Welcoming the Spring Housing Market

The winter is finally over and the real estate spring market is now upon us .The demand for housing is still strong and fears of a bubble seem to be old news now. As mentioned in the Canadian Mortgage and Housing Corporation’s (CMHC) recent National Housing Outlook  “overall, despite the uncertainty surrounding recent oil price declines, economic conditions in Canada are forecast to remain supportive of housing demand”.

Spring time has recently also been the time that the big banks start their “mortgage price wars”. It’s interesting to note that while the big banks are now reducing their rates a little, mortgage brokers have had access to even lower rates over the past several months. We all know that while interest rates are important, not all mortgages are created equal. Now more than ever, it makes more sense to use the services of a mortgage professional not only to ensure you get the best rate for your circumstance but also so you can understand all the features and options that really make the difference.

So while interest rates are still at historical lows and with all the noise made by the big banks over the next while about their products, it would be an ideal time to contact your Mortgage Broker to guide you through the maze of options that are available not only from the banks but also credit unions and the many other mortgage lenders solely used by mortgage brokers.

If you’re thinking of buying your first home or your next home, now is also the best time to get a mortgage pre-approval and lock in that rate for up to 120 days. This way you’ll know exactly what you can afford and have your mortgage ready in hand.

Do you know which type of financing you qualify for now, and in what order?

Qualifying for Residential Financing

Residential financing refers to the purchase of regular residential homes with no commercial component from a single family home, to duplexes, triplexes and four plexes.  In some circumstances a five and six plex can be financed using residential guidelines but there are only a few lenders that do that so we tend to place them under commercial guidelines as detailed below.  You might be purchasing these types of properties with the following investment strategies in mind:

ü  Buy, Rent and Hold Single Family Properties up to a 4 to 6 Plex

ü  Buy for Rent to Own (short term hold)

ü  Sandwich Lease Options with Investors

ü  Buy, Renovate, Refinance and Hold

ü  Buy, Renovate, Flip

ü  Wholesale and/or Assign Deals

ü  Joint Venture Partners

So almost all lenders, with the exception of private, joint venture or hard money lenders, review two key areas in priority order below:

Firstly, you the borrower:  Is there sufficient income to pay your own existing financial obligations (mortgage, credit card balances, car payments etc.), good credit, and income to qualify.  Is it a corporation or personal?  Do you have liquid assets and a net worth?

Secondly, the Rental Property: Does the property have a positive cash flow? (rental income less mortgage, taxes and expenses result in excess cash)  Is the property marketable?  The lenders are always thinking about what will happen when you default and they are left holding and/or selling the property?  Most lenders do NOT want to own property… they are in the business of loaning money not property acquisition or management.

Types of Lenders and Financing Options

Below is a breakdown, in order of preference, the financing options available for Residential properties as outlined earlier. 

Every financing option and category above will have a different focus on underwriting your file and deciding to provide you with the funds that you require.  They are also going to have different options such as rate, fees, terms, flexibility on documentation, size of portfolio etc.    Our goal is to strategically select the right lender in order of acquisition that aligns with your portfolio growth plans.  Below is a brief overview of each category of lenders qualifying criteria as each will have a different focus or emphasis when considering offering financing.

Major Banks & Financial Institutions

These are of course the major banks and financial institutions such as credit unions etc., which will provide you with the best rates and terms.  They are focused on both you the borrower and the property equally.  You will be required to have good credit, excellent provable income, debt service ratios well in line, down payment from your own resources and purchase a property in a major centre in good condition.    Your down payment can come from borrowing against a secured line of credit on an exception basis and if it means your debt service ratios are still in line.  Some major banks and financial institutions will start to “cap” the amount of properties in your portfolio that they are willing to finance to 4 or 5.   Many will also not allow the property to be in a corporate name unless it is a commercial property.


