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

2 Things That NEVER Work When Raising Money For Real Estate Investing

March 22, 2013November 1, 2011 by Julie Broad

Quick – you need to get $25,000 for a renovation on one of your rental properties. That renovation will allow you to add another suite and increase your monthly positive cash flow by $800/month. It makes great business sense to do the work but you don’t have the cash.

Your line of credit is maxed out because you used it for a down payment and now the bank isn’t interested in lending you any more money. What do you do to raise money for real estate investing?

There are lots of options to get money for real estate investing but unless you can (or want) to tap into equity in your home with a refinance, all the options you have require that you raise some private money.

Private money is simply money from an individual (instead of a bank or credit union). 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. Most mortgage brokers work with a few wealthy folks that have money to lend or they will refer you to a mortgage broker with private money connections. If you have decent credit and the property generates a solid cash flow you should be able to find money this way, but that money is expensive.

The upfront fees on those funds alone are usually 1-3% or a minimum of a $2,000 fee (whichever is greater) of your mortgage amount. On a $25,000 loan or mortgage that means up front you can start off with a $2,000 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 there are much better alternatives. And those alternatives are usually found by reaching out to friends and family for referrals or getting out there and meeting some other folks interested in real estate investing.

The goal is to get a face to face meeting with people. In that face to face meeting you can look each other in the eye and determine if there’s a good fit to work together, you can assess what each person brings to the table and make sure you’re offering a deal that makes sense for both of you. In ten years and millions of dollars of other people’s money raised for our deals, we’ve only ever ONCE raised money without a face to face meeting. In that one case it was with someone we had a long standing relationship with and, quite frankly, we gave him the best deal we’ve ever given anyone because we found ourselves in a bit of a last minute bind.

Generally you have to have ONE face to face meeting to move your money raising efforts forward. But most people never get to that face to face meeting because they do one of two things that cause you to fail almost every single time. How do we know?? We messed up dozens and dozens (ok probably more like a hundred) opportunities before we figured out these deal killing mistakes. Today I am going to hand them to you on a silver platter to save you a lot of trouble and a lot of headache from banging your head against the wall wondering why things aren’t working!

2 Things that NEVER Work to Raise Money for Your Deals:

1. Email
I don’t like the telephone. Unless I am expecting a call I don’t answer the phone. My preferred mode of communication is in person, or via email or text. So to get to the in person meetings I tried REALLY hard to find a way to raise money via email. I used all my writing skills to write compelling emails. I spent hours writing people personal well thought out messages. I sent dozens of emails.

The result? I felt lousy because EVERYONE ignored me except a few really polite friends or family that would send back some very awkward email saying “thanks for thinking of me I will review this later.”

Then I started to get annoyed at how rude people were … until I realized it wasn’t them … it was ME!!

Email does NOT work. I don’t care if you have the HOTTEST deal to hit town in a decade, email is going to flop 99% of the time.

Email only is an effective tool after you’ve met with someone and they have indicated that they want to work with you. Save yourself time and embarrassment and DON’T EMAIL PEOPLE your deals and ask them to work with you. Yea – email feels easier at first because you avoid having people say no to your face but the reality is that all people will do is ignore you so it’s ineffective and a waste of time.

2. Spilling your candy in the lobby
This was the lesson Dave learned. He LOVES to talk on the phone. He loves to catch up with his friends and family and learn what people are up to in their lives. He also gets pretty excited when somebody asks what we’re doing. So … he would get on the phone with someone he wanted to set up an in-person meeting with and when they’d say “What are you up to these days Dave?” he’d proceed to basically tell them everything about what we’re doing with our investments negating the need to get together. The problem is that you pretty much HAVE to get that face to face meeting to get the deal done.

Dave wasn’t sure what he was doing wrong so we called up our friend & private money raising expert Patrick Riddle (www.mustknowinvesting.com) and asked what we were doing wrong. He simply said “You’re spilling your candy in the lobby and there’s nothing left for the show.”

