Bank Financing | revnyou.com

Getting the Money for Your Real Estate Deals

December 28, 2012December 27, 2012 by Karysa

Even after 4 years of running our real estate investment business full time, eleven years of history of never missing a mortgage payment on any property, and a substantial net worth, we still find it challenging to finance our investments. In September we bought an beautifully cash flowing triplex. In order to finance it with the bank we had to show 3 years of mortgage and interest payments just hanging out collecting dust in a bank account. That’s on top of the 25% down payment that also has to be sitting in a bank account for 30 days before we even apply for the mortgage.

We bought it for $325,000. In order to even apply for the mortgage we have to have about $130,000 in cash just sitting around.

If you are starting to think about becoming a full time real estate investor and leaving your job, I encourage you to finance as many properties as you can while you have what the bank perceives to be a secure job. You’ll also want to start planning for your funding and financing future (one of the best ways to do that is to join us for one of our Fund Your Deals in 49 Days LIVE training events – we’ll help you build a funnel of sources for funds!).

The good news is that you do have some options when the bank says no or you don’t happen to have hundreds of thousands of dollars sitting around so the bank will say yes.

No Money Down – No Bank Needed

If you watch late night infomercials you’ll probably feel some attraction to the no money down, no qualifying at the bank strategies. We’ve been right there with you … not once but twice. We’ve invested almost $40,000 into learning “no money down” and no bank needed investment strategies.

The biggest lesson I can share with you is that just because you can do deals with no money down doesn’t mean you won’t need money.

Sandwich leases are a popular one these days for Canadians that want to do no money down and no bank needed type deals. A sandwich lease is simply where you find someone who will allow you to lease option their home from them and you turn around and offer it as a rent to own to someone else. You pocket the difference in monthly cash flow and option fee.

In theory this is a great strategy. The reality isn’t as pretty. It takes a lot of marketing effort to find the deals. It also takes a lot of effort to educate and explain what you’re doing to the seller. Finally, you’ll find the houses are generally in a state of disrepair and need some investment to improve them so you can attract good rent to own tenants. How much money do you want to put into a house you don’t own? The final issue is that it rarely works out that your lease option term aligns with the term that your rent to own tenants are able to buy within. It’s tricky. Your upside is limited in this type of deal and while you CAN do it without the bank, we find most investors get into this type of deal really excited and work hard for a year or two and then look for something new because it’s so much work for a minimal pay day.

Generally when we did creative deals – whether it was a sandwich lease, wrap mortgage or some sort of seller financed strategy – we ended up with problem properties and challenging tenants. We basically created a full time babysitting job for ourselves. That is because the kind of deals you can do creatively generally are not the great properties in good areas. They don’t attract the best caliber of tenant nor do they have minimal maintenance requirements.

The no money down and no bank needed strategies work but they didn’t work for the life and business we wanted to create.

The strategies we use to fund and finance our deals include Vendor Take Back Mortgages, Private Money, RRSP mortgages and joint venture partners. Sometimes we use a combination and other times we just use one. These strategies allow us to focus on doing great deals in areas that attract the best tenants. Our tenants typically love their homes like they were their own, apologize when they are late with rent or give us a heads up that it might happen, and rarely call us with problems. That’s because we focus on doing the deals that allow us to create a business and life we love instead of doing deals just because we can do them creatively or with little money down or no banks.

4 Great Ways for Getting the Money for Your Real Estate Deals

Vendor Take Back Mortgages

Seller financing, more commonly called a VTB or vendor take back mortgage is simply where the seller (Vendor) of a property is willing to provide some (or all) of the mortgage financing on that property.

Seller financing can take several different forms. We’ve done deals where the seller provided the entire mortgage, which amounted to 80% of the property value. We paid her 6% interest amortized over 25 years for a 3 year term with no prepayment penalties and an option to renew. She was able to sell her house in a slower market and made more money from it than she otherwise would have through three years of interest payments. We also have used seller financing to top up traditional bank financing.

Private Money

Private money is simply money from an individual. It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.