Alternative Mortgage Lenders

These are financial institutions such as smaller credit union, trust company and monoline lenders that offer mortgages that will provide you with the best rates and terms.  However, they may add a default insurance premium (CMHC, Genworth or Canada Guaranty) to the mortgage or require a larger down payment.  Just like the major banks above, they are focused on both you the borrower and the property equally.  You will be required to have good credit, excellent provable income, debt service ratios well in line, down payment from your own resources and purchase a property in a major centre in good condition.    Your down payment can come from borrowing against a secured line of credit on an exception basis and if it means your debt service ratios are still in line.  Some of these lenders have no limits to the amount of properties you can purchase or have in your portfolio.  These lenders are often very flexible with the property being in a corporate name.




Non-Traditional (Sub Prime/Equity) Lenders

These are alternative trust companies and other approved lenders that offer mortgages that are much more flexible in qualifying but in turn may have higher interest rates, lender fees and not as many terms available.    These lenders have no problem with financing investors with large portfolios and are flexible in overall qualifying.  Such areas as those with weaker credit ratings, self-employed borrowers with very low “taxable or provable” income, corporate names, borrowed down payment, etc.  In most cases they do require that the property be located in a desirable area and major centre but there is some flexibility although they may decrease the amount of funds they will offer you.

Private Lenders / Joint Venture Partners

These can range from an individual that has funds to lend to large companies that have billions in funds that they manage and wish to lend to real estate investors.  These could even be your friends and family that you have asked if they want to be a “money” partner in your real estate portfolio.  Private lenders and joint venture partners are usually extremely flexible and focused on mostly the property and their fees & interest rate return.  The acquisition strategy is going to be key along with how and when are they going to get their money back: the exit strategy.  These types of lenders are extremely flexible on their terms and qualifying but in return are taking a much higher risk, so demand a much higher return on their money.  For example, in a buy, rehab and sell scenario, it might not be just about an interest rate return, but also a percentage of the profit when the property is sold.  Each deal is analysed on its own merits and so the range of financing options, terms, rates, fees etc., can differ greatly and negotiated.   The private lenders will be registering a lien and/or mortgage charge on the property to be used as collateral.   Joint venture partners may or may not register a lien and/or mortgage charge on title, however they may also require a General Securities Agreement to be signed by you personally.  Often joint venture partners are used for their capital injection into the property or your company.




Hard Money Lenders

There is sometimes some overlap between joint venture partners and hard money lenders because they can also range from an individual that has funds to lend to a larger group that has millions in funds.    Again, these could even be your friends and family that you have asked if they want to be a “money” partner in your real estate portfolio.  Hard money lenders are the most flexible and are often used for short term flips and may be financing not just the property acquisition but also the rehab and renovations costs as well.  Their fees, interest rate return and portion of the profit will differ with each deal but they will expect a much higher return on their money for the higher risk.  They are often financing more than 100% of the current value of a property.  They will expect to see a very clear plan on how they are going to get their funds and profit back.  Hard money lenders may or may not register a lien and/or mortgage charge on title, however they will most likely require a General Securities Agreement to be signed by you personally.  They may also require shares in your corporation.

BC Housing Demand Remained Elevated in February

For the complete news release, including detailed statistics, click here.



Housing Demand Remained Elevated in February

Vancouver, BC – March 13, 2015. The British Columbia Real Estate Association (BCREA) reports that a total of 6,661 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in February, up 19.4 per cent from the same month last year. Total sales dollar volume was $4.3 billion, an increase of 24.8 per cent compared to a year ago. The average MLS® residential price in the province rose to $639,405, up 4.5 per cent from the same month last year.


"Consumer demand remained robust in February on the strength of rock bottom interest rates and improving economic conditions," said Cameron Muir, BCREA Chief Economist. "After several years of below-average activity, home sales are now trending above long-term levels."

Total active listings on the market were down 7.5 per cent from a year ago. Fewer homes for sale, combined with elevated consumer demand has the housing market firmly in balanced conditions.

Year-to-date, BC residential sales dollar volume was up 18 per cent to $6.9 billion, compared to the same period last year. Residential unit sales were up 12.4 per cent to 11,038 units, while the average MLS® residential price was up 5.0 per cent at $621,065.

