Financing a 6-Plex - Will any Banks Allo Putting 10% Down?

[Nir]

Hi,

I understand some banks still see 6-plexes as residential. As we know, in the case of a 4-plex banks (CMHC, Genworth..) allow puting 10% down subject to meeting a few conditions.

Is it possible to put only 10% down CMHC/genworth insured with a residentuial 6 plex, or even the banks mentioned above will not allow that? I guess 15% down is best case scenario, not sure if even 15% still exists(?)

Thanks,
Neil

 

[GaryMcGowan]

QUOTE (investmart @ Sep 22 2009, 10:58 AM) Hi,

I understand some banks still see 6-plexes as residential. As we know, in the case of a 4-plex banks (CMHC, Genworth..) allow puting 10% down subject to meeting a few conditions.

Is it possible to put only 10% down CMHC/genworth insured with a residentuial 6 plex, or even the banks mentioned above will not allow that? I guess 15% down is best case scenario, not sure if even 15% still exists(?)

Thanks,
Neil
Hey Neil,
As far as I know a couple of Lenders like Laurentian will look at 5-plexes as residential anything above that is commercial. A few months ago we where looking at a 12 unit building and the banks where ok with a min of 15% down with CMHC insured mortgage.

 

[GarthChapman]

CMHC allows 15% down, that being 15% of the "lending value as determined by CMHC" - which means the value determined by CMHC using an appropriate Cap Rate and their own expectations of expenses and market rents. Hence you may find the actual down-payment is more like 25% of market value (purchase price). Fully discounted interest rates will be available, as offerred by the lender selected by the borrower - and that is what makes this attractive, as commercial non-insured interest rates are substantially higher.

There is an application fee of $150 per door, and the insurance fee is 4.5% plus 0.25% for each 5 years of amortization beyond 25 years. The property must have a DCR of 1.10 and the borrower must have a Net Worth of at least 25% of the loan amount, with a $100,000 minimum.

Most lenders who deal with CMHC will make this loan.

Hope that helps,

 

[Nir]

Thank you Gary and Garth,

ok so 6-plex is a completely different story than a 4-plex even if bank "sees" it as residential.
Not that it`s necessarily that bad (12 plex with 15% down sounds good!), however simple 10% down
is just not going to happen.

Regards,
Neil

 

[MikeMcCrae]

Vendor financing could maybe help with a bit of the down payment.

 

[Haimr]

QUOTE (investmart @ Sep 22 2009, 08:51 AM) Thank you Gary and Garth,

ok so 6-plex is a completely different story than a 4-plex even if bank "sees" it as residential.
Not that it`s necessarily that bad (12 plex with 15% down sounds good!), however simple 10% down
is just not going to happen.

Regards,
Neil


H Nill

BOM will do 6 plex as residential property with some additional rules on the mortgage..


Regards,
Haim Rabinoviz

 

[Thomas Beyer]

QUOTE (GarthChapman @ Sep 22 2009, 09:11 AM) CMHC allows 15% down, that being 15% of the "lending value as determined by CMHC" - which means the value determined by CMHC using an appropriate Cap Rate and their own expectations of expenses and market rents. Hence you may find the actual down-payment is more like 25% of market value (purchase price). Fully discounted interest rates will be available, as offerred by the lender selected by the borrower - and that is what makes this attractive, as commercial non-insured interest rates are substantially higher.

There is an application fee of $150 per door, and the insurance fee is 4.5% plus 0.25% for each 5 years of amortization beyond 25 years. The property must have a DCR of 1.10 and the borrower must have a Net Worth of at least 25% of the loan amount, with a $100,000 minimum.

Most lenders who deal with CMHC will make this loan.

Hope that helps,
indeed .. nothing to add here by me ..

What is the rent roll / month ?
What is the purchase price ?
Small city ? (9-11% CAP rate) or larger one (7 to 8% CAP rate) ??
God condition or ugly with much deferred maintenance ?

If in AB and SK and rents well below market you could potentially buy with a conventional lender (40% down or so) and an expensive 2nd (say 13%+) for a year .. then up rents 30-40% .. then re-fi with CMHC, pull all the money out and re-pat 1st and 2nd and then you might own one with no money invested / tied up !!

 

[Nir]

QUOTE (thomasbeyer2000 @ Sep 25 2009, 06:00 PM) indeed .. nothing to add here by me ..

