Investor · Montréal, Québec · Member since 2016 · 52 posts · 17 votes
I currently own triplex in the Montreal area and financed through a traditional mortgage, I'm wondering how some of the BP members have financed some of their deals either when they already owned properties, just started out or were looking to make the next deal. Right now my plan is to refinance the property in 2 years, pull the equity and buy more property on an owner occupied deal, but im looking to learn about how i can creatively finance more deals before that time. Also currently reading the book on investing with no and low money down by Brandon of BP but a lot of what applies in the U.S doesn't apply here in Canada!
Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
9y
@Rick Pozos Lot's of the strategies used in the US also work in Canada.
We don't have FHA or VA loans, the lowest we have is 5% downpayment. The insurance for this is very expensive - 4%, which usually gets added to your mortgage principle, and gets paid down over the amortization of the mortgage. It does not disappear once you pass a certain threshold of equity as I understand it does in the US. So you put 5% down, and get a mortgage from the bank for 99% of the purchase price. Also, 5% is only available on single family and I believe duplexes, I believe that once you get to triplexes and fourplexes you need a larger downpayment.
Seller paying closing costs - this isn't a concept that really exists in Canada. Apparently, banks see right through that and reduce the amount they loan accordingly.
VTB - This is a great concept and still very possible to use here. The hot markets are so hot here that very few sellers would consider VTBs. Also, lenders are wary of them, so they will still limit how high you can go with a VTB as a second (often 85%, like getting a 75% first and a 10% second, the banks won't lend the first if the second goes too high).
Some of the other issues we have in finding deals here are that property rights protect owners here more - it's more difficult to lose your home to foreclosure or tax liens. Properties sold through tax liens are rare, though they exist.
Foreclosures don't really exist here. They do, but the majority of bank sold properties are usually done through Power of Sale, and the bank is liable to the borrower is they sell the property for less than FMV (and need to prove they went through steps to get FMV). Makes it that you don't really get good deals on REOs. One of the major reasons banks don't use foreclosure here is because the borrower can at any point in the foreclosure process force it into judicial sale, which is like power of sale but done though the courts, which is obviously even less fun for the banks. Power of sale allwos the banks to still go after the borrower if they default and the sale generates less than what is owed. On the flip side, if the bank sells the property for more than is owed plus their costs and interest, the borrower gets to receive that amount back.
Montreal, Québec · Member since 2016 · 133 posts · 19 votes
9y
@Account Closed Hi Elias, refinancing is a good way to go if you have good equity. Some people do seller finance (seller already paid off the property in full and is willing to act as the lender). It can be interesting for the seller because the sale is cover over many years, therefore permitting him/her to pay less taxes on the sale. The terms will be decided between both of you. In many similar cases, the seller often charges a higher rate than the bank would, but once again that would be negotiated between both parties.
There is also private lender, but I would keep that among the last options because the interest rates can be much higher.
There is also the option of partnering with someone.
Many people will go the conventional way until the bank says "no more". Then you either try to find another bank or try another one of the methods.
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
I've used LOC's to finance the down payment on properties before. Typically just in value add situations where I can refinance after 3-6 months and pay it back, although I have used that scenario for when there was just a spectacular deal and paid the LOC back with cash flow (from both current holdings and the new property).
Recently though I've been going after larger deals and use investor money, but it took many deals under my belt and a proven track record before people wanted to give me money.
Real Estate Consultant · Lancaster, CA · Member since 2014 · 423 posts · 223 votes
9y
We use leverage in our deals. We've developed a deal management system that tells us how much leverage we can use and at what cost for the deal to be profitable. Our minimum leverage on flips is about 10% and 15% on buy and holds. We use 1st and 2nd mortgages to pay 70% of the purchase (1st mortgage) and the 30% down payment, rehab costs and closing costs (2nd mortgage). We then come in as the equity investor to cover out of pocket costs (inspection and appraisal) and holding costs (6 months worth).
