In today’s market we are seeing an increase in due diligence being done by the lenders and mortgage insurance companies. We are truly in some ground breaking times when it comes to the world of finance. The world economy took a beating back around 2009 due to a bunch of really bad mortgages being created and traded. Since then our Canadian government has really got involved in the Canadian Mortgage Industry. Regular audits and standards have now been carried out on most of our mainstream lenders these days.
More restrictions and verification is being done than ever before. For investment properties we are seeing a limit on the number of properties one person can own. Almost all of the big 5 banks have credit policies that will not consider future mortgages if the person already owns 4 properties in addition to their own home. There are exceptions to this but really rare.
Where does that leave a person if they choose to continue and grow a portfolio of investment houses? Well I was having a conversation last week with the CEO of one Alberta based mortgage company that told me that they have never in the history of his company had such A grade clients. “Basically we are seeing really good files sent our way because the person just doesn’t quite fit the rigidity of today’s credit policies.” Larry told me. If a person was ever focused on providing a “Rent to Own” house buying service, now would be the time. I really see opportunity when the pendulum swings so far to the conservative side. But being innovative and adaptable will be the key to success. I am not sure if I mentioned it in past articles but our “B” class of lenders are seeing tremendous growth in today’s market. If you are an investor it is good to know that it is possible to acquire 4 properties with each of the 3 major lenders n this category. So in theory if you were shut down at 4 at a major bank then a person could still purchase 12 additional rentals. What’s the catch you say? Higher interest rates running 3.5% to 4.99% and a little more down payment along with a typical 1% charge based in the loan amount.
Some purchases still do make financial sense even with these terms. In some cases a person can negotiate the seller to lend back a portion of their down payment which may keep you total percentage required to the token 20% or even less. What about the next tier of lenders? Our C class of lenders are seeing in increase in demand as well. I like to call these types of lenders as “Equity” based lenders. If the equity is in the house and there is a good story about how the money will come back a lender is more than willing to assist and make a bit of money. Note these rates start around the 6.99% mark and do go up to 15% when needed. As long as it makes sense is my motto when looking at options with clients.
Your real take away from all this is really to know that the lending world is always changing and evolving and there is and always will be someone or company that will be looking to fill a need. A good broker can be a fantastic resource! :p Feel free to call and run your deal by me, you may be shocked to hear all of the ways to make it happen and the pros and cons.
Talk to you soon,