You want to give people a reason to meet with you and if you tell them everything that you’re doing on the phone then there’s no reason to meet. You have to keep the call brief and interesting. Give them a reason to meet with you and then get the date and time set up.

One of the best ways to do this is simply say “Jason I’ve been driving by your car dealership and I keep thinking that I really admire and respect what you’ve built with your business. I’m working on a few things and I would really appreciate your opinion. Have you got time next week so I can pick your brain and buy you lunch?”

Nobody ever says no to that kind of invitation and next thing you know you’re having a lunch, learning and finding money for your deals!

Of course … now you might be wondering what you say when you get to the in-person meeting but that’s a little trickier than we can cover in one little article!! Simply stated your objective is to get an understanding of whether your investment program is a good fit for their needs. If it is, confirm their interest and let them know that you will follow up when you have a specific deal that fits their criteria (or present your deal!). If it isn’t, then ask if they know anybody that might be interested.

Image Credits: Dreamstime

Published November 1st, 2011

Seller Financing VTBs

October 20, 2012October 25, 2010 by Julie Broad

During the heated market conditions of the mid-2000’s, sellers willing to finance real estate deals were really tough to find. Homes were selling fast and for so much more money than most sellers expected. Today, with cooler housing conditions, lower prices than some sellers want to accept, and terribly low rates on GIC’s, we’re finding more sellers willing to entertain the option of financing some of the property to increase their return, speed up the sale and get a good price for their property.

What Is Seller Financing?

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.

We also have used seller financing to top up traditional bank financing. In other words, we’ve had sellers provide us with a second mortgage (which simply means they are in second position behind the bank) to minimize the money we had to put into a deal. We’ve also used it to bring the financing on a property up to 80% of the loan to value when a bank would only loan 65%.

We’ve also used seller financing in the form of a promissory note. This is definitely riskier for a seller because a promissory note is not registered on title, but as an investor it’s a little easier to work with because secondary financing on a property can upset the bank that sits in first position (banks like you to have plenty of equity in the property and won’t fund your deal if you’ll be too highly leveraged with the additional financing).

A promissory note is simply a loan from the seller of the property with a contract stating that you (the buyer) promise to pay a specified amount of money to them (the seller) at a specified time in the future. It is not secured by the property but it is a binding contract whereby you agree to pay a certain amount to the seller. When we’ve used this form of a VTB in the past we typically make one balloon payment to the seller at a time in the future, but you can structure them like a mortgage with principal and interest payments, interest only payments or annual blended payments.

Benefits of Seller Financing for the Vendor

Why would a seller even entertain a VTB? There are several reasons:

faster sale of a property in a slower market
a higher sale price because most investors are willing to pay a premium for a property they don’t have to finance using bank financing
a higher overall return for the seller because even if the buyer doesn’t pay a higher price, there is a usually a good interest rate offered on the deal which essentially equates to a higher overall sale price. For example if the home would have sold for $300,000 but there is a two year 80% loan to value VTB at 6% interest, the seller is essentially getting $328,800 for the property ($240,000 mortgage times 6% interest times 2 years).

There are also potential tax savings if the home was not the primary residence of the seller whereby they can defer some of their capital gains to future years which can help to reduce the income tax bracket the gain ends up being charged in.(of course, sellers should speak to their accountant to understand if this benefit applies to them and their situation).

The biggest benefit for a seller is gaining a higher return on the proceeds of the sale of the property than if the funds sat in the bank.

Why earn 2% in a “high interest savings account” at your bank when you can earn 6%, 7% or more on your VTB? It’s a property the seller is familiar with, and the worst case scenario is that the buyer defaults on the payment and the seller gets the house back to resell again.

What kind of security does a seller have who puts their sale proceeds into mutual funds or stocks? None.

