All Forum Posts by: Luc Boiron

@Jane Fung There are several meetups on meetups.com. Gary's meetup is there as well.

A lot of the others ones appear to be trying to sell you something. 

I have been thinking about starting a meetup in Toronto just for investors to discuss deals and strategies, rather than trying to sell to each other.

Buying a rental in Toronto likely will be cash flow negative. People buy for the hopes of appreciation. You can also put more money in down payment in hopes to cash flow. It doesn't make much financial sense though, but works for those speculating on housing prices as long as they increase rapidly. Not really my cup of tea.

@Aaron Deacon Welcome to BP. 

You may have a few issues. 

Never having had a credit card, you probably have low or no credit. You need decent credit to get a mortgage, and good credit to get a decent rate on it.

On top of that, your income of $40,000 is not enough to carry a mortgage close to this size. Lenders won't lend when they don't see enough income to repay the loan. With the four plex, some lenders will calculate the rental income and add it to your income. How much of the rental income they will take into account will very by lender, with some taking 50% of the income, some taking 75%, and other lenders taking different amounts into account. The amount of rental income a lender will take into account varies as well, so even if they were counting 75% of the rental income last year doesn't mean they will count that much now.

If you're planning on renting out all four units, you will need a rental property mortgage. I don't mean commercial mortgage, only that lenders treat mortgages a little differently if you are living in it as your primary residence or not. You would likely not be able to get a traditional "A" lender (the big banks) to lend on this. They may not even be willing to lend if you are living there because it is a multi-unit property, but less so if you aren't. This means you will need to go to "B" or alternative lenders. The rates are slightly higher, and you may have more fees up front. They're still a good option, as the big banks seem to be scared of any loan that isn't a cookie cutter loan for a homeowner with good credit and income.

Lenders are not ok with the downpayment coming from borrowed sources. They want to see the money in your account for 90 days before you request the loan. It can be a gift from a family member, but not a loan. And many lenders still want to see 5% of the purchase price coming from your personal account. I'm not sure if this is the same across Canada, but in Toronto, and the rest of Ontario, it is this way.

I'm not sure if the alternative lender will be ok with you putting less than 20% down. Some want 25% down. You can't get a CHMC insured loan for $1,100,000 at 5% down. For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000.

On top of that requirement, even when under $1,000,000, CMHC has recently made some changes. For CMHC-insured mortgage loans, the minimum equity requirement is: 5% down payment for the purchase price portion ≤ $500,000; 10% down payment for the purchase price portion > $500, to < $1,000,000.

Another thing you don't seem to be taking into account is just how expensive CMHC insurance is. If you were to buy one of these properties for $999,999, the maximum amount for a CMHC insured residential mortgage, you would need to put down a minimum of $75,000. The premium rate would be 3.6% of the loan amount, which would be over $33,000. Very expensive.

Have you analyzed the financials of a four plex at $1,100,000? I find it hard to believe that it could generate enough income to cash flow after a loan is in place. You say that you would pay the investors and lender back from the cheques from the tenants, but I don't think the type of property you are suggesting would make enough money to pay them back. Maybe if you were buying a four plex with good income at $400,000 and below.

As to your question about how much people pay, I think it is fair to pay family and friend 6-12% on their invested capital, if you know what you are doing, and personally guarantee those loans. Although, family likely isn't putting money with you from a business standpoint, but more because you are family. So they'll probably take whatever you give them. I lean towards the higher side, as I understand that they have opportunities elsewhere. Also, the lender would have the first mortgage on this property, and these people probably wouldn't even be registered on title, so their loan to you is much less secure. If they weren't family and friends, you would not be able to get this loan.

This isn't meant to dissuade you at all, but you may want to look into other ways to start, or find someone with deeper pockets to partner with you or mentor you.

Good luck!

Even if it can't be a bedroom, I'm sure it can be useful to a tenant. If you just describe it as an extra room for storage, the tenant can use it as an office or man/woman cave, etc. I think it's cool.

That's awesome! Post some pictures when you can, I would love to see this secret room.

 Yup, you don't need to be too scared of these. Almost all residential mortgages in Canada have a 5 year term and a 25 years amortization. At the end of 5 years, if you have been making your payments, lenders essentially offer you to roll over to a new 5 year term with however long is left in your amortization, but at prevailing market rates. 

I'm not saying it's a great system, but it works for us, and you don't need to be too afraid.

 That could make sense in some situations, but in most, it would be better to buy a second property with that extra 20% and you end up getting twice the rental income. Also, paying down your mortgage and trying to borrow out the equity isn't always as easy as you hope, refinancing isn't quite as easy.

Here's an example:

You buy one property for $100k, with 40% down. You get a mortgage of 60% at a rate of 5%. Rent is $1,000 per month, or $12,000 per year. Expense before mortgage are half of that (50% rule as an estimate), so your net income before debt is $500/month.

Interest on your mortgage of $60k is $3,000. You receive net income of $6k in rents. The value of the property goes up 4%, so there is a gain of $4k.

At the end of the year, you have paid $3k in interest, and gained $10k in net rent and appreciation, for a net profit of $7k, which is 17.5% return on your $40k invested. Very good.

Example 2:

You buy two properties for $100k each with 20% down.

Interest is $4k on the $80k borrowed. Net rent on each is $6k, appreciation on each is $4k.

At the end of the year, you have paid, per property, $4k in interest, and gained 10k in net rent and appreciation. This is a net profit of $6k per property, or $12k on the two. This is a 30% return on your $40k invested.

Why is this? OPM. Other People's Money. You are leveraging the bank's money at 5%, on a property that is returning 10% between net income and appreciation. You are making 5% on the bank's money, which exponentially increases your returns per dollar invested.

Obviously this is a simplistic example, but the concept holds true when you apply it to real life, subject to certain caveats.

@Zach Kidd @Sadye S.

Be careful with the cash for keys. 

If they don't accept, and you try to evict the tenant on different grounds, they may argue that the grounds you are evicting them on are false and you really want them out for others reasons, evidenced by you offering them cash for keys.

Keep the offer of cash for keys verbal only. If they agree, don't give them the cash until they have moved out.

@Dewain J. The exterior look of the building could add to the appraisal value, but most of the value in multi-family is based on the income generated. I think the appearance matters less than it would in a SFR property.

@Nsikan Diarra It depends on the person and the job. Starting in Real Estate part time while working is a great way to start. As you know from processing loans, it's a lot easier to get a loan if you have some income.

Once you get a few deals going in RE, have systems that work, and want to scale, you could then get into RE full time.

I'm not saying you can't do RE full time now though, that depends on your situation, experience, savings, etc.

Good luck!

 How much is a severed lot worth, and how much would the severance cost?