Note buying

27 Replies

is note buying big in Canada? Haven't heard of this before. Also, FDA loans...is there something similar to these so we can have the option to,put less than 20%down on a rental?

Originally posted by @Samuel Sedore :

We don't have note buying, but there are ways to get in rentals with 5% or more when presented correctly.

Hi Samuel. I am looking to invest anywhere in ontario...I am looking in town here at the moment and are good prospects...but looking west to about Woodstock as my family is from the area there. Do,you have any quick,tips on examining a property prior,to purchasing to,see about cash flow, coc, cap,rate etc? Just want to make sure I put the right offer in.. How did you you get started and how are you finding the landlord thing? I also have a goal like you to make enough cash flow to have about2500 month. How do I obtain a rental at 5% down without paying mort insurance? I'd love to know.... 

The short answer is there is no way to put less than 20% down without mortgage insurance in Canada, but don't worry about an extra 20$ a month when you can find proper growth and cash flow. Also Nick you shouldn't be looking in that big of an area you have to become a geographic specialist if you want long term success and to become an expert. I would recommend picking an area to specialize in. I see you're in Orangeville, I grew up just outside of that area and will be there for the holidays. If you would like to grab a coffee or lunch and talk REI let me know, I can show you strengths of my market and what type of properties I find for my clients.

Originally posted by @Samuel Sedore :

The short answer is there is no way to put less than 20% down without mortgage insurance in Canada, but don't worry about an extra 20$ a month when you can find proper growth and cash flow. Also Nick you shouldn't be looking in that big of an area you have to become a geographic specialist if you want long term success and to become an expert. I would recommend picking an area to specialize in. I see you're in Orangeville, I grew up just outside of that area and will be there for the holidays. If you would like to grab a coffee or lunch and talk REI let me know, I can show you strengths of my market and what type of properties I find for my clients.

 I am tied,up,for,the few days I have at home here. The new year? Is kW too far for me to look to or should I stay closer to,home....thinking guelph to be the cutoff

As a Realtor and investor who lives in Guelph I would warn that cashflow can be tough in Guelph. Hamilton is good, as well KW is good. You don't need to invest where you live for the same reasons you might not buy stock of a company just because it is local. 

thanks kory;

Good points. What are the numbers like in Hamilton vs kW...higher cash flows?

Thanks, what about new developments...are they a good ideas...heard if you,get in early it's good...problem is, you don't have money coming in, and you better have the cash when the house is built...thinking you can use your heloc....or second mortgage for this....just wondering if new is good or I should stick to single family's Ina certain area

Samuel, what are good areas in kW to look at for good cash flows...student rentals scare me a little..but maybe I'm wrong. With co signers can it be that bad? 

Thanks guys for,you,help,so,far!

Originally posted by @Nick Ovington :

thanks kory;

Good points. What are the numbers like in Hamilton vs kW...higher cash flows?

Thanks, what about new developments...are they a good ideas...heard if you,get in early it's good...problem is, you don't have money coming in, and you better have the cash when the house is built...thinking you can use your heloc....or second mortgage for this....just wondering if new is good or I should stick to single family's Ina certain area

Samuel, what are good areas in kW to look at for good cash flows...student rentals scare me a little..but maybe I'm wrong. With co signers can it be that bad? 

Thanks guys for,you,help,so,far!

 I couldn't tell you which city has higher cash flow because it comes down to so many different things. I stayed away from Hamilton to start with because I hate the traffic in and around the city and thought it would make future management an issue since I have no intention of living, there, research suggest its a strong market though its number 2 behind kitchener and cambridge. 

http://www.reincanada.com/aboutus/media-news/press...

 I would stay away from student rentals in KWC, the market is completely saturated with high rises and its getting tougher and tougher to fill vacancy. My focus is multi-family anything with 2+ units less than 6, I don't like single families for several reasons and I can send you an article if you would like. I look for multi-family properties that cash flow around 100-200$/m after all the variables.  Like vacancy, repairs, management which when everything is running smoothly equates to around 600-700, as a begginer property I would reccommend an older purpose built duplex or triplex. You can pick them up around 275-350k in Cambridge and Kitchener and find that type of cash flow, with the bonus of owning in one of the fastest growing markets in Ontario.

If you are interested in any market though I would recommend you have a KNOWLEDGEABLE realtor specific to that market to advise you. They should be able to determine cash flow and potential before even seeing the property. Anyone trying to stretch their boundaries is looking for a quick sale be wary of thier true intentions, I used to play sports in Orangeville but would never try to advise someone on investing there due to my lack of market knowledge

@Nick Ovington

Contrary to the information you received above, you can buy notes in Canada.   However, the market is much smaller than in the U.S.A. - naturally, we are ~1/10th the population - and financial practices are a little different.  