VTB’s aren’t the solution for every seller, but many folks are looking for ways to reduce their tax bill and still dispose of a property. Others want to bring in secured income every month. For some other sellers, it is just a way to sell an otherwise tough to unload property. Vendor take backs provide an excellent solution for these types of sellers.

How to Find Vendor Financing Opportunities

There is only one way we’ve ever found sellers willing to carry financing … and that is to ASK!

Yes, it is occasionally mentioned in a listing and once in awhile an agent will mention it to us, but in all the cases where we’ve actually done a deal that used seller financing it’s been because we asked.

There is no sure way to know a VTB is going to be an option until you ask but some positive signs that one is a possibility include:

A mention in the MLS listing that there are no financial encumbrances on the property
A mention in the MLS listing that the seller is willing to carry financing
Any indicators that it’s a rental property and that the property has been owned by the current investors for over 10 years
Private sales where there is an indication that the sellers are willing to be creative with the deal
Retirees downsizing into smaller condos or smaller homes who have paid off their home and don’t need their cash in a lump sum
Quick price drops on a MLS listing. This can often indicate a strong motivation to sell. Why not offer a good price for the property in exchange for them carrying some or all of the financing?

In general, we find that the easiest place to find people willing to do a VTB is your local real estate investing club. Fellow real estate investors typically understand seller financing more than average home sellers and unless they have immediate plans for the cash many investors are happy to get a secured return on their money for awhile. Plus there are the tax benefits of being able to defer some of the capital gains on the property for a few years. There are many sellers who benefit from a VTB so all you need to do is simply ask!

The above article in an excerpt from an article Julie wrote for Canadian Real Estate Magazine. It was published in the October 2010 issue and is available right now in stores that carry the magazine.

Published September 29th, 2010

First image credit ©Freud|Dreamstime.com

The Secret to Getting Deals Financed in Today’s Market

December 11, 2012March 12, 2009 by Karysa

by Patrick Riddle of Must Know Investing

Are you having trouble getting the cash you need for your real estate deals? Have you ever lost a great deal because you didn’t have funds to close it? Is a lack of financing killing your real estate investing dreams?

If you answered “yes,” to any of the questions above, then private money may be THE solution for you.

“Patrick, what do you mean by private money?”

Private money is investment capital from an individual. There is a limitless supply of private money lenders to finance your deals. All you have to do is educate people about your investment program and help them understand why becoming a private lender is a good alternative to traditional investments like stocks, bonds, mutual funds, and CDs.

7 “Must Know” Tips to Getting Private Money for Your Deals

1) It’s All About Personal Relationships

Investors approach me all the time and say something like, “I’ve got this great deal under contract, and I need some private money to get it financed. What would your private investors charge to finance my deal?”
What people don’t seem to understand is that getting private money is all about personal relationships . . . relationships that YOU build with your private money prospects.

2) 3 Types of People Most Likely to Invest with You

The first type is people who know and trust you. This could be a family member, long time friend, neighbor, someone from church or school . . . really anyone that you’ve built a long term relationship with could be a good source for private money.
The second is people who know a good deal when they see one. Anyone who works in a field related to the real estate industry could fit in this category. Examples would be real estate agents, mortgage brokers, bankers, appraisers, home inspectors, attorneys, accountants, etc.
The last type of people most likely to invest with you is the best source of all . . . people that know someone who has invested in a property of yours. Or, in other words, referrals! Once you get your private investor base established, ask them who they know that would also like to make a good solid rate of return backed by real estate.

3) Plant Seeds Voraciously

By “plant seeds,” I mean “get the word out about your investment program.” You can plant a seed by telling someone about it, handing someone a business card with details, directing traffic to a website, or any other strategy to introduce the idea that you finance deals using funds from private investors.
I found that when getting started with private money, it took between four to six months on average to get someone to invest with me after presenting my investment program to them. Sooooooo, get started planting seeds immediately!

