Financing student housing

[GORDandJULIE]

Hi everyone,
I have analyzed some good money making student rental properties and have even gotten an accepted offer on one. The big challenge is to find financing for these types of properties (aka. rooming houses). I do not want to deceive any lenders by saying it is a single or two family house. I think getting caught in a lie will hurt us going forward and we want to sleep at night. My mortgage broker tried his best to find financing but couldn`t find anything with an interest rate that would work for me. I understand this is a tough "sandbox" to play in, but before I give up on it, I want to hear from the mass`. Is anyone having any luck with getting financing, and if so, where and what rates?

Thanks in advance.

 

[PeterKinchMortgageTeam]

QUOTE (GORDandJULIE @ Jun 10 2009, 08:58 AM) Hi everyone,
I have analyzed some good money making student rental properties and have even gotten an accepted offer on one. The big challenge is to find financing for these types of properties (aka. rooming houses). I do not want to deceive any lenders by saying it is a single or two family house. I think getting caught in a lie will hurt us going forward and we want to sleep at night. My mortgage broker tried his best to find financing but couldn`t find anything with an interest rate that would work for me. I understand this is a tough "sandbox" to play in, but before I give up on it, I want to hear from the mass`. Is anyone having any luck with getting financing, and if so, where and what rates?

Thanks in advance.

Student housing has always been tough to finance, and is just getting harder. In the past, we`ve financed them only through subprime or private lenders at posted plus rates, with fees. I have heard that RBC may finance them in certain situations, though at a reduced LTV so it might be worth a visit to your local branch.

If not through them, then your only options will likely be with a subprime or private lender at posted plus rates and if those are rates that you are not willing to pay, you might want to look at switching your focus to a different type of property.

Hope that helps,

 

[bigbabba]

QUOTE (CanadianMortgageTeam @ Jun 10 2009, 10:21 AM) Student housing has always been tough to finance, and is just getting harder. In the past, we`ve financed them only through subprime or private lenders at posted plus rates, with fees. I have heard that RBC may finance them in certain situations, though at a reduced LTV so it might be worth a visit to your local branch.

If not through them, then your only options will likely be with a subprime or private lender at posted plus rates and if those are rates that you are not willing to pay, you might want to look at switching your focus to a different type of property.

Hope that helps,

even with a big dp? say around 30-40%

 

[invst4profit]

The idea with investment properties is to not put a lot of your own money into a deal. If a large down payment is required to make a property work, or be approved for a mortgage, then it is not a good deal.
40% down is a high premium to pay for a loan.

 

[LarryTeeple]

I`m investing in the Waterloo area and my financing has been through RBC so far. My mortgage specialist at RBC tells me they have slammed the door on student rentals. He has only seen one deal get approved recently and that person had liquid assets over seven figures and got it at 65% LTV. Not exactly great news for us normal investors.

My son had two accepted offers to purchase student housing in the last few months which he had to back out of. Even at 65% LTV, he couldn`t get approved. It wasn`t his financial credentials that were the problem, because he purchased a single family investment property after that.

I went back to RBC to refinance an existing student home to construct an addition, and they would only give me 65% LTV, even though they had just written the original mortgage last October at 80% LTV. Not much help, they were.

Best to look elsewhere for the time being.

Larry

 

[TonyMandrique]

QUOTE (CanadianMortgageTeam @ Jun 10 2009, 09:21 AM) Student housing has always been tough to finance, and is just getting harder. In the past, we`ve financed them only through subprime or private lenders at posted plus rates, with fees. I have heard that RBC may finance them in certain situations, though at a reduced LTV so it might be worth a visit to your local branch.

If not through them, then your only options will likely be with a subprime or private lender at posted plus rates and if those are rates that you are not willing to pay, you might want to look at switching your focus to a different type of property.

Hope that helps,


Hello.

One vital information in a loan application form is the applicant`s previous years` income as reported to CRA. My inquiry is: Would a lending institution accept the net income/proceeds from the sale of a principal residence as part of loan applicant`s total income?

Thank you very much for the clarification.

TonyM.

 

[housingrental]

Telling the truth is always the way to go...
Give RBC a call


QUOTE (GORDandJULIE @ Jun 10 2009, 11:58 AM) Hi everyone,
I have analyzed some good money making student rental properties and have even gotten an accepted offer on one. The big challenge is to find financing for these types of properties (aka. rooming houses). I do not want to deceive any lenders by saying it is a single or two family house. I think getting caught in a lie will hurt us going forward and we want to sleep at night. My mortgage broker tried his best to find financing but couldn`t find anything with an interest rate that would work for me. I understand this is a tough "sandbox" to play in, but before I give up on it, I want to hear from the mass`. Is anyone having any luck with getting financing, and if so, where and what rates?

