RTO option credit and lease rate and contract issue

MarkTorgerson

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Oct 17, 2007
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Calgary / Medicine Hat
#21
QUOTE (DavidLi @ Apr 27 2010, 10:21 AM) Hi Mark, thank you for your further clarification. I phoned CMHC this morning and staff in charge told me we can go beyond the market rent as long as you put the number in the contract. in this case we are talking about, the credit can go beyond $400. that`s what I got in Calgary. maybe there is different rule in ON. just phone CMHC and you will get the answer right away.

Regards,


Hello David

So are you stating based on your conversation with CMHC that I could lease a property for $3,000 per month (market rent $2,500) and give back $2,000 per month in credits as long as it was witten in the contract? My understanding with various lenders is that CMHC would definitely not recognize the full credits.
I understand my example is an extreme case but I am stating it for conceptual purposes.
Mortgage brokers feel free to chime in here....
 

AndyLuchies

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Sep 14, 2008
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Hamilton
#22
I can`t see CMHC being overly strict on a single number for "market rent" simply because it will vary 10% or so easily from one property to the next. How do they come up with a single number?
Is there really that much risk in CMHC questioning a property rent (minus credits) that`s only 15% or less below "market" rate given that there`s a clear history with the contracts?
In any event, an RTO outfit in the Hamilton area (Real Estate Renegades) has been doing the suggested method for a while without significant issues.
I suppose, worst case scenario, I could simply refund a portion of the credits below market rent into a trust account for the tenants for 3 months, then add them to the "acceptible" credits as additional cash downpayment....

Now that CMHC`s investor lending is tightening considerably, I wonder if they`ll be more lenient with home owner mortgages, seeing as they aren`t getting as much investor business (although investor mortgages are likely only a drop in the bucket)?
 

markl

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Oct 1, 2007
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#23
Hi Mark,

I think we are talking around the same issue. We typically show them our plan and state in a letter what the option deposit was and how much the monthly credits were and we haven`t had an issue. We are not using 50% of the rent towards the deposit as I am guessing that might be a red flag.

Time will tell and who knows what CMHC will deem in the future. We can only work with what we know right now to be correct and if they change the ways they do business it typically provides an opportunity. We are always ready to hold a second to bring it to the appropriate level of the first mortgage financing as well.

Regards,
 

MarkTorgerson

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Oct 17, 2007
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Calgary / Medicine Hat
#24
QUOTE (markl @ Apr 28 2010, 09:05 AM) Hi Mark,

I think we are talking around the same issue. We typically show them our plan and state in a letter what the option deposit was and how much the monthly credits were and we haven`t had an issue. We are not using 50% of the rent towards the deposit as I am guessing that might be a red flag.

Time will tell and who knows what CMHC will deem in the future. We can only work with what we know right now to be correct and if they change the ways they do business it typically provides an opportunity. We are always ready to hold a second to bring it to the appropriate level of the first mortgage financing as well.

Regards,

Hi Mark

I believe we are talking about the same issue and it comes down to trying to think for CMHC 2 to 3 years down the road. It is a matter of trying to "fly below the radar" on what is reasonable. I think I have yet to see 2 mortgage brokers agree on the criterea. There are RTO promoters that are indeed giving the concept a bad name and I think we as a group need to come up with some general guidelines. For example, I recently had a builder offer me 100% of my lease to to go to purchase price until I had enough of my downpayment saved. No questions about my credit score, my employment.....anything!!

In the deals we have signed, we have taken it upon ourselves to deem what market rent is. We will push the envelope on the credits but then find market rent comparables (on the low side) within Kijiji, local newsparer, etc. We then simply put those comparables into the file to be reviewed if needed 2 to 3 years down the road through the CMHC qualification process. Whatever we can do to set up our tenant/buyer for succeeding in qualifying for their own mortgage.
 

JoeRagona

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Jan 10, 2008
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Oakville, ON
engagedinvestor.com
#25
QUOTE (markl @ Apr 27 2010, 10:12 AM) Joe, You didn`t have the full amount of your lease on the lease payments? We do not collect 2 cheques we only get one from our tenants.


Regards,

No, I had collected two individual cheques - guess that`s where I messed up. Note to self...