Student Rentals - Any suggestions on refinancing?

[Grodinsm]

You might remember my previous post about my current rental property, where I was debating getting a HELOC or selling the property to start fresh. Well, now I seem to be a bit stuck!









Listed the property for sale in January and haven't received any offers... Nobody is debating the price I have it listed for, it just hasn't been "right" for any of them. We decided to go see a mortgage broker yesterday to start talking about getting a HELOC on the property so that we could move ahead with "Plan B".









Well, our new broker friend informed us that because it's a student rental with separate names on the lease, most banks will not consider extending a HELOC on the property once an appraisal is done and they find out it's now student housing. The only lender he could think of that would be willing, would only entertain a 65% LTV loan. At current market pricing my existing mortgage would be sitting right at that 65% mark.









He suggested our best bet was to call our current mortgage provider and see if they would extend us a HELOC on the house, and hope for the best. I just called the provider and they said they only go up to 65% LTV now for HELOCs.









I'm more than willing to pay the fee to break the mortgage if another lender will refinance the property with a HELOC attached, but it sounds like finding someone to do that is tough.









So, long story short, our capital is really stuck in this property. It's not selling, and because it's a student rental, financing is hard to come by. Is there something missing here or am I stuck?









Thanks,




Stuart

 

[jonathanb]

Good afternoon Stuart,



Financing student properties is no easy game, and best done with deep pockets- which often makes them tougher to sell. A 65% LTV is actually not a bad place to be in my opinion.



If the property cash flows well as you say, why not save up that cash, plus some of your own and buy another?



Student properties can be financed at 65% LTV, or dishonestly at 80% (which happens often). Individual names on the lease(s) is usually what kills it. That and the appraisal. Make sure you understand these risks.



A property likes yours will usually sell based on the numbers. If its not selling, you may have to try and improved the numbers by either increasing the cash flow, decreasing operating costs, or dropping the asking price, (along with making it show as good as possible).



I would wait a couple years, and re-finance the property to 65% LTV then. Just my opinion... everyone is different.



Hope this helps,



Jon

 

[housingrental]

Jon has a good post above

The only thing I can add to it is check with many local lenders and brokers - for certain areas / certain properties it might be possible to find a lender at similar rates (the big issue) in the 65-80% LTV range

 

[Grodinsm]

I must still be missing something here if you are suggesting that I "save up the money and some of your own and buy another property" without having access to the equity in the house. Just saving the house income along with what I'm able to put aside right now would take a decade to get enough money for a 20% down payment on a similar house. What am I missing?



Interesting thought about going around to different lenders to find one who is a bit more lenient. Has anyone had any luck lately with a lender in Hamilton?

 

[GaryMcGowan]

I would look at private lenders. If you have equity in the property then you could place a second mortgage on it. Perhaps an RRSP second mortgage. I would talk first to your group of friends to see if they want to lend from their HELOC, Cash or RRSP. If you do not get any takers then I would talk to your mortgage broker. A good mortgage broker should of already suggested this.