Thanks in advance.

 

[housingrental]

Heard of one student mortgage today that`s not approved with 35% down and bank wants 50% !
A year ago everyone had no problem at 20%



QUOTE (bigbabba @ Jun 10 2009, 01:30 PM) even with a big dp? say around 30-40%

 

[housingrental]

Larry - Any chance your doing something on Hickory? or ?

QUOTE (LarryTeeple @ Jun 10 2009, 02:54 PM) I`m investing in the Waterloo area and my financing has been through RBC so far. My mortgage specialist at RBC tells me they have slammed the door on student rentals. He has only seen one deal get approved recently and that person had liquid assets over seven figures and got it at 65% LTV. Not exactly great news for us normal investors.

My son had two accepted offers to purchase student housing in the last few months which he had to back out of. Even at 65% LTV, he couldn`t get approved. It wasn`t his financial credentials that were the problem, because he purchased a single family investment property after that.

I went back to RBC to refinance an existing student home to construct an addition, and they would only give me 65% LTV, even though they had just written the original mortgage last October at 80% LTV. Not much help, they were.

Best to look elsewhere for the time being.

Larry

 

[PeterKinchMortgageTeam]

QUOTE (housingrental @ Jun 10 2009, 03:07 PM) Heard of one student mortgage today that`s not approved with 35% down and bank wants 50% !
A year ago everyone had no problem at 20%

Financing for these types of properties is definately getting tougher. Aside from the odd exception for very strong applicants, Conventional A lenders are pretty much out of that sandbox, and even many of the private lenders are hesitating. If this is a niche that works well for you and the type of property you want to focus on, its important that you factor in the costs of working with a private lender when doing your due diligence as your rates will be higher, LTV`s and amoritizations lower and legal fees higher.

 

[kboughen]

QUOTE (bigbabba @ Jun 10 2009, 01:30 PM) even with a big dp? say around 30-40%
We have been getting some student houses done with 35% down. The have been approved on a case by case basis considering the property, city and borrower.

 

[bigbabba]

QUOTE (invst4profit @ Jun 10 2009, 11:03 AM) The idea with investment properties is to not put a lot of your own money into a deal. If a large down payment is required to make a property work, or be approved for a mortgage, then it is not a good deal.
40% down is a high premium to pay for a loan.

disagree, it depends on how much leverage you want to take on, what kind of cash flow you are looking for on a month2month basis and how many properties you want to buy..This ideology about being leveraged up to your eyeballs is not the only form of investing...if you want to buy 20 properties annually, then over leveraging is your only option, aside from JV.

if I want a nice monthly income from a property, not jusy a measly $200. then you would need to put some money down. Its either paper assets or bricks and mortar...investors choice, as long as there is a nice return on the invested amount.

 

[invst4profit]

This is not about leverage it is about attribution of income.

Throwing money at a bad deal does not make it a good deal. The fact is income on a investment property comes from two sources. First is the property itself determined by price and rent. The second is from the cash the buyer invests.
Paying down a property is creating "forced income". It does not in fact increase cash flow as the additional income is derived from the cash invested not the property. There are far better investments, for your cash, that generate greater returns than saving the present interest rate on a small portion of a mortgage.

By your reasoning paying all cash for a property turns any investment into a positive cash flow property but this assumes the individual attributes 0 value to there cash.

Smart business practice would dictate that true cash flow on a property should be calculated based on 100% financing, regardless of the down payment, so as to attribute at least the same return on your cash as you are paying the bank.
Personally I expect a far higher return on my cash than the banks presently charge for mortgages.

Presently I am 100% leveraged allowing my cash to earn far better returns elsewhere while at the same time benefiting from the tax deduction. When mortgage rates change I may re-evaluate.

 

[housingrental]

Weird post.
Nothing wrong with having 50 (or 100%) cash in a deal.
Look at it this way - if you had a choice of 5.5% mortgage or 3% bond with same risk profile why not choose the mortgage. Mortgage is equal risk as government bond if your liable for it anyways. Not everyone wants to be leveraged in investments with any risk (ie real estate).

And yes - from an analysis stand point I agree - numbers should work if you had 100% (+) loan on property and be cash flow positive but don`t confuse this with the above.




QUOTE (invst4profit @ Jun 11 2009, 11:19 AM) This is not about leverage it is about attribution of income.

Throwing money at a bad deal does not make it a good deal. The fact is income on a investment property comes from two sources. First is the property itself determined by price and rent. The second is from the cash the buyer invests.
Paying down a property is creating "forced income". It does not in fact increase cash flow as the additional income is derived from the cash invested not the property. There are far better investments, for your cash, that generate greater returns than saving the present interest rate on a small portion of a mortgage.