Performing mortgages that are "securitized" are going to be held predominately at the institutional level (Pension funds, corporations, etc).  What you and I encounter at the street/retail level are more apt to be from third-tier lenders (higher risk), private notes and, quite likely, non-performing.

Originally posted by @Roy N. :

@Nick Ovington

Contrary to the information you received above, you can buy notes in Canada.   However, the market is much smaller than in the U.S.A. - naturally, we are ~1/10th the population - and financial practices are a little different.  

Performing mortgages that are "securitized" are going to be held predominately at the institutional level (Pension funds, corporations, etc).  What you and I encounter at the street/retail level are more apt to be from third-tier lenders (higher risk), private notes and, quite likely, non-performing.

 Where in Canada can I buy tax notes?

@Samuel Sedore

The OP asked about note buying, not purchasing tax liens.  You can purchase notes secured by a mortgage in Canada ... you could probably even purchase unsecured notes, though I cannot think of a reason I would personally.  

Schedule A lenders (banks, large credit unions, etc) are not going to sell notes to you or I, but high risk lenders (so called tier 3) and private lenders (like myself) will place a first or second mortgage on a property and, if they need the capital ahead of the amortization schedule, sell the note off to another investor (usually at a discount).

Okay that makes sense I wasnt aware second mortgages or liens in Canada could also be referred to as notes. I have always known them as a "charge" mortgage or lien 

Originally posted by @Samuel Sedore :

Okay that makes sense I wasnt aware second mortgages or liens in Canada could also be referred to as notes. I have always known them as a "charge" mortgage or lien 

 The mortgage is the pledge (the charge is the registration of the pledge and note details against title) used to secure the promissory note.  The mortgage is given by the borrower (mortgagor) and subscribed by the lender (mortgagee) as a pledge for the note (or loan if you prefer) extended to the borrower from the lender.

Originally posted by @Samuel Sedore :
Originally posted by @Nick Ovington:

thanks kory;

Good points. What are the numbers like in Hamilton vs kW...higher cash flows?

Thanks, what about new developments...are they a good ideas...heard if you,get in early it's good...problem is, you don't have money coming in, and you better have the cash when the house is built...thinking you can use your heloc....or second mortgage for this....just wondering if new is good or I should stick to single family's Ina certain area

Samuel, what are good areas in kW to look at for good cash flows...student rentals scare me a little..but maybe I'm wrong. With co signers can it be that bad? 

Thanks guys for,you,help,so,far!

 I couldn't tell you which city has higher cash flow because it comes down to so many different things. I stayed away from Hamilton to start with because I hate the traffic in and around the city and thought it would make future management an issue since I have no intention of living, there, research suggest its a strong market though its number 2 behind kitchener and cambridge. 

http://www.reincanada.com/aboutus/media-news/press...

 I would stay away from student rentals in KWC, the market is completely saturated with high rises and its getting tougher and tougher to fill vacancy. My focus is multi-family anything with 2+ units less than 6, I don't like single families for several reasons and I can send you an article if you would like. I look for multi-family properties that cash flow around 100-200$/m after all the variables.  Like vacancy, repairs, management which when everything is running smoothly equates to around 600-700, as a begginer property I would reccommend an older purpose built duplex or triplex. You can pick them up around 275-350k in Cambridge and Kitchener and find that type of cash flow, with the bonus of owning in one of the fastest growing markets in Ontario.

If you are interested in any market though I would recommend you have a KNOWLEDGEABLE realtor specific to that market to advise you. They should be able to determine cash flow and potential before even seeing the property. Anyone trying to stretch their boundaries is looking for a quick sale be wary of thier true intentions, I used to play sports in Orangeville but would never try to advise someone on investing there due to my lack of market knowledge

Thanks Samuel for the info. Can you send me some properties that may be good for me to look at to get started? Would you recommend me using a property manager?

It depends on your amount of free time available when deciding whether or not to hire a property manager, if you don't mind the odd random phone call to fix something it's not so bad. Renting out can be the more difficult part in an unfamiliar market. Even when self managing its always good to have a local handyman contact anyway, you can pay them 30-40 an hour to deal with little issues that are not worth the drive. 

