Understanding affect of VTB on a mortgage

5 Replies

Hello everyone, 
   I have found a deal, but its a portfolio of 23 units spread across multiple buildings. asking for around 1.7m. Cashflow is not very great, its around $1200, and its way overpriced (hard to find good deals these days). But the vendor may accept VTB of 15%. 

So I wanted to understand the deal and numbers. I approached RBC, with this VTB, but they told me that I would need my cash of 25% anyways.

I was expecting if I get a 15% VTB then I may have to come up the rest of 5% to 10% (to make it 20% or 25% down). obviously I am new to VTB, so my understanding is limited in this. Hoping to have someone who has done this many times to guide me to understand this. 



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Have a read through this.... https://www.canadianrealestate...   Your bank will want first position and may limit the VTB (second position) contribution.  

Work with a broker instead of one of the big banks to get a better picture of what's possible.

As a bit of advice, it sounds like you are trying to justify a bad deal with the hope of creative financing. A bad deal is still a bad deal... don't let FOMO force you into something stupid.

Hi Shiv - I did this with a commercial loan rather than a residential loan.  BMO allowed me a 20% VTB and they put in the other 80% and I got a 5 unit complex comprising of 3 buildings done with Zero of my own money other than closing costs.

They generally approve it based upon cash flow and they want the cash flow to be 1.25 x the costs.  And they may also want you to have sufficient Net Worth to allow the VTB portion as well.  The net worth tells them that you can cover the costs if you need to despite having put no money into the deal.

Thanks @Roy Cleeves , I remember you did something in that line. I will contact you to know more. And when you mention  "cash flow to be 1.25 x the costs.", does it mean, 

Monthly Cashflow ÷ (Monthly Operating Expenses + monthly total Debt Payment) 

monthly or yearly.

@Chris Baxter , you are right that a bad deal by number is still a bad deal. But I was trying to see if I change my numbers (invest my own cash), if it becomes a less bad deal.

@Shiv Dutta This doesn't seem like a great deal: $52/d /m. The 74K/unit is good. Where is this opportunity? Seems very low/door. If the roof or the heating system needs repair you will have $0 cashflow for awhile. Is there a way to increase cashflow (ie laundry, charge for parking, reno and increase rent etc....)? Ask yourself: is the amount of headaches you will have worth $50/d? Can you negotiate a higher VTB, with balloon payment after 1 year or 2 and super low rate?