4) Less is More

When you are first telling someone about your investment program, less is more! All you want to do is pique their curiously and get them into a formal appointment.
Do this by saying something like, “We buy houses and use cash from investors, just everyday people like you and me, to finance our deals. Our investors are typically tired of the volatility of the stock market and frustrated with meager returns from CDs and mutual funds. Our main service is to provide good returns to investors backed by real estate. Is that something that you would like to learn more about?”
Keep in mind that the goal here is to . . .

5) Get the Formal Appointment

This is where you will present your investment program to the private money prospect. I’ve provided a link in my bio below where you can download a free customizable PowerPoint presentation to use when meeting with prospects.
Make sure that all decision makers are present when you have your appointment. Good meeting places would be an office (if you have one), a coffee shop, or the prospect’s home.

6) Present Your Investment Program . . . Not a Specific Deal

It’s much easier for someone to object to a characteristic of a specific deal than to an ongoing investment program.
If you present a deal, your prospect may not have the required funds, may not like the area or the property.
Once you sell someone on your investment program and you find out exactly what range of funds they have, timeframe available, and how they would like to receive their interest payments, you would only present deals that make sense to them.

7) Following Up is THE Key to Building Your Investor Base

The reason that I’ve been as successful as I have with getting private money is because I followed up with people that I presented to until they invested with me or told me to get lost.
I would add people’s names to my follow up list every time I had a formal appointment. Then, I followed up with them every time I had a deal that met their needs and goals.
There are three slides in the PowerPoint presentation that are titled, “Investor Evaluation.” Make sure to write down the information that you elicit from asking the questions on these slides. That’s how you will match up deals that you have on your plate with private investor prospects that you’ve met with.

Patrick Riddle has been a full time real estate investor for over six years, has done well over 100 deals, and has recruited over $6,000,000 in cash from private investors. He shares his knowledge and experience on his creative real estate investing blog. To get your free copy of the “How to Recruit Private Money Millions” eBook and PowerPoint presentation, go to http://www.mustknowinvesting.com/freestuff.html

Published March 12th, 2009

Getting Money for Real Estate Investing

September 24, 2014December 15, 2008 by Dave Peniuk

In the game MONOPOLY, “Money can be loaned to a player only by the Bank and then only by mortgaging a property. No player may borrow from or lend money to another player… In life away from the game, getting a mortgage can be a complicated, tedious, nail-biting and hair-pulling ordeal. In MONOPOLY, it’s quite simple. Unimproved properties can be mortgaged at any time. No haggling or negotiation is necessary – or, for that matter, allowed. The ‘Mortgage Value’ is printed right on the property deed.”

– Alan Axelrod, Everything I Know About Business I Learned from MONOPOLY

In less than two weeks, I will be over at Julie’s parents home on Salt Spring Island to celebrate Christmas. I fully expect that we will play at least one game of MONOPOLY. It’s not just family fun for the Broad’s though. Her parents have been investing in commercial and multi-residential real estate for over 25 years. It’s never a relaxing game. Everyone is out to win. It’s not just about pride … it’s about proving your real estate investing prowess, or at least it feels like it!!

The reality is that MONOPOLY is much simpler than real life. Thankfully, unlike in MONOPOLY, there is more than one way to finance a property. You can ask your father-in-law or you can get a first and second mortgage. You can assume someone else’s mortgage or get financing from the vendor.

And best of all in real life, you can get a mortgage broker working for you, and they will handle the time consuming part of shopping the mortgage around and coming up with the best options given your personal situation. It’s not to say that you can’t get a good deal if you go directly to your bank, but what we’ve found is that banks have a well defined box that they want everyone to fit in, and as a real estate investor, you probably aren’t going to fit nice and neatly into that box. Maybe on property #1 you will, but pretty soon you won’t. And, a mortgage broker that works with real estate investors will know who to talk to and where to find the type of mortgage product you need. (In October we did a five part interview with our mortgage broker which you can check out on our website…we covered everything from buying a property in a corporation to Americans buying in Canada and Canadians buying in the U.S.).