Used correctly leverage will boost your returns while allowing you to shift risk to the 1st and 2nd mortgages. it also allows you better money management since can you spread your cash over more deals and have eggs in more baskets. You can either put $100,000 cash into a single deal and make 10% or you can use leverage and put $100,000 into 10 deals at $10,000 each and earn 25% each deal. Which would you rather do?
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
9y
Up front we get private financing and then once rehabbed, we get a bank loan from a local bank. Local banks, in our experience, have been by far our best source of long term financing.
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
9y
Hey @Account Closed, I am curious about what does NOT work in Canada that works here. Some things you may not have heard of or have not tried, but I think real estate and techniques of buying with no down are universal. Please enlighten us.
Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
9y
@Rick Pozos Lot's of the strategies used in the US also work in Canada.
We don't have FHA or VA loans, the lowest we have is 5% downpayment. The insurance for this is very expensive - 4%, which usually gets added to your mortgage principle, and gets paid down over the amortization of the mortgage. It does not disappear once you pass a certain threshold of equity as I understand it does in the US. So you put 5% down, and get a mortgage from the bank for 99% of the purchase price. Also, 5% is only available on single family and I believe duplexes, I believe that once you get to triplexes and fourplexes you need a larger downpayment.
Seller paying closing costs - this isn't a concept that really exists in Canada. Apparently, banks see right through that and reduce the amount they loan accordingly.
VTB - This is a great concept and still very possible to use here. The hot markets are so hot here that very few sellers would consider VTBs. Also, lenders are wary of them, so they will still limit how high you can go with a VTB as a second (often 85%, like getting a 75% first and a 10% second, the banks won't lend the first if the second goes too high).
Some of the other issues we have in finding deals here are that property rights protect owners here more - it's more difficult to lose your home to foreclosure or tax liens. Properties sold through tax liens are rare, though they exist.
Foreclosures don't really exist here. They do, but the majority of bank sold properties are usually done through Power of Sale, and the bank is liable to the borrower is they sell the property for less than FMV (and need to prove they went through steps to get FMV). Makes it that you don't really get good deals on REOs. One of the major reasons banks don't use foreclosure here is because the borrower can at any point in the foreclosure process force it into judicial sale, which is like power of sale but done though the courts, which is obviously even less fun for the banks. Power of sale allwos the banks to still go after the borrower if they default and the sale generates less than what is owed. On the flip side, if the bank sells the property for more than is owed plus their costs and interest, the borrower gets to receive that amount back.
So things are a bit different. Just like when I read things on here too, you have to take all that you can from an article or post and what does not work for you, just leave it behind.
@Account Closed now to answer your original question. I finance my properties through friends and family. I know the numbers are very small compared to Canadian cities, but that is how I do it. I try to network with individuals who might want to be lenders. If they cant or wont, I ask if they have some friends who might want to do the same. Eventually, the people who have worked with me in the past let others know about past dealings. Your reputation spreads.
Investor · Montréal, Québec · Member since 2016 · 52 posts · 17 votes
9y
Hey @Chris Walters, the conventional way with the owner occupied option was probably the way i see to be the cheapest and probably the route i would take on the next property, i like the approach of going with the same institution until "no more", before going to another bank
Investor · Montréal, Québec · Member since 2016 · 52 posts · 17 votes
9y
Interesting approach @Michael Evans, are all these mortgages with the same financial institutions or several different ones ? Very interested in learning more about the leverage system you use
Investor · Montréal, Québec · Member since 2016 · 52 posts · 17 votes
9y
Hey @Rick Pozos, as far as i understand the Canadian Government doesn't incentivize investors to buy real estate as does the U.S Gov. As a result the FHA and 203k loans aren't quite a thing here in canada, typically most buyers will use as the members above mentioned, traditional financing, private lenders, LOCs, we also don't have 1031 exchanges as to my knowledge. Creative financing is, from what i know so far, limited, here in Canada. Canadian financial institutions are also very strict in their financing criteria, once again this is all to my current knowledge and im trying to learn as much as i can in financing my next deal so as to use other financing methods