Financing question (Canada, Montreal)

6 Replies

I have found 3 very similar properties all in Montreal. I just can't figure out why the down payments indicated are so different for each one.

Costs 950 000$ and requires a 454 000$ down (47.789%)

Costs 1 100 000$ and requires a 525 000$ down (47.772%)

Costs 970 000$ and requires a 339 000$ down (34.948%)

Very confused. Thanks.


I didn't work through the "rosy" financials provided in the listing, but my first impression is the large down payments are needed to achieve the returns listed in the advertisement ... which generally means the business is overpriced ... you would be paying too much for each dollar of revenue.

I guess my question is, how much money would the bank lend me for each of these properties and how much down would I need? Are the values indicated there somewhat accurate or not at all? My confusion stems from the fact that there are 20 units and perhaps the down payment required is higher than the standard 25% of a 4plex-8plex. Thanks.

The downpayment will be determined by a combination of the following:

0) Legal and regulatory requirements;

1) The strength of the business - how much free cash-flow does it generate and the strength of the applicant(s) (financially stable, experience, professional management, etc);

2) Insurance requirements if CMHC mortgage insurance will be sought; and

3) The lender's internal rules & guidelines;

Are these rooming houses?  The listings state 16, 20 and 20 rooms respectively.  If you are financing a rooming house, lenders will frequently want a much larger downpayment - some won't touch rooming houses at all.

@Cloud Renji Once again, it's because the bank finances 75% of the property's economic value, NOT the purchase . Therefore, you have to pay the difference between the loan amount and the purchase price as your cash down amount whichever the % amount it is going to be.

The only time you will give 25% cash down, as you are refering to, is when economic value = purchase price, which is very rarely the case for anything listing on MLS in our market. If you want good deals and only put 25% down, you will have to find off-market deals at a significantly lower price than what you are currently looking at.

@Guillaume I understand that. I'm not asking for a 25% down payment purchase, I want to know why these similar properties have different downs (35%, 48%, 48%). They are all renting rooms, and two of them are offering the same number of rooms (20). 

The only thing that would make sense is that the values listed are incorrect, or that the economic values vastly differ despite the similarities. What would you say is the correct economic value for the two properties with 20 rooms? Thanks.

@Cloud Renji The values listed are correct. Economic value is determined by revenues and expenses and not by number of rooms or units. In this case, @Roy N. is right, rooms are even harder to finance and require a lot more cash down since their value for the bank is always lower than conventional units. The risk associated with short term rentals is always higher for them.

Now, what I suggest you do is call Patrice Menard's team. I know them very well. They have a mortgage broker on their team and he will give you all of the information you need to understand financing better. You really need to acquire the necessary knowledge before you proceed with a purchase.

Hope this helps!