Originally posted by @Samuel Sedore :

It depends on your amount of free time available when deciding whether or not to hire a property manager, if you don't mind the odd random phone call to fix something it's not so bad. Renting out can be the more difficult part in an unfamiliar market. Even when self managing its always good to have a local handyman contact anyway, you can pay them 30-40 an hour to deal with little issues that are not worth the drive. 

 I agree. What are some better areas to look at when looking at k w and Cambridge? 200-300k is good, but if it doesn't meet the 2% rule, is it still worthwhile? Rent=2-3% of lurch price....I know on bp here, there are some rules of thumb when quickly analyzing...would you be able to help me out with this? I can't meet up over the holidays, but I am sure something can be figured out in the new year. Thanks for,all your help so far.

I dont know or use this 2-3% rule and I will research it to see whether or not it works in canada. I use the 8%+ rule, if the yearly rent is at minimum 8% or more of the purchase price, then I start my due diligence to further inspect the property.

In Canada our cash flow rates are much lower, this is mainly due to the fact our market stays strong and constantly appreciates in the good areas even in down markets. Of course depending on which American area you are comparing it to.

Originally posted by @Samuel Sedore :

I dont know or use this 2-3% rule and I will research it to see whether or not it works in canada. I use the 8%+ rule, if the yearly rent is at minimum 8% or more of the purchase price, then I start my due diligence to further inspect the property.

In Canada our cash flow rates are much lower, this is mainly due to the fact our market stays strong and constantly appreciates in the good areas even in down markets. Of course depending on which American area you are comparing it to.

Why folks do not skip all these silly one-dimensional ratios and focus on learning solid business accounting principals continues to astonish me.

Our our cash flow rates are lower than those in the U.S.A. on average because many markets in the country are fully or over priced  - current real estate prices are not supported by the underlaying economy and the rate of divergence of real estate prices from household income continues to increase.   What you see as "strong and constantly appreciates" has a pretty flimsy foundation at the moment.   It may ease off and allow the underlaying economies to catch-up, or it may keep chugging along until it goes off the tracks.   Either way, real estate will eventually re-align itself to the rest of the economy.

I see just today, the Finance Minister announce a further restriction to CMHC residential mortgage insurance as an effort to apply a little break to markets (primarily in Toronto and Vancouver).

Originally posted by @Roy N. :
Originally posted by @Samuel Sedore:

I dont know or use this 2-3% rule and I will research it to see whether or not it works in canada. I use the 8%+ rule, if the yearly rent is at minimum 8% or more of the purchase price, then I start my due diligence to further inspect the property.

In Canada our cash flow rates are much lower, this is mainly due to the fact our market stays strong and constantly appreciates in the good areas even in down markets. Of course depending on which American area you are comparing it to.

Why folks do not skip all these silly one-dimensional ratios and focus on learning solid business accounting principals continues to astonish me.

Our our cash flow rates are lower than those in the U.S.A. on average because many markets in the country are fully or over priced  - current real estate prices are not supported by the underlaying economy and the rate of divergence of real estate prices from household income continues to increase.   What you see as "strong and constantly appreciates" has a pretty flimsy foundation at the moment.   It may ease off and allow the underlaying economies to catch-up, or it may keep chugging along until it goes off the tracks.   Either way, real estate will eventually re-align itself to the rest of the economy.

I see just today, the Finance Minister announce a further restriction to CMHC residential mortgage insurance as an effort to apply a little break to markets (primarily in Toronto and Vancouver).

 There was big talk about that at the office today, but most realtors do not see that effecting the market very much. Majority of the purchases (again this is my market) are under 400k leaving no exposure to the new law. I do agree that Toronto and Vancourver may see a small slump initially while consumers get used to the rule. But I know the economic fundamentals in my market support growth for 3-4 years more minimum with the current construction building plans, and the long term plan of economic develop office in all  3 cities combined with everything I stay up to date on in the Chmaber of commerce. 

I use an "8% Rule" because that's the ideal cap rate in my market, for my target properties but only when purchasing properties in areas that show growth.  I know Toronto would be unrealistic to find 8% and in some states 8% would be terrible.

I disagree that "Either way, real estate will eventually re-align itself to the rest of the economy" because although the Canadian economy as whole or individual provinces may falter, there is always neighbourhood and towns and municipalities that will defy the rule. I don't see Hamilton or KWC being effected by anything short an economic disaster and a complete reccesion.

P.S Roy if you're ever in my end of Ontario I would love to grab a lunch or coffee and debate some real estate,I always like seeing things in different light.

