchener property is in a sought after area with schools and shopping nearby and also has the potential to add a basement suite but the separate entrance would have to be built-in. The asking price is $325,000.
Seems like a no-brainer right? But let’s look at the numbers to see what makes more sense!
Currently we are dealing with a “seller’s” market not a “buyer’s market so how do you differentiate between the two? How do you navigate the sellers market and still come out a winner? And how do you buy when the market is overheated?
So how do you figure out if it’s a seller’s market or a buyer’s market? The easiest way is to look at unsold inventory. If the inventory on the market is between four and six months you have an even playing field between a sellers and buyers market. Less than that and it is usually a sellers market and beyond that and it is usually a buyers market.
If you are shopping for a home currently you are probably coming up against too many bidding wars – that’s because the inventory is low and houses are selling for thousands over asking and usually in 1-2 days. So how do you navigate this current market and still come out a winner? Continue reading
No Changes to Bank of Canada Rate!
At 10:00 am EST, Wednesday May 25th, 2016, the Bank of Canada maintained their overnight rate, which in essence means no change to the prime interest rate. Remember the prime rate affects your variable rate mortgage, line of credit and/or student loans.
There has been on-going pressure to consider dropping their rate further in order to relieve publics concerns with the current economic conditions. This is still good news for the amount of interest, that you will pay, but we also have to recognize that it is a reflection of the current housing market and ailing economy.
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.
At some point in an investors’ real estate investing career or journey, you will quickly run out of funds to keep investing in properties, so what can you do?
There are many ways to move forward but in my opinion one of the best ways is to Joint-Venture with another investor.
Check out a recent podcast I gave on the Joe Fairless show about Joint Ventures http://joefairless.com/blog/jf589-how-she-syndicates-mortgages-through-jv-deals/
What is a Joint Venture – essentially it is a method where partnerships are undertaken for people to pool their funds, their talents, their knowledge and their resources to in this case, purchase a property or grow their portfolio of properties.