The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. That money is expensive thought. The upfront fees on those funds alone are usually1-3% of your mortgage amount. On a $250,000 mortgage that means up front you can start off with a $7,500 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but our preferred source of private funds is to raise them ourselves.

We find that a lot of folks have paid off their homes and are willing to put a line of credit on the property and loan that money out for a premium. One of our favourite strategies is to borrow $350,000 from someone’s line of credit to buy and renovate a property. We paid them 5% + their line of credit costs. (See an example of a property we’re doing this on right now in our video series on adding a legal suite to a property).

RRSP Mortgages

Mutual funds and stocks are not the only investments that are RRSP eligible. A mortgage can be held in a self directed RRSP (or RESP, LIRA, or RRIF) account. This is probably the largest untapped source of funds available to real estate investors because very few people know this option exists.

Master this and you’ll always be able to find the funds for your deals. With no management fees or advisor commissions to pay, RRSP holders could be making a stable and predictable 6, 7, even 10% or more return on their money inside their RRSP.

There are some additional rules around using RRSP funds though. For example, you can’t borrow funds from your immediate family to fund your investments. It needs to be arms length. You also can’t use the RRSP funds for a down payment directly on a property. You’ll need to put the funds on a different property as a first or second mortgage and then use those funds on the new investment. **We now cover using RRSP funds in our Fund Your Deals in 49 Days Live Training**

Joint Venture Partners

This is the most powerful strategy in our investment tool box. It’s the strategy that has allowed us to comfortably add a new property to our portfolio almost every month.

Our joint venture deals typically are structured so that we find the deals, oversee all work and management and split the proceeds 50% / 50% with our partner. In exchange for all experience and efforts, our partner puts in the cash required to close on the property and puts their name on title so they qualify for financing from the bank.

If anything goes wrong with the property and requires cash we are partners and split the costs 50% 50% just like we split the proceeds.

Busy people love this option. They don’t want to spend the hundreds of hours we’ve spent learning an area, building a team and digging up deals. And they definitely don’t want to take calls from tenants or handle issues around the property management. They can get into real estate without the hassles of being a landlord.

There are a lot of ways to fund your deals – even if the banks say no. The key is to know where to look, what to say, and what choices make the most sense for you and your goals.
Photo Credit: © Charles Knox Photo Inc. | Dreamstime.com

Real Estate Investing is Not Easy

October 30, 2012December 28, 2009 by Julie Broad

As I watched Dave race up one of the many hills in St. John’s en route to Ryan Mansion where we were staying I wished I had our Flip camera handy. It felt like we were on our very own episode of Amazing Race: The Real Estate Investing version.

After months of research, property tours, and more research we had uncovered two real estate gems. One is a duplex and the other a single family home. Neither property was distressed but they were both very solid deals.

So… we decided to buy them both. Everything was going along just fine until we encountered a little glitch with our partner.

No problem – we’ll just find a couple of new partners. Except the people we were contacting had less than 48 hours to make their decision. When you’re asking people for $50,000 they generally want more than 48 hours to think about it… even when the deals are compelling – which they were!

We worked the phones for two solid days determined to find people to join us on these two deals. And… with only a few days to spare before we had to remove any conditions we found two new partners!

Now we had to start arranging financing.

With a family doctor on one deal and a very successful veterinarian on the other you’d think financing would be easy – but it wasn’t! In fact, we were flat out rejected by bank after bank!

We have said it before – and I will say it again:

Real estate investing is simple but it’s NOT easy.

I continue to shake my head in frustration at program after program that declares you’ll be a millionaire in minutes and that it’s “all done for you”. I do not understand how they can make such bold claims.

We still spend a lot of money educating ourselves, but we no longer run around signing up for every course on the market that promises us fast riches. We are now very careful and selective about the real estate programs and conferences that we attend. We only take courses or attend conferences that are moving us closer to our goals. And thankfully there are many fantastic real estate programs out there … you just have to look beyond late night television and pushy radio ads trying to convince you to attend a free seminar at a hotel meeting room near you.