What financing options are available to you?

Hopefully after last week, where I discussed down payments for your real estate investments, you understand that I am not going to teach you how to do “no money down” or 100% financed deals. They are so risky and stressful that it’s just not the way we would recommend you get into real estate. So, I am not going to specifically address the questions our readers have sent in about getting 100% financing.

“Where to start? What’s the best way to finance?” – reader from Loveland, COInstead, I am going to focus on the many questions that revolved around just understanding the basics around financing property purchases:

“How to talk to mortgage guys to come up with creative ways to do deals.” – reader from Johns Creek, GA
“How do you get a hold of the necessary funds to fund a deal/property with the market as it is right now.” – a reader from Tempe, Az

First, let me say that the banks ARE still loaning money. The tap has not turned off, so don’t throw your hands up and say “I’ll never get a loan”. That said, it is a bit more difficult, but with interest rates at historic lows, it’s a pretty darn good time to at least give it a try. And if you aren’t successful with the bank, know that there are private money lenders, sellers willing to finance and a few other options. If you don’t like these alternative options as much, you can always use one of them for financing for a year or two, and then try the bank again once the smoke has cleared from the current financial crisis.

So, let me take you through the essential things you need to know before you set out to fund your investments.

The Most Common Sources of Financing Real Estate Deals:

Banks:Well, actually, I should call these traditional lenders because it does include credit unions and trust companies, but mostly you’ll think of banks when you think of a traditional lender. This is typically your cheapest source of funds, but they have very rigid rules about what qualifies for a loan from them.

Sellers:Also called Vendor Take Back Financing or VTB’s, seller financing is basically when the seller of a property will essentially leave some of their equity in their property (instead of taking cash for it) and the buyer will borrow it from the seller and make monthly payments towards paying it down. You can typically expect to pay the seller a slightly higher rate than you’d pay a traditional lender, but many sellers are willing to do this because they get a guaranteed return on their money and their money is secured against the property. It’s also the only way certain properties will sell. If the buyer doesn’t make payments, the seller can often just take back the property. However, this only works when the seller has quite a bit of equity in the property or owns the property completely.

Secondary Lenders:Companies that provide higher interest rate loans to candidates that do not fit into the traditional bank boxes.

Equity Lenders:More common in commercial real estate than in residential real estate investing, but it’s essentially a company that will loan money based on the value of the property alone. They usually will loan up to 60% of the property value no matter who is the borrower.

Private Lenders:When you think of private money you might think of the mob or someone backed up by a tough guy with a baseball bat. Maybe that is because they are also called “hard money lenders”, but the reality is that it’s anybody or any company that has money in a fund that they will loan to an investor. You can expect to pay a higher interest rate and often a fee for their loan, but there are many options in private money.

With the exception of Equity Lenders and possibly sellers (VTB’s), every other lender on the list will pull your personal credit score, so make sure you know your credit score and are working on increasing it.

For us, we typically try for seller financing on every deal. We have often been able to get the seller to take a second position (which means they will provide a small portion of the financing and will sit second on the mortgage behind the bank). We’ve only been able to get complete seller financing once. Usually the vendor wants their cash out for a different purchase or they just don’t have enough equity in the property.

When properties aren’t selling, which is the case in many areas in North America right now, motivated sellers who have 50% or more equity in their properties will be more likely to hold a short term VTB just to sell their property…so you should always ask!

You will find that every deal is different. Our first two deals were financed by banks with 10% down and 5% down respectively. Our third deal we assumed the mortgage from the seller and got a small loan from our real estate agent that was secured against the property.

We’ve done seller financing on several deals, but to be totally open with you, most of our investments have been purchased using our mortgage broker who shops us to every traditional lender she knows, and finds us pretty darn good rates with lenders who are willing to get creative!