Cash Backs and/or Credits on Closing

This refers to those vendor incentives that may be included in the Offer to Purchase such as “complete interior paint work prior to closing to the purchaser’s satisfaction.  If not completed prior to the closing date, the purchaser shall receive a $5,000 credit towards the purchase price on closing”. 

You might have heard of this as a great purchase strategy to try and maximize your borrowing against the value of property and reduce your down payment amount. 

When the work is completed, this clause is fine but in most cases the work doesn’t get completed and you, the purchaser, are expecting a credit on closing.  These used to be perfectly acceptable by lenders but NOT any more unfortunately!   If this is written into the Purchase Agreement and the work is not completed, then the lender views this as a reduction in the property purchase price.  So if the original purchase price was $200,000 with a $5,000 credit, then as far as the lender is concerned if the work is not completed then the “adjusted purchase price” is now $195,000.      They will then only provide an approval based on say 80% of the “adjusted purchase price”.

So if you obtain a mortgage approval based on the actual purchase price, then it could all change just before closing to the new “adjusted purchase price”.    Why?  Well, just before closing, your real estate lawyer will send what we call an “interim report” or “statement of disbursements” to the lender.  If any reduction or “credit on closing” is mentioned in this report, it will be deemed to be a reduction in the purchase price.  This refers to any incentive or credit that the vendor is providing to the purchaser whether it is work completed or a “cash refund”.

The bottom-line is that if the work is not completed, and a credit on the purchase price is disclosed prior to funding, the lender will deem the value of the property to be less and subsequently reduce the purchase price and therefore the mortgage amount accordingly.  This involves completely re-doing and underwriting the deal and will delay closing.

My recommendation: do not use this tactic on the Purchase Agreement or part of the closing process via your real estate lawyer unless you are prepared to have the purchase price and therefore mortgage amount reduced.

Why Invest in Real Estate?

Purchasing and investing in real estate has always been attractive for those that are looking to generate additional income and benefit from the wealth created with increases in property values over time.   Is investing in real estate right for you?

The Attraction

Diversification is key to anyone’s investment portfolio whether you are talking about mutual funds, TFSA’s, stocks, bonds, RESP’s, RRSP’s etc.   Diversification helps balance risk and provides a level of confidence that your investments are still going to be there when you are ready to liquidate them, such as at retirement etc.  Some would consider adding real estate, other than their principal home, to their portfolio to ensure full diversification.

A real estate investor can still use a relatively small amount of down payment or capital to purchase a property, and this can provide an attractive return on investment (or ROI).    This return is generated from a combination of monthly income and property value increases.

The monthly income is generated by taking the rent collected from tenant and then deducting all the expenses.    To ensure that there is a positive cash flow, smart real estate investors work with a mortgage expert and real estate agent that can assist with the analysis. 

Equity is built in the property by way of appreciation of value over time as well as with each mortgage payment. 

With mortgage interest rates at record lows and an abundance of potential tenants in many areas, there is a high demand for real estate investors to take the plunge.

Here’s another way to look at it as well… real estate investment is also beneficial for those who have a hard time saving money, as it can act as a sort of forced savings account. Essentially, as you pay down the principal of a mortgage, you're reducing debt and building equity.  Then, when you go to sell the property, the money you receive back from the sale is considered your “forced savings”.

So What is the Risk?

Like any investment, there is risk and it is possible to lose money in real estate, albeit relatively low.  Real estate has shown to appreciate steadily over the long term, and has for the past 25 years, so the chances of someone losing money on a purchase are pretty slim.  However, keep in mind that doing your due diligence before an actual purchase is key… you must take into consideration certain factors when choosing a property, such as desirability of location and stability of the market in that area. 

Financing Options and How do I get started?

One more attraction is the fact that it really only requires part of your time, is flexible, and the skills can be learned.  The process is relatively easy, and I’ll walk you thru that step by step.  The first step is to build your Real Estate Investment Plan which would include talking about your acquisition and exit strategies.  We will build a Power Team around you that provides you with expert advice and opportunities that you can trust.