putting a downpayment for a 6 unit multiplex

[Alina K.]

Hi Everyone,

We're in Ontario, Canada and we are looking to invest in our first buy rent and hold project, which is a 6 unit multiplex. The problem, tho, is we have no downpayment!! :-(  Some mortgage agents told us that first time buyers can put as little as 5% but not on rental properties :-( Are there any hard money lenders who'd lend money for a downpayment (80,000$) and if so, how fast would we have to pay it off???? Is it true that using a hard money lender only good for a quick deal such as buy-fix-flip? 

Your help will be greatly appreciated! 

P.S - we read similar discussions on here and we're so happy to see people encouraging each other not to give up and keep going! We'd love to do the same for everyone on here! 

[Roy N.]

@Alina K.

Residential properties are 1-4 units (SFH to quadruplex). As such, almost all conventional lenders in Canada will underwrite a 6-unit property from their commercial lending group {who will not be terribly interested in a deal that small}.

RBC has been underwriting 5 & 6-unit buildings using residential mortgages {not sure if they are still doing this}, however you will require a downpayment of 20%.

With a commercial mortgage you may need to put down 25 - 30%.  If the building can qualify for a CMHC insured mortgage and you can convince the vendor to carry a second mortgage of 10%, you may get away with a downpayment of 15%.

Sounds like the mortgage agents were thinking about a home being bought by Dick & Jane using a high-ratio mortgage ... a 5% downpayment on a conventional mortgage would only be available on a SFH or duplex if you were to live in the property.

Additionally, the downpayment cannot be made using borrowed funds.  Somewhere in your financing application and, likely, in the mortgage agreement itself will be wording where you attest that the downpayment, in whole or in part, has not been borrowed.

@Clay Smith - a vendor carry back is not the same as a down payment.  Conventional lenders here may allow up to a 10% carry-back by the vendor in a commercial deal if the mortgage is insured ... the other 15% must come from your pocket.   Residential lenders typically will not allow for a vendor carry to reduce the downpayment requirements (if they allow one at all).

Side deals are illegal here and the amount of cash-back (for whatever purpose) at Close will be tightly limited by a conventional lender.

Finally:

This would be treading along the line of mortgage fraud.  A conventional lender will extend a note based on the lower of appraised value or purchase price ... there will be no forgiven equity at Close.  That said, the lender would likely pull out of the deal at the 11th hour if they caught wind of the above.