Any way around the 25% down

[Brik8]

I am looking at purchasing my second income property....but I seem to have run into a wall with the 25% down payment.

I currently own a duplex (which I live in one unit) that I just purchased this summer, therefore virtually no equity in it yet. I do have some vacant land (free and clear) that I was thinking of building on, however given the current circumstances I thought it might be best to look at adding another income property to my portfolio first.
The home I am looking at is another duplex selling for $200,000. The current rent is $1200 (3 bed) and 950 (2 bed) for each unit. Annual Property Taxes are $2600 and heat is paid by property owner at $180 per month on equal billing. Hydro is the responsibility of the tennants(seperate meters). On paper it appears as if the home would carry itself while generating a small positive cash flow.

But back to my original problem is the 25% down payment.

Does anyone know any way around the the 25% down??? I do not have $50,000 cash for the deposit required.

Any advice on what I could do or should do?

 

[Thomas Beyer]

QUOTE (Brik8 @ Jan 21 2009, 08:53 PM) I am looking at purchasing my second income property....but ....

Does anyone know any way around the the 25% down??? I do not have $50,000 cash for the deposit required.

Any advice on what I could do or should do?
did you talk to a mortgage broker ?

you can get up to 95% with CMHC if income supports it !

Otherwise, get the cash: sell the land, save more money, ask a relative or do a JV !

 

[LeighF]

You can also put 20% down

 

[RobMacdonald]

It all depends on your strength of your application. If your income covers your own personal expenses, then you should have a few different options here. In the long run, it will depend on the least costly of the options.

Speak with a mortgage broker that can assist you with this financing, and aslo insure that your don`t get maxed out for your future plans as well.

 

[invst4profit]

No one else is going to comment so I guess I will.

That is not a good deal especially considering the present financial situation. Considering you would be paying some of the utilities I believe you will experience negative cash flow on this investment. The numbers in my opinion are far too tight.

Better deals can be found, don`t rush.

 

[terri]

QUOTE (invst4profit @ Jan 22 2009, 06:48 AM) No one else is going to comment so I guess I will.

That is not a good deal especially considering the present financial situation. Considering you would be paying some of the utilities I believe you will experience negative cash flow on this investment. The numbers in my opinion are far too tight.

Better deals can be found, don`t rush.

I don`t think it`s that bad of a deal, but it would really depend on the location of the property, what similar properties are selling for, vacancy rates in the area, the age and condition of the property, etc,etc.

 

[Brik8]

What is this deal would make you think that this is a bad deal?

I`ve been trying to use formula or something but have been ubale to find or locate a good one.

From my calculations it would generate some small cash flow...but looks like I might be wrong. Most of you here seem to be seasoned investors...any tips?

 

[invst4profit]

There are many different rough formulas that one must followed up with in depth due diligence to ascertain actual numbers.
I personally use the 50% formula.
I assume 50% of my rental income will go to monthly expenses over the long term. I calculate my dept payments with 100% financing (this pays me for my cash investment) and what is left over is my positive cash flow. I strive for $100/ month positive cash flow per door.

These numbers are rough as I said but if a property is no where in the ball park I do not even consider further evaluation. If close I dig deeper and based on real numbers make a offer that works for me.
I personally place no value on appreciation when evaluating a property. I make my profit when I buy and depend entirely on cash flow to determine value.

There are too many bumps in the road in this business for me to accept zero or marginal positive cash flow let alone negative cash flow. I leave that to the speculators with deep pockets and higher risk tolerance.

This is only one of an infinite number of approaches.

 

[JimWhitelaw]

QUOTE (Brik8 @ Jan 22 2009, 10:15 AM)
I've been trying to use formula or something but have been ubale to find or locate a good one.


Brik8, there are a number of spreadsheets in the downloads section "Due Diligience Forms" that can help you get started analyzing various properties and scenarios.



http://myreinspace.com/downloads/critical_forms/m/due_diligence_forms/default.aspx



Look for Property Analysis Worksheet, Real Estate Calculations and Property Valuation Worksheet.