What is the rent roll / month ?
What is the purchase price ?
Small city ? (9-11% CAP rate) or larger one (7 to 8% CAP rate) ??
God condition or ugly with much deferred maintenance ?

If in AB and SK and rents well below market you could potentially buy with a conventional lender (40% down or so) and an expensive 2nd (say 13%+) for a year .. then up rents 30-40% .. then re-fi with CMHC, pull all the money out and re-pat 1st and 2nd and then you might own one with no money invested / tied up !!

Thanks Haim, I did not know BOM will do 6 plex as residential.. interesting how others were not aware of this too.

Hi Thomas,

It was just a theoretical question, I do not currently have any 6-plex in mind. just wanted to confirm my understanding of its financing before
looking for one.
The questions on the CAP/price etc. are great. however, as people mentioned above, it sounds like regardless of the answers, you can not get the same conditions - specifically put 10% down with CMHC only like you can with a 4-plex. you need a VTB etc to put much less down. again, different structure.

Regarding up rents 30-40% then re-fi... sounds lengthy and a bit risky/speculative but I know you are talking from experience and have done it yourself

Cheers,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Sep 26 2009, 12:41 AM) ..

Regarding up rents 30-40% then re-fi... sounds lengthy and a bit risky/speculative but I know you are talking from experience and have done it yourself

...
it`s a proven path to wealth !

Why is this risky ? It is low risk if you know the market and what rents ought to be in a certain market !!

 

[luckyluciano]

QUOTE (thomasbeyer2000 @ Sep 26 2009, 08:11 PM) it`s a proven path to wealth !

Why is this risky ? It is low risk if you know the market and what rents ought to be in a certain market !!


How do realistically raise rents 30-40%. Would this be a property that needs serious renovations?

 

[housingrental]

Or sometimes just poorly managed by previous owner or manager or owner self manages and lives out of town and doesn`t have good handle on rents... or gets lazy and doesn`t want to make anymore 2 hour round trip drives..or thinks saving the a few dollars on needed items makes them more money.. and property only needs <10K in things like paint / flooring / fridge / stove / dishwasher / laundry / ac / lighting / cleaning etc..

QUOTE (luckyluciano @ Sep 27 2009, 08:22 AM) How do realistically raise rents 30-40%. Would this be a property that needs serious renovations?

 

[Thomas Beyer]

QUOTE (luckyluciano @ Sep 27 2009, 06:22 AM) How do realistically raise rents 30-40%. Would this be a property that needs serious renovations?
it depends on the market, the current rents and the building condition, of course !

It is doable in many situations .. in many it is not .. and in most some renovations are required .. the key being a thorough definition of "some" ! That`s where knowledge and experience comes in !

 

[Nir]

QUOTE (thomasbeyer2000 @ Sep 26 2009, 05:11 PM) it`s a proven path to wealth !

Why is this risky ? It is low risk if you know the market and what rents ought to be in a certain market !!


Hi Thomas,

Risk is a relative term. It`s beyond the scope of this forum to define risk statistically not mentioning its connection to one`s personality.
Yes, your knowledge reduces your risk: the more you know the less you have to speculate. However, as an example,

I`m sure you, too, can only estimate how much time it will take to "replace` the % of tenants needed in order to achieve your target rent increase of 30-40%..

Cheers,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Sep 27 2009, 08:33 PM)

I`m sure you, too, can only estimate how much time it will take to "replace` the % of tenants needed in order to achieve your target rent increase of 30-40%..



it takes a month .. and possibly a complete new reno .. or a new paint job .. depends on area, price range, quality of suite, qiuality of location .. thus due diligence and knowledge of the specific market is key !

 

[Nir]

QUOTE (thomasbeyer2000 @ Sep 27 2009, 07:39 PM) it takes a month .. and possibly a complete new reno .. or a new paint job .. depends on area, price range, quality of suite, qiuality of location .. thus due diligence and knowledge of the specific market is key !

To clarify: by "replace" I meant including the decision of the tenant to move out. how do you know how much time it will take unless you buy vacant?
Anyway, it was just an example. I actually like the approach hence mentioned just a bit risky. Still, I`m sure you understand it`s more risky than putting money in the bank. again, risk is just a relative term. Bottom line I agree as I too invest in RE, but don`t waste your time trying to explain to others
why something is not risky. Remember: what you consider safe may seem risky to others even if it`s the same thing!