Apartment Building Financing

[Nir]

Hi All,A couple questions on financing an apartment building (say 10-plex):

- Is it true you can get a mortgage for an apartment building without any employment income as long as the bank likes the building (as the focus is on the building, not you, when commercial/meaning 6 units or more) AND you have the down payment amount required?
same question regarding having it CMHC insured: can it be CMHC insured without having an employment income as long as the bank likes the building (as the focus is on the building when commercial/meaning 6 units or more) AND you have the down payment amount required? we keep hearing how the focus shifts from you to the building when buying apartment buildings so I had to ask this question.
In other words, is it really easier to buy a million Dollar 10-plex than a million Dollar duplex for a person without employment income that has say $200,000 in the bank!?

- Are variable rates still offered for apartment building (say 10-plex) or only fixed? does the answer depend on whether it is CMHC insured or not?

THANKS.

 

[Thomas Beyer]

QUOTE (investmart @ Jun 11 2010, 10:44 PM)
In other words, is it really easier to buy a million Dollar 10-plex than a million Dollar duplex for a person without employment income that has say $200,000 in the bank!?



- Are variable rates still offered for apartment building (say 10-plex) or only fixed? does the answer depend on whether it is CMHC insured or not?


yes .. and "it depends"



variable is not available with CMHC for the first 5 years .. but on a re-finance only ..



most banks require a personal net worth of 25% of the required mortgage amount, thus ability to borrow depends on personal wealth and income to a degree !



related posts:



Items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html

 

[Berubeland]

My understanding is that commercial buildings require a personal guarantee from the lender. Even great cash flowing ones require a lot more equity than the down payment.

 

[Thomas Beyer]

QUOTE (Berubeland @ Jun 12 2010, 06:57 PM) My understanding is that commercial buildings require a personal guarantee from the lender. ..
usually only over 60% LTV ..

25% or more cash down is the norm for multi-family these days .. and 30% or usually 35% is normal for commercial (office, industrial, retail), and 50% for land (except your own residence)

 

[Nir]

QUOTE (ThomasBeyer @ Jun 12 2010, 11:58 AM)
yes .. and "it depends"



variable is not available with CMHC for the first 5 years .. but on a re-finance only ..



most banks require a personal net worth of 25% of the required mortgage amount, thus ability to borrow depends on personal wealth and income to a degree !



related posts:



Items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html




Thank You Thomas!



"variable [for purchase of apartment buildings, say 10-plex] is not available with CMHC for the first 5 years .. but on a re-finance only .." Interesting.

I didn't know that it is no longer (or never been) available for the first 5 years. is this a relatively new rule or has variable never been an option for the first 5 years?



Regarding qualifying for a mortgage: are you confirming that person A can probably qualify in the following scenario/example:



- 10 Plex purchase price: $600,000

- Down payment: $150,000

- Mortgage principle: $450,000

- Bank likes the building (condition, CAP, area, etc.)

- Person A Net worth: $250,000

- Person A is unemployed!



I find it hard to believe that in today's environment, in Canada's conservative banking system,

an average bank will approve an unemployed individual for the above purchase(!?)



Regards,

Neil

 

[Thomas Beyer]

QUOTE (investmart @ Jun 13 2010, 05:57 PM) Thank You Thomas! "variable [for purchase of apartment buildings, say 10-plex] is not available with CMHC for the first 5 years .. but on a re-finance only .." Interesting. I didn`t know that it is no longer (or never been) available for the first 5 years. is this a relatively new rule or has variable never been an option for the first 5 years?Regarding qualifying for a mortgage: are you confirming that person A can probably qualify in the following scenario/example:- 10 Plex purchase price: $600,000
- Down payment: $150,000
- Mortgage principle: $450,000
- Bank likes the building (condition, CAP, area, etc.)
- Person A Net worth: $250,000
- Person A is unemployed!
likely .. assuming the proper DCR (debt coverage ratio) !

unemployed: why not call yourself "a consultant" .. or "retired" .. or "entrepreneur" or "small business owner" or "investor" or "funemployed" ..

 

[Nir]

QUOTE (ThomasBeyer @ Jun 13 2010, 06:37 PM) why not call yourself "a consultant" .. or "retired" ..

Thanks Thomas, Good point as usual.

not asking this for me although might be my situation too in the future which doesn’t sound that bad now.

Regards, Neil

 

[Thomas Beyer]

QUOTE (investmart @ Jun 13 2010, 08:44 PM) Thanks Thomas, Good point as usual.

not asking this for me although might be my situation too in the future which doesn’t sound that bad now.

Regards, Neil
or "entrepreneur" or "small business owner" or "investor" or "funemployed" ..

"unemployed" has this negative stigma .. the label is crucial !

 

[steveclark]

QUOTE (ThomasBeyer @ Jun 12 2010, 10:58 AM)
yes .. and "it depends"



variable is not available with CMHC for the first 5 years .. but on a re-finance only ..



most banks require a personal net worth of 25% of the required mortgage amount, thus ability to borrow depends on personal wealth and income to a degree !



related posts:



Items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html




How would a group of investors best present themselves to a lender to get financing for multi-unit buildings? As an individual representing the group, as an investment group or would they have to legally incorporated?

 

[Thomas Beyer]

QUOTE (steveclark @ Jul 29 2010, 07:22 AM) How would a group of investors best present themselves to a lender to get financing for multi-unit buildings? As an individual representing the group, as an investment group or would they have to legally incorporated?
the OWNER applies for financing.

The owner is usually a corporation. Many banks don`t lend to "undivided interest" type ownership arrangements.

Usually also all significant shareholders have to sign a personal guarantee if loan exceeds 60% LTV.

 

[Apt_Bldg_Ontario]

Part of the 25% net worth CMHC requests is the down payment, so let`s take for example a purchase of 1 Million dollar apartment building, you can be qualified to put down only 15% down payment (which is $150,000), but you need to have in your bank at least $250,000, since CMHC wants to make sure you have a little bit extra on the side if something happens to the property that needs immidiate attention, like leaking roof.

As for having a company number purchasing the property: the people who own the company need to personally guarantee the purchase.

 

[Thomas Beyer]

QUOTE (lihipr @ Jul 31 2010, 07:28 PM) ..

As for having a company number purchasing the property: the people who own the company need to personally guarantee the purchase.
not quite: the owners, AT THE BANK`S DISCRETION, have to sign a personal guarantee for the LOAN if loan-to-value is above a certain threshold .. at the bank`s discretion .. usually 60% but could be higher or lower depending on the bank and your relationship to bank.

60% is the CHMC rule also for CMHC insured mortgages.

If there are 5 owners, and 2 own, say 33%, and the other 3 11.1% .. then the bank may just ask the 2 major shareholders to sign.

It`s the golden rule: He who has the gold, makes the rules !

Have an indemnity agreement in place between the guarantors, as the personal guarantee is usually "joint-and-several" which means that the bank can go to ONE individual (out of 5, say) to ask for the full money owing if there is a default. The bank doesn`t have to go to all 5 !