Also, member seanverret posted a good excel template here:



http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-8250-Joint_Venture_Documents_-_The_tools_I_used_to_make_my_latest_Investment_Proposal.html

 

[Brik8]

I can`t seem to open these links...

Do you have any others that I could access???

 

[DaveRhydderch]

QUOTE (Brik8 @ Jan 23 2009, 07:20 PM) I can`t seem to open these links...

Do you have any others that I could access???


Unfortunately these are only for Rein members which is why you can`t access them.

Back to your original question, there is always the possibility of seller financing. If a vendor is motivated enough, this is a possibility. Generally it seems banks don`t like you to have more than 10%, but private lenders are possible. This is something you need to discuss with both your Realtor and Mortgage Broker.

 

[Mike Milovick]

QUOTE (thomasbeyer2000 @ Jan 21 2009, 11:05 PM) you can get up to 95% with CMHC if income supports it !

I do not think the 95% CMHC program is appropriate for tenanted investment property. Its believe its stricitly for residential application (i.e. owner use) only.

Why not try stringing together some lines of credit - get one at PC Financial and one at ING Direct? As of about four years ago, they were pretty much feeling for a pulse and handing out some nice lines. Make the inquiries on the same day so that when your credit bureau is popped, it may not be recorded in time by the other institution...

Mike

 

[smmcguire]

QUOTE (MikeMilovick @ Jan 24 2009, 09:07 PM) I do not think the 95% CMHC program is appropriate for tenanted investment property. Its believe its stricitly for residential application (i.e. owner use) only.

Why not try stringing together some lines of credit - get one at PC Financial and one at ING Direct? As of about four years ago, they were pretty much feeling for a pulse and handing out some nice lines. Make the inquiries on the same day so that when your credit bureau is popped, it may not be recorded in time by the other institution...

Mike


that is pressing the bank fraud act and pointless. the lending instituion wil do a follow-up, pull your bureau in 30 days and if you try this they can assume you lied! on your application.

 

[Mike Milovick]

QUOTE (smmcguire @ Jan 24 2009, 09:27 PM) that is pressing the bank fraud act and pointless. the lending instituion wil do a follow-up, pull your bureau in 30 days and if you try this they can assume you lied! on your application.


Hi Sam;

Please explain.

1. Applying for credit is a hit (derogatory) on your bureau.
2. Your application is processed over a couple of days - although your initial hit is done likely over the phone.
3. The lending institution will not do another hit on your bureau after 30 days.
4. You are not lying. You can not disclose that you have a line of credit somewhere else - if you do not have one. What are you lying about? Is one of the questions: "Did you apply for a line of credit somewhere else " on the application"
5. Is there a restriction on how many times a person can apply for credit? I can`t shop a mortgage to RBC or Scotiabank? Or try to obtain multiple mortgages?

I COMPLETELY and ABSOLUTELY disagree.

Mike

 

[smmcguire]

QUOTE (MikeMilovick @ Jan 24 2009, 09:39 PM) Hi Sam;

Please explain.

1. Applying for credit is a hit (derogatory) on your bureau.
2. Your application is processed over a couple of days - although your initial hit is done likely over the phone.
3. The lending institution will not do another hit on your bureau after 30 days.
4. You are not lying. You can not disclose that you have a line of credit somewhere else - if you do not have one. What are you lying about? Is one of the questions: "Did you apply for a line of credit somewhere else " on the application"
5. Is there a restriction on how many times a person can apply for credit? I can`t shop a mortgage to RBC or Scotiabank? Or try to obtain multiple mortgages?

I COMPLETELY and ABSOLUTELY disagree.

