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.
With the rule change in November 2016 and then the most recent changes, many Canadian investors have been refocusing on the US property market (even with the lending getting tighter, the dollar taking a hit, Trump’s new policies) and liquidating their properties in Canada to buy in the US, because they simply cannot cash flow like they used to do.
I have heard from countless clients how they are able to take advantage of the high prices in Canada when selling and by taking their available equity they are able to purchase properties in many US states and in some cases by cash (for those lucky few) and/or get financing in the US.
Take my one client who has been a multi-family investor in Canada for the last 15 years – he has sold off 200 units in the last two years and is now taking this available pot of cash along with other investors’ cash and buying in the mid-west as his money will go much further on a property in the US than it will in Canada.
Another investor, who is looking at the opportunities in Florida as he cannot get on the property ladder in Canada (I am referring to the GTA here and surrounding markets in Ontario), because he either faces high prices, bidding wars, and/or lender restrictions because he has more than 4 doors, etc.
I thought it would be helpful to look at an example of a multi-family deal of 52 units. A building in Kitchener, that is garnering much interest and a building in Tampa, Florida. Both areas are attractive to investors as both markets have great job opportunities. KW will soon be home to Google and has one of the largest malls in Canada currently being built. Tampa, is home to the largest employment of call centres and is also home to all the sports training teams. Furthermore, Tampa is in the top 15 places to invest year after year!
In KW, my client was bidding on a 52-unit apartment building, which was recently on the market asking $7.65M and the offer was accepted at $8.5M (looks like it was bought by a REIT). It is not final as it must undergo due diligence and appraisal, however based on initial analysis the property is not worth the price it was asking….the lender concurred with this analysis and was not willing to go higher than $6.5M on this property as this property needed some work. There was room to raise rents as it was owned by the current seller for the last 20 years but in the last few years he had let it go.
Unfortunately, his pricing was based on the fact, that he thought that since people were over-bidding for residential properties, he would get the same value… a recent comp showed that a similar property in the area had sold for $6.3M. Why did the REIT buy at $8.5M? The realtor had put this on the market and marketed it as it was a residential property – meaning he was accepting offers on a specific day and was conducting a bidding war.
In Tampa, my client bid on a 52-unit property and the asking price was $3.5M. This building is owned by a single owner that has had these units for 25 years and has maintained them very well. The décor is dated but the building is in excellent condition and they are two story buildings spread over 8 acres. The building has been managed by a highly-experienced property management company, for the last 15 years and my buyer wishes to keep them on.
Let’s look at the numbers!
Canada Purchase of 52 Units @ $6.5M CAD:
Purchase Price $6,500,000
Price/Unit $125,000 per unit
DP $975,000 (15% with CMHC)
Amortization 25 Years
Rate 2.24% (based on the 5 year bond rate + .70%)
CMHC App Fee $7,800
CMHC Premium $248,635 (4.5%)
Total Mortgage $5,773,625
Lender Fees – 2% $115,472.50
Monthly Payment $27,323
US Purchase of 52 Units @ $3.5M USD:
Purchase Price $3,500,000
DP -25% $1,225,000
Amortization 30 Years
CMHC App Fee $0
CMHC Premium $0
Total Mortgage $3543,750
Lender Fees – 2% $70,875
Monthly Payment $18,387
The numbers don’t take into account other important numbers such as, income & expenses, NOI, cash flow, etc. Furthermore while this is only one example, there are numerous opportunities for cash flowing multi-family properties in many US states. Financing is also available with banks and private lenders.
Are you interested in looking south of the border for cash-flowing deals? Not only can I provide financing in most states but I also have realtors (both residential & commercial), lawyers, accountants and property managers I can suggest.
Get in touch today and lets’ discuss your property investing goals.