Originally posted by @Samuel Sedore :

 There was big talk about that at the office today, but most realtors do not see that effecting the market very much. Majority of the purchases (again this is my market) are under 400k leaving no exposure to the new law. I do agree that Toronto and Vancourver may see a small slump initially while consumers get used to the rule. But I know the economic fundamentals in my market support growth for 3-4 years more minimum with the current construction building plans, and the long term plan of economic develop office in all  3 cities combined with everything I stay up to date on in the Chmaber of commerce. 

I use an "8% Rule" because that's the ideal cap rate in my market, for my target properties but only when purchasing properties in areas that show growth.  I know Toronto would be unrealistic to find 8% and in some states 8% would be terrible.

I disagree that "Either way, real estate will eventually re-align itself to the rest of the economy" because although the Canadian economy as whole or individual provinces may falter, there is always neighbourhood and towns and municipalities that will defy the rule. I don't see Hamilton or KWC being effected by anything short an economic disaster and a complete reccesion.

P.S Roy if you're ever in my end of Ontario I would love to grab a lunch or coffee and debate some real estate,I always like seeing things in different light.

You may disagree, but no real estate prices in any market - whether it be local such as Hamilton or Waterloo, regional (Niagara Peninsula), provincial, or national - cannot continue to diverge from the underlaying economy in that market (specifically household income) indefinitely.

I'll poke the bear a little more and say there is no "ideal CAP rate" when you are acquiring ... the only time we look at CAP rates (or PE ratios in other business) is when we pan to sell as it lest us know where we can price the business.

I'm guessing your young enough to have yet to operate through a serious downturn ... that's when I'll be interested in that coffee ;-)

@Roy N.   I did some hardmoney lending In BC so I know private lending is alive and well.

timed it right too... I think I can never quite figure out the arbitrage...

But Loonie at the time I think was something like 64 cents   and by the time the loan paid off it was up into the upper 80's  I think not only did I make my 15% interest but I made money on the exchange.. !!  plus Rev CA did not attach my gains like when I sold property .

Originally posted by @Roy N. :
Originally posted by @Samuel Sedore:

 There was big talk about that at the office today, but most realtors do not see that effecting the market very much. Majority of the purchases (again this is my market) are under 400k leaving no exposure to the new law. I do agree that Toronto and Vancourver may see a small slump initially while consumers get used to the rule. But I know the economic fundamentals in my market support growth for 3-4 years more minimum with the current construction building plans, and the long term plan of economic develop office in all  3 cities combined with everything I stay up to date on in the Chmaber of commerce. 

I use an "8% Rule" because that's the ideal cap rate in my market, for my target properties but only when purchasing properties in areas that show growth.  I know Toronto would be unrealistic to find 8% and in some states 8% would be terrible.

I disagree that "Either way, real estate will eventually re-align itself to the rest of the economy" because although the Canadian economy as whole or individual provinces may falter, there is always neighbourhood and towns and municipalities that will defy the rule. I don't see Hamilton or KWC being effected by anything short an economic disaster and a complete reccesion.

P.S Roy if you're ever in my end of Ontario I would love to grab a lunch or coffee and debate some real estate,I always like seeing things in different light.

You may disagree, but no real estate prices in any market - whether it be local such as Hamilton or Waterloo, regional (Niagara Peninsula), provincial, or national - cannot continue to diverge from the underlaying economy in that market (specifically household income) indefinitely.

I'll poke the bear a little more and say there is no "ideal CAP rate" when you are acquiring ... the only time we look at CAP rates (or PE ratios in other business) is when we pan to sell as it lest us know where we can price the business.

I'm guessing your young enough to have yet to operate through a serious downturn ... that's when I'll be interested in that coffee ;-)

As @Roy N. points out, and hit the nail right on the head. There is this common misconception among relatively young and newbie RE investors in Canada (more specifically Ontario) that the markets will continue to rise in perpetuity.  This is being driven by guru type organizations like REIN, whose livelihood are solely dependent upon investors buying into their programs and following their systems.   Therefore, they continue their Rah-rah campaign for Canada and paint a very rosy picture for RE in different locales.  There are very few gurus in this space who have a negative bias, and are actually dissuading from investing anywhere in Canada.  One of those is Sunil Tulsiani of Private Investment Club.  

There is also the common misconception that population growth in Ontario will continue to drive up RE prices.  Well if those people moving here can't find jobs, they will just continue to 'bunk' with relatives and friends - it is already not uncommon to see 2-3 families already living under one roof.  Just talk to any investors in Alberta right now, I have a few colleagues who are very very concerned at the health of their investments. And there are many reports of vacant rentals that have been sitting for months now.  It won't be long until the blight in Alberta/Sask spills into the rest of the country.