Mike


If i understand your advice,"Why not try to string some lines of credit ( personal lines of credit ? ) ,to cover a down payment on a property the same day you apply for a mortgage . Hoping the bank doesn`t get wise to your scheme. O.K. , lets` step through this hole. You apply for a mortgage, require a down payment and you don`t have it. You can draw from what ever lines of credit you have -no problem and long as the tdsr and gdsr wash with the lender. If you know you have no down payment and apply for credit to cover a D.P. on a property and fail to disclose this at the mortgage application , or vise -versa.
Apply for a mortgage and declare , or accept you need a D.P. and in reality don`t actually have it without the above scheme, then your skirting fraud. Re; 97 tips for cdn. realestate.pg.51 tip#22 . Now you don`t have to take my word for it .My parents always said live and learn,and as step mom was a bank mgr. and dad was a V.P. for westminster credit union, I have a little back ground to draw on. Now, knowing this happens the lenders do 30 day folow-ups to check for this . So, if i misunderstood your blog pls.disregard and my appologies.

 

[Mike Milovick]

QUOTE (smmcguire @ Jan 24 2009, 10:19 PM) If i understand your advice,"Why not try to string some lines of credit ( personal lines of credit ? ) ,to cover a down payment on a property the same day you apply for a mortgage . Hoping the bank doesn`t get wise to your scheme. O.K. , lets` step through this hole. You apply for a mortgage, require a down payment and you don`t have it. You can draw from what ever lines of credit you have -no problem and long as the tdsr and gdsr wash with the lender. If you know you have no down payment and apply for credit to cover a D.P. on a property and fail to disclose this at the mortgage application , or vise -versa.
Apply for a mortgage and declare , or accept you need a D.P. and in reality don`t actually have it without the above scheme, then your skirting fraud. Re; 97 tips for cdn. realestate.pg.51 tip#22 . Now you don`t have to take my word for it .My parents always said live and learn,and as step mom was a bank mgr. and dad was a V.P. for westminster credit union, I have a little back ground to draw on. Now, knowing this happens the lenders do 30 day folow-ups to check for this . So, if i misunderstood your blog pls.disregard and my appologies.

Hi Sam;

Please re-read my post. It does not say: ""cover a down payment on a property the same day you apply for a mortgage"

Nor has what I have proposed mortgage fraud. In fact, lenders have actually come to the plate, after reviewing my needs, on my behalf, to offer me lines to facilitate a deal if they can`t get the loan to value I was anticipating.

The poster wants some ideas on not putting 25% down. This is what I did when I purchased my first income property. With full disclosure. I drew on two lines of credit to form my downpayment. I had the lines of credit in place PRIOR to applying for a mortgage.

The Banks here in Ontario are not allowed to do tied selling and, as such, we are allowed to freely apply to other institutions for credit. I am not sure what it is like in BC or at Westminister. This is not bank fraud. It is actually common practice here to get second and sometimes even third opinions on various credit products and would suggest it is actually common practise amongst astute investors. As such, consumers actually get multiple approvals. If I was seeking approval at multiple locations, I would have my applications processed at the same time. I stand by what I write.

I appreciate your comments and accept your apology. I do not endorse bank fraud.

Thanks,
Mike.

 

[MarkTorgerson]

QUOTE (MikeMilovick @ Jan 24 2009, 07:07 PM) I do not think the 95% CMHC program is appropriate for tenanted investment property. Its believe its stricitly for residential application (i.e. owner use) only.

Why not try stringing together some lines of credit - get one at PC Financial and one at ING Direct? As of about four years ago, they were pretty much feeling for a pulse and handing out some nice lines. Make the inquiries on the same day so that when your credit bureau is popped, it may not be recorded in time by the other institution...

Mike


Take the CMHC financing everyday of the week. I have been dealing with them on a 22-plex and they are the only way to go. The problem is meeting their tough lending rules. Don`t think about the premium that you pay if you are buying to hold. If CMHC will give you 95% financing, the deal will be a no brainer based off of income stream alone.