Next week, as we roll into part 4 of our “Rev N You Readers Biggest Real Estate Investing Questions” series, we are going to answer the biggest question we get asked at social gatherings: “Is now a good time to buy?”. The answer might surprise you. Sign up for our Rev N You with real estate newsletterto make sure you get the article!

Published December 15th, 2008

Financing for a Property You Buy in a Corporation

December 11, 2012October 18, 2008 by Karysa

PART 3 of the Rev N You with Real Estate Series on the Mortgage Market in Canada

Recorded October 18th, 2008: 2 minutes 51 seconds

Financing real estate investments is one of the biggest challenges we’ve faced in our investment adventures. And, it’s even more difficult if you are trying to limit your liability by purchasing that property in a corporation. Since every real estate guru course we’ve attended suggests the first thing you should do before you buy a property is set up a corporation we decided to find out if anybody is actually able to make it work for a residential real estate investment.

Listen as Dave Peniuk (of Rev N You) asks Cindy Faulkner of Meridian Coastal Mortgages if anyone is able to buy residential real estate investments in a corporation… we know we haven’t been able to.

Thanks for stopping by and getting the facts on what is happening in the market today! This is the third in a series of five podcasts on the mortgage market in Canada. We’ve got some big plans for more experts to join us on Rev N You, so make sure you’re signed up for our Rev N You with Real Estate newsletter to be certain you don’t miss any of the important market updates!

ABOUT CINDY FAULKNER

Cindy Faulkner owns and runs Meridian Coastal Mortgages. An active real estate investor, with 17 years of experience in the residential real estate market, Cindy and her team are our first call when it comes to financing for our properties. They are always happy to chat about scenarios or discuss the market, so give them a call at 604-588-4466 .

Vendor Take Back Mortgages

December 13, 2012October 15, 2006 by Karysa

by Dave Peniuk

A VTB or Vendor Take Back, is simply where the seller (Vendor) of a property is willing to provide some or all of the mortgage financing on that property. A VTB is generally a lot more common on commercial properties than it is on residential, however, residential VTB’s do exist. In fact, we have had VTB’s on 3 of the 11 properties we have purchased. In one case noted above (Nanaimo B), the seller gave my business partner and I an 80% loan to value mortgage at a 5.5% interest rate with a 3-year term! Not bad considering we didn’t even have to go to the bank! VTB’s usually are held because of one or any of the following reasons:

it’s a distressed property, and to make it more desirable the vendor offers a VTB to the potential purchaser;
the purchaser is unable to obtain standard financing from the bank;
the seller knows (and trusts) the purchaser and is willing to help them out on this purchase;
the purchaser can obtain some financing from the bank, but doesn’t have the capital to close – so the seller will hold a smaller 2nd mortgage on the property; and
the vendor may make considerably more money on the property by charging a higher than market value interest rate and collecting it back over time (sometimes there may be tax benefits for the vendor as well).

As there are many benefits to both parties, it never hurts to ask if a vendor is willing to hold a mortgage on the property. Even if it’s only a smaller 2nd mortgage that just allows you to not put in an extra $5000 or $10000. As long as you aren’t over-extending yourself too far, then using other people’s money is a great way to use leverage and enable you to buy other properties. Or, to have money left over to renovate, refurbish, or spend on marketing to rent your new purchase.

For you, as the purchaser, there are other potential benefits from obtaining a VTB:

generally no pre-payment penalty if you payoff the mortgage early as with bank financing;
vendor’s rarely ask for all the documentation (T4’s, Pay stub, Employee letter, etc.) that bank’s require; and
the mortgage, and it’s value, will not show up on your credit score as is now becoming more common with the big banks and credit unions.

Keep in mind, however, that a VTB is not always a great plan. Ensure your real estate lawyer thoroughly reviews all of your VTB documentation including the Purchase and Sale Agreement and the mortgage and it’s conditions. Also, make sure you speak with the vendor to determine if the term can be extended when it comes due.