But, let me get back to my story about our two deals … Dave was running up the hill in a race against the clock. You see, after we finally found two new partners to join with us on the deals, we then began our ‘vacation’ with the problem that these two people didn’t qualify for financing on either property! We had to extend one of the deals by 4 days and frantically set to work calling all our friends, family and colleagues once again … this time in search of financing!

When the Bank Box is Too Small to Finance Your Rental Property

April 24, 2020March 27, 2006 by Karysa

2006 has not been a great year for us in real estate investing. After the $20,000 in fines and work orders we had earlier in the year for the “crack house” in Niagara Falls, and $5,000 in plumbing repairs in May on our three unit home in Toronto, we hoped the expensive surprises were done for the year. Sadly, in September we had to rewire the same three unit property in Toronto. After we stopped choking on the $25,000 bill, we sat down and refocused on what our objectives are.

Every month we bring you back to those objectives that we talked about in the very first newsletter, but sometimes they are all that keep you going forward. As we figure out how to pay for the new debt when we still haven’t paid off the other surprises from the year, you can see how our objectives are especially important.

So, this month as we take you through a few of the deals we did in the last five years, remember to revisit your goals for your wealth, health and life. You never know when you will need them to guide you on your next decision.

The Eleven Dwellings:
Our five years of purchasing history

by Julie Broad

Neither Dave nor I make six figures (yet! we still have high hopes). In fact for almost two years while we were investing, I wasn’t making anything because I was a student. So, before you turn away thinking you can’t possibly afford to buy one property let alone 11 in the next five years, remember there are ways to achieve any goal with a little determination, effort and creativity!

As promised last month, here’s a high level look at how we picked up eleven new properties in five years:

1. Nanaimo A – bank financed deal with savings
2. Toronto A – primary residence purchase using RRSP’s
3. Toronto B – we assumed the vendor’s mortgage and our real estate agent held a second mortgage on the property (this has been a mixed blessing purchase – it’s one we were never sure how we qualified for, but had we not qualified for it we would have saved tens of thousands of dollars in repairs and renovations that we didn’t expect – shown in the photo above, our new garage construction)
4. Niagara Falls A – No money down deal with bank financing and a VTB (“No money down doesn’t mean it won’t cost you” – remember that edition of Rev N You? It was about this property)
5. Niagara Falls B – 85% mortgage from the bank, with CMHC insurance, a promissory note from the vendor and a credit for work to be done
6. Nanaimo B – 80% VTB, no bank financing and we partnered with a friend of ours to come up with the downpayment (this is an example of one of the deals out there worth looking for, and when you find a good deal it’s not too hard to find someone with cash willing to go in on the deal with you)
7. Toronto C & D – pre-construction condos where we partnered up with several people to come up with the 15% to purchase them; and we have to pay the other 10% down when they are finally built in 2008
8. Nanaimo C – Refinanced Nanaimo B as it had appreciated a considerable amount in 12 months, and we used that money to buy this property (no money out of our pockets)
9. Nanaimo D – Refinanced Nanaimo A to purchase this property, and used some of the left over cash to renovate Toronto B (this is when we love real estate and the hot market we have been in!)
10. Vancouver A – All we will say for now is that we can thank the creative and hard work of our mortgage broker and some help from our family.

There are deals you don’t see in that list that we walked away from. There is even one deal we left our deposit ($1,000) on the table because we walked away too late. Sometimes the financing just doesn’t come through. Sometimes the deal doesn’t make sense in the end. This is where having at least one condition in your Purchase and Sale Agreement is key as we discussed in a previous edition (so that you can still walk away and not lose money!).

We have since sold one of the Niagara properties because of the constant problems with the tenants, the property manager and the city, and Toronto A is on the market to pay for the costs of rewiring Toronto B. We will never say this has been easy. But, we always tell ourselves that if it were easy everyone would be doing it.

Our point of showing you what we have purchased over the past 5 years is to give you an appreciation for how a little creativity can go a long way with real estate investing. You don’t always require a lot of capital or a ton of experience as there are other people you can work with to help get you going. Short of cash? Talk to friends or family to see if they might be interested in partnering up. Short of ideas? Speak with someone you know who has a fair amount of real estate investing experience. Think “outside the box” even if the bank’s want you to be in it!