Just lately, we had the pleasure of attending a one-day 5-year Action Plan Workshop together with Peter Kinch.
In this course, Peter reverse-engineered the building a real estate portfolio. Using the end result in mind; solved our goals and then proved helpful backward in order to identify the obstacles.
For those of you who can’t say for sure Peter, he’s one of the most recognized Mortgage Brokers in Canada. He is the co-author of the #1 Best-Seller, ’97 Tips for Canadian Real Estate Investors’ with Don R. Campbell, and his latest book, ‘The Canadian Real Estate Action Plan is now available at Amazon. Just last year, Peter was recognized as the particular #1 volume-producing mortgage broker in Canada on the CMP Top 55 Brokers list.
As Smaller property investors, why should we listen to the dog? Well consider this,
Out of just about all Canadian residential mortgages, simply 4% are for a rental property.
Out of all Canadian mortgage loan fraud, foreclosures/power of revenue, or defaults, 70% are usually within this 4% of a rental property. (Now you wonder exactly why it’s much more difficult to be entitled to an investment property. )
Even though the majority of his clients are usually real estate investors, Peter has an outstanding record of NO mortgage loan fraud, foreclosures, or foreclosures. Having a chance to meet the dog personally, I Peter is a dealer of high integrity and trustworthiness.
According to Peter, there are a couple of main obstacles when it comes to shopping for Real Estate:
Down payment
Qualifying for just a Mortgage
In this post, we will be speaking about various sources for advance payment. How to qualify for a mortgage will be discussed in Part 2.
Advance payment
Generally, there are 7 options for a down payment:
1 . Investment funds available
This is the most obvious one, containing cash, shares, bonds, and shared funds. Liquid assets are generally any assets that can be changed quickly into cash.
Bear in mind: You have to show proof of virtually any liquid assets, for example, if you will probably be using cash as an advance payment, you need to show your mortgage broker lender statements of 3-months demonstrating the amount.
2 . Real Estate Value
Most of us have more equity inside our homes than we recognize. Using our home value is a popular source of the down payment for the investment property, although some people choose to pay down their home mortgage. If you’d like to access your home equity:
1st, find out how much your home is well worth. The most objective way to do this is certainly to get an appraisal, which may cost a few hundred us dollars. Your mortgage broker may advise a local appraiser.
Second, it is possible to access up to 80% of your property value. You can do this by often re-financing your home with a large financial company, or placing a secured loan on your home (check with the lender or mortgage broker to get options).
Remember: Banks will not consider an unsecured line of credit as a source of a down payment. So ensure that it is secured against home (most likely your home).
Strategic Move: Consider getting a new “re-advancable mortgage” on your guideline home. With this type of home finance loan, as you pay down your home finance loan, the line of credit for the equity automatically increases, so having access to a tax-deductible college loan.
3. Sub-Prime
This type of auto financing was very popular before the 2008/2009 financial crisis and is almost nonexistent now.
4. Private Income
If you would like to maximize your Loan-To-Value, but the banks turn you down, small Private Money. Many individuals and personal companies lend money to mortgage brokers. However, this type of personal loan is usually much more expensive as compared to conventional loans, where the percentage of interest can range between 8% and also 16% depending on your situation. Furthermore, the maximum Loan-To-Value is usually 85%. It is important to consider your exit approach before approaching private funds, as lenders would like to recognize how you are planning to pay them backside. Do not forget that private money comes from RRSPs as well.
Also called: Hard Money Lender (HML)
5. Vendor Take Back
An additional mortgage held by the Seller is a popular choice (more together with commercial real estate, than residential). In this scenario, the vendor deepens you a second mortgage, which is secure on the title of the home. The advantage of this option is that all the things (amount, interest rate, terms) will be negotiable – depending on the vendor’s situation. For example, I could not believe personally that with one package, we were able to agree on any 6% interest rate VTB.
Bear in mind: Your first mortgage holder (i. e. the banks) could have restrictions on second mortgage loans, usually up to 15% Loan-to-Value is allowed.
6. Partnership
If you have experience with buying real estate, consider asking buyers in your circles to love up to you. You may be shocked to learn how many people want to spend money on real estate, without the hassles connected with dealing with tenants and the nitty-gritty of property ownership. Mainly with the stock market showing considerable uncertainty these days, it’s an excellent opportunity to help those individuals protect their investments with a tricky asset. This is another theme on its own and deservingly can have its own post in the future.
Most essential: To attract good partners, looked at Confidence, Credibility, and Condition.
7. Flips
Flipping houses is a high-risk option to speedily build some capital. A common flip involves buying a residence under market value, renovating the item, and selling it without delay at a higher price, all within one year or so. That is a widely used technique by people starting in real estate. Although why do we consider it high-risk should it be so popular? Because all your gains depend on your ability to easily sell the property and thus depend on one thing you absolutely have no management over – the market. You will discover of course many things you can do to defend yourself. For example, making sure that often the rent you can collect covers your personal monthly expenses, will allow you to keep the property until the market is beneficial. It also helps if you have expertise in the construction industry, normally, once you start taking down them, you may have some surprises you aren’t ready to deal with.
Remember: Banking companies do not favor short-term residence, and thus it may be difficult or maybe expensive to finance some sort of flip.
Stay tuned for Aspect 2 – discussing tips on how to qualify for a mortgage.
If you identified this post as interesting, remember to leave a comment listed below. Do you have feedback regarding Peter’s book? Do you have other methods for finding the down payment?
Read also: What makes Real Estate Practitioners Paid Upon Commission?
