Getting started...

[jrichet]

Ok, here`s my situation: I`m 27, I`ve been out of university and working at various jobs in my industry for about 2 years. I make 44K per year, and live in the Okanagan (Near Kelowna BC).My TDR is bad, and saving is next to impossible, it seems like overdue bills eat up every cent I make.
I`ve been studying REI for awhile now, and i see people always saying that "there are no-money down systems" but never describe any that don`t require at least a little "grey-area" creativity (ie. moving in with a sleeping bag for a night).Are there any legit ways to attract JV`ers to my situation? Should the research and number crunching be enough? There have got to be some people who didn`t have 40-80K to spare when they started in REI.

Thanks in advance,
JR

 

[hazed]

Hi JR,
First and most importantly - you`ve come to the right place!! There are loads of people here with great advice.
Second, you`ll be happy to know there are a group of REIN members right in your backyard - we have just started meeting casually and seeing what everyone is up to. Even if you`re not a REIN member (yet), I would be happy to add you to our group. You can e-mail me at [email protected]. Our group so far consists of some members who like to buy/renovate and sell, some who buy/hold and love having tenants, to flippers and lease-to-own entrepreneurs. Some of us will be attending Quickstart in Vancouver next weekend, which is also a great place to start.
Hazel

 

[BradHillier]

QUOTE (jrichet @ Feb 9 2008, 02:08 AM) Ok, here`s my situation: I`m 27, I`ve been out of university and working at various jobs in my industry for about 2 years. I make 44K per year, and live in the Okanagan (Near Kelowna BC).My TDR is bad, and saving is next to impossible, it seems like overdue bills eat up every cent I make.
I`ve been studying REI for awhile now, and i see people always saying that "there are no-money down systems" but never describe any that don`t require at least a little "grey-area" creativity (ie. moving in with a sleeping bag for a night).Are there any legit ways to attract JV`ers to my situation? Should the research and number crunching be enough? There have got to be some people who didn`t have 40-80K to spare when they started in REI.

Thanks in advance,
JR

I`ve only read about JV capitial and The CMHC Rental property program, 1-4 units %90-100 LTV.

Any of the REIN members care to comment on this situation?

Did any lenders offer the CMHC insured mortage program since its release last fall i believe?

Thanks,
Brad

 

[PeterKinchMortgageTeam]

QUOTE (BradHillier @ Feb 9 2008, 01:06 PM) I`ve only read about JV capitial and The CMHC Rental property program, 1-4 units %90-100 LTV.

Any of the REIN members care to comment on this situation?

Did any lenders offer the CMHC insured mortage program since its release last fall i believe?

Thanks,
Brad


There are a couple of lenders now offering CMHC insured rentals up to 100% LTV. (some even with fully discounted rates.......) but if your TDS is too high, you`ll probably have to look at qualifying with a JV anyways. Ask your banker of mortgage broker to prequalify you to see what amount you alone qualify for and what your options are, then you talk to potential JV`s

 

[BradHillier]

QUOTE (CanadianMortgageTeam @ Feb 9 2008, 01:12 PM) There are a couple of lenders now offering CMHC insured rentals up to 100% LTV. (some even with fully discounted rates.......)

Cool, i guess one issue would be getting a positive cashflow property...?

Peter, what are the general guidelines for a high and low TDS? %20 Low? %40 high? for instance.

Thanks

 

[PeterKinchMortgageTeam]

QUOTE (BradHillier @ Feb 9 2008, 01:16 PM) Cool, i guess one issue would be getting a positive cashflow property...?

Peter, what are the general guidelines for a high and low TDS? %20 Low? %40 high? for instance.

Thanks


TDS must be under 40% to qualify, CMHC uses a rental offset to qualify. It`s a fairly generous offset, so even with a slightly negative cashflow, it can still work. If you are considering a negative cashflow property though, make sure that you`ve discussed your long term plan with your mortgage broker or banker and are aware of the implications. A couple of high ratio, negative cashflow properties can bring that TDS up REALLY quickly......

 

[jrichet]

QUOTE (hazed @ Feb 9 2008, 12:00 PM) Hi JR,
First and most importantly - you`ve come to the right place!! There are loads of people here with great advice.
Second, you`ll be happy to know there are a group of REIN members right in your backyard - we have just started meeting casually and seeing what everyone is up to. Even if you`re not a REIN member (yet), I would be happy to add you to our group. You can e-mail me at [email protected]. Our group so far consists of some members who like to buy/renovate and sell, some who buy/hold and love having tenants, to flippers and lease-to-own entrepreneurs. Some of us will be attending Quickstart in Vancouver next weekend, which is also a great place to start.
Hazel

great! I`m emailing you right now!

 

[jrichet]

QUOTE (CanadianMortgageTeam @ Feb 9 2008, 01:43 PM) TDS must be under 40% to qualify, CMHC uses a rental offset to qualify. It`s a fairly generous offset, so even with a slightly negative cashflow, it can still work. If you are considering a negative cashflow property though, make sure that you`ve discussed your long term plan with your mortgage broker or banker and are aware of the implications. A couple of high ratio, negative cashflow properties can bring that TDS up REALLY quickly......