By your reasoning paying all cash for a property turns any investment into a positive cash flow property but this assumes the individual attributes 0 value to there cash.

Smart business practice would dictate that true cash flow on a property should be calculated based on 100% financing, regardless of the down payment, so as to attribute at least the same return on your cash as you are paying the bank.
Personally I expect a far higher return on my cash than the banks presently charge for mortgages.

Presently I am 100% leveraged allowing my cash to earn far better returns elsewhere while at the same time benefiting from the tax deduction. When mortgage rates change I may re-evaluate.

 

[bigbabba]

QUOTE (invst4profit @ Jun 11 2009, 09:19 AM) This is not about leverage it is about attribution of income.Throwing money at a bad deal does not make it a good deal. The fact is income on a investment property comes from two sources. First is the property itself determined by price and rent. The second is from the cash the buyer invests.
Paying down a property is creating "forced income". It does not in fact increase cash flow as the additional income is derived from the cash invested not the property. There are far better investments, for your cash, that generate greater returns than saving the present interest rate on a small portion of a mortgage.

By your reasoning paying all cash for a property turns any investment into a positive cash flow property but this assumes the individual attributes 0 value to there cash.

Smart business practice would dictate that true cash flow on a property should be calculated based on 100% financing, regardless of the down payment, so as to attribute at least the same return on your cash as you are paying the bank.
Personally I expect a far higher return on my cash than the banks presently charge for mortgages.

Presently I am 100% leveraged allowing my cash to earn far better returns elsewhere while at the same time benefiting from the tax deduction. When mortgage rates change I may re-evaluate.

I`m not talking about buying overpriced property, I`m saying there is nothing wrong with putting your own money into a property if it fits the bill..a 15-20% return can be easly had on a student rental with a 40%dp ..where else you gonna get that kind of retun YOY on YOUR money.? when I talk returns, I`m talking about a couple of thousand monthly in my pocket..if you buy with 0 down and get a $50 positive cashflow..that too me is a waste of time with a big risk.. getting better returns then that elsewhere is just rhetoric.

I`m an equity investor and even with that I use no margin, 1929 was painfull because of margin accounts..1) cheap money got everyone a loan to buy stocks, which in turn created a bubble and it popped..sound familiar?..margin or leverage..same deal..risky biz..each their own.

 

[Nir]

bigbabba is right - it depends on your goal and personality how much down you want to put and how many properties you want to buy. again, not a wrong/right case.

However, keep in mind bigbabba, assuming all positive cash flow properties are the same (for simplicity), the less you put down the more properties you can buy and the higher your net income will be for the SAME total down payment amount! You are correct, bigbabba, saying not everyone wants the additional headaches and risk that comes with more properties. just remember the math though

Cheers,
Neil

 

[invst4profit]

At 100% financing I still expect the same minimum $100/door /month positive cash flow.
But if I put $1 into the deal I expect $100 +/door/month.
All my investments have to stand on there own or they were not a good investment.

My cash always has to earn it`s keep but at today`s mortgage rates using it to pay down a mortgage is not in my opinion earning it`s keep.

 

[Bankfighter]

The Vendor is probably aware of this situation re. the financing hurdles. Perhaps you should request that they hold a 2nd mortgage VTB.

 

[Mike Milovick]

Financing is difficult right now in this environment. Drop me an e-mail - I will give you some options.

Mike

QUOTE (GORDandJULIE @ Jun 10 2009, 11:58 AM) Hi everyone,
I have analyzed some good money making student rental properties and have even gotten an accepted offer on one. The big challenge is to find financing for these types of properties (aka. rooming houses). I do not want to deceive any lenders by saying it is a single or two family house. I think getting caught in a lie will hurt us going forward and we want to sleep at night. My mortgage broker tried his best to find financing but couldn`t find anything with an interest rate that would work for me. I understand this is a tough "sandbox" to play in, but before I give up on it, I want to hear from the mass`. Is anyone having any luck with getting financing, and if so, where and what rates?

Thanks in advance.

 

[GORDandJULIE]

After doing some of my own research, the only type of financing was in the form of private money. Usually this comes with up front cost and much higher rates. If it looked like lenders would loosen up any time soon, I would take it, but it doesn`t make sense for the long run and makes it risky down the road. This makes the financing very expensive and ruins any chance of acceptable cash flow. Unless current buyers are spinning stories to their lenders, I don`t see how anyone is getting affordable financing on student rental properties, yet they are selling around McMaster University in Hamilton.
Has anyone out there had any luck getting decent rates (under 7%) on student housing?