A couple things about this:
1. I don`t see how I can afford even slightly negative cashflow on a property that i`m not living in at this point, as rent eats such a significant portion of my employment income, and my income to necessary expense is far too high right now to put very much out of pocket into an equity building property in my first few. Ideally, I`m hoping to start with a few buy/hold/rent properties with positive cashflow, so that they will "look after themselves" and not impact my already tenuous budget.

2. I`ve heard the term `rental offset` used in context, not defined. Is it the result of the lender`s rental cash flow analysis offsetting your TDS?

 

[SamEfford]

A rental offset means that the banks only take into account a specific percentage of the rent to service the payments of the property. Most banks use 50%, however under this new program, the offset is 80%. For example, it the rent was $1000, the bank would only allow you to use $800 towards your TDS calculation.

 

[JohnS]

QUOTE (jrichet @ Feb 9 2008, 04:10 PM) A couple things about this:
1. I don`t see how I can afford even slightly negative cashflow on a property that i`m not living in at this point, as rent eats such a significant portion of my employment income, and my income to necessary expense is far too high right now to put very much out of pocket into an equity building property in my first few. Ideally, I`m hoping to start with a few buy/hold/rent properties with positive cashflow, so that they will "look after themselves" and not impact my already tenuous budget.

2. I`ve heard the term `rental offset` used in context, not defined. Is it the result of the lender`s rental cash flow analysis offsetting your TDS?


A rental offset, as far as I know, means that part of the money coming into your pockets (ie. rent) will be added to your "regular" income, thereby increasing it. Different banks allow a different percentage for the rental offset, but pretty much nobody (I think, but I could easily be wrong here) will accept 100% of it.

As an example, let`s say you earn $50 000 a year. You want to buy a property that brings in $10 000 in rent. If a bank offers a 50% rental offset, they will only allow you to add $5 000 of that $10 000 to your income. Therefore, for the purposes of figuring out your ratios, your income will be $55 000, and not $50 000.

Have a good one!

JohnS

 

[BradHillier]

QUOTE (CanadianMortgageTeam @ Feb 9 2008, 01:43 PM) TDS must be under 40% to qualify, CMHC uses a rental offset to qualify. It`s a fairly generous offset, so even with a slightly negative cashflow, it can still work. If you are considering a negative cashflow property though, make sure that you`ve discussed your long term plan with your mortgage broker or banker and are aware of the implications. A couple of high ratio, negative cashflow properties can bring that TDS up REALLY quickly......

Thanks Peter, from the following posts i have a better idea what rental offsets are.

After reading about the ACRE system a negative cashflow property would be low priority option for me.

My question basically is how different, if at all, would purchasing a positive flow property be with a high ratio loan?

 

[jrichet]

Thanks again guys. wow! I can`t believe you guys are so supportive!

 

[PeterKinchMortgageTeam]

QUOTE (jrichet @ Feb 12 2008, 10:56 PM) Thanks again guys. wow! I can`t believe you guys are so supportive!


There are a couple of ways that lenders look at rental income - one is the addback where a percentage of the rental income is simply added to your verifiable income and that combined income is used to service ALL debts (including the mortgage payments on your rentals). This is not the most generous way....

The rental offset takes a percentage of the rent (ie 80%) and uses to offset the corresponding debt (mortgage payment). For example, if your mortgage payment is $900 a month, and the rent on your property is $1000 a month, the bank would take $800 to offset that $900 payment meaning that you only need to service $100 in your personal TDS. The first method of the rental addback typically only works for clients with a very strong income for the first couple of properties, and the latter after the first few, or for clients with tighter ratios. Because different lenders have different policies, its really important that your broker uses and understands the portfolio strategy if you plan on building a large portfolio.

Hope that helps,

 

[EdRenkema]

Peter,

Can you or anyone else clarify what is meant by using and understanding the `portfolio strategy` ?
Thanks

 

[KeenanTameling]

Hi JR,

Being an investor who has negotiated many VTB(vender-take-back) mortgages I can tell you that "no money down" should be more clearly stated "no money down for you". Money has to come from somewhere most of the time...especially for someone like yourself just starting out. You might consider doing a RTO(rent-to-own) where you can begin building some equity...an investor might JV with you on a property they currently own and are having trouble renting...these are all possible no money down deals. Be creative in your thought and look for opportunity with others...Good luck

Keenan Tameling

www.libertasholdings.com

 

[PeterKinchMortgageTeam]

QUOTE (EdRenkema @ Feb 13 2008, 02:13 PM) Peter,

Can you or anyone else clarify what is meant by using and understanding the `portfolio strategy` ?
Thanks

Hi Ed,

A broker using the portfolio strategy has analyzed your application, knows your 5 year plan and always thinks several moves ahead - using certain lenders for certain properties, in a certain order so as to maximize the amount of financing that you can be approved for in the long run. It takes into consideration alot of factors such as the strength of your application, the types of properties you are purchasing and where they are located, as well (and very importantly) the underwriting guidelines of the various lenders and based on that, places the financing.

 

[EdRenkema]

Thanks Peter, that makes good sense now.