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Student rentals with VTB

Ahilan Thurairajah

Ahilan Thurairajah

Ahilan
REIN Member
Joined
May 14, 2015
Messages
52
I am in the process of finalizing a purchase order on 5 student rental properties in GTA. Seller is providing VTB on each propentry. I am looking for lender for 80% mortgage. Ideally from major bank. I intend to fund the balance.

Currently I am working with mortgage specialist in CIBC. Would like to know if you know of any other mortgage broker or specialist who can provide a competitive rate.
 
Your biggest issue won't be "competitive rate" your biggest issue will be getting a YES using the Student Rental income... especially if you are looking at 80%LTV (and a VTB).
 
If I am willing to pay more than 5% interest rate, I have some choices. Even then as you said getting a “Yes” could be a challenge. I was wondering if anyone has any contact in major bank to get me a “Yes”.
 
DonCampbell said:
Your biggest issue won't be "competitive rate" your biggest issue will be getting a YES using the Student Rental income... especially if you are looking at 80%LTV (and a VTB).
Click to expand...

I think that Callum Ross is out your way. I'd start with his office to get an idea on a realistic take out loan. If his office doesn't know what to do there is a very good chance they can point you in the right direction. You will want to disclose the nature of the VTB to the broker as that is probably going to complicate the application as well and may tighten up your lending pool. It is for 5 properties so you may be on the verge of considering this as a "commercial" portfolio even if this is 5 SFH. You will certainly be constrained by the DCR, as they will use whole-house rents and conservative vacancy rates. There will probably be some subordinated interest complications with the VTB and the lenders may require personal guarantees from both the VTB partner and yourself in light of this.
 
From my experience, you're right to be dealing with CIBC, from what I've seen, they are the most aggressive lender out there and your situation requires exactly that. CIBC will finance student rentals however, I have no experience with both student rental and VTB. Student rentals are already extremely difficult to finance at cheap rates. If you're talking about a licensed boarding/rooming house, I know Home Trust will do it for 30+% down payments and 4.5-5.5 interest rates.
 
You are right.

I am already working with a mortgage specialist in CIBC.
They do understand the complexity and willing to work on it. They may or may not be able to fund all 5 properties.

Given the dead line to waive the conditions in the purchase order, I looking for a good backup plan. I have contacted "Callum Ross" as suggested.
 
CIBC is your choice. VTB is not when it comes to student rentals.

I did a deal personally where I asked seller to hold back $60,000 (I had just bought my dream car was short on cash and opportunity dropped into my lap).

What I found that when I disclosed the vtb - which you have to do - my bank at the time simply clawed back the amount of first mortgage they would extend. CIBC will be the same way when you consult with your mortgage specialist.

With few banks doing this type of financing, you have to play by their rules.

Mike
 
Thanks Mike for pointing me in the right direction.

Also I did review the opportunities you posted in Waterloo region. I have forwarded your posting to some other potential investors.

We will keep in touch. May be we could meet at the monthly meeting tomorrow.
 
Don't overpay. The house (I presume?) or the small 5-plex needs to be priced THE SAME as if not a student rental. Some cities are now cracking down on zoning, and as such may disallow such multi-unit "rooming" houses in established areas. Check with local experts or the city as each is different.

If you say "5 unit student rental" what is that ? A house ? a 5 plex ? How big is each unit ? How much do similar properties that are not student housing sell for ?

As such, I suspect you are asked to pay too much, and the seller will gladly foreclose on the property in a few years when you can't pay the VTB back. A preferred selling strategy: sell once, collect twice ! Don't be a too motivated, and uninformed buyer !
 
They are 5 detached houses.
In this case the vendor's motivation is different and the price is well within the market range. VTB is open and I am in a position to pay it off if that is the best move.
But thank you very much for your concern.
 
ThomasBeyer said:
Don't overpay. The house (I presume?) or the small 5-plex needs to be priced THE SAME as if not a student rental. Some cities are now cracking down on zoning, and as such may disallow such multi-unit "rooming" houses in established areas. Check with local experts or the city as each is different.

If you say "5 unit student rental" what is that ? A house ? a 5 plex ? How big is each unit ? How much do similar properties that are not student housing sell for ?

As such, I suspect you are asked to pay too much, and the seller will gladly foreclose on the property in a few years when you can't pay the VTB back. A preferred selling strategy: sell once, collect twice ! Don't be a too motivated, and uninformed buyer !
Click to expand...
Thomas is not quite correct here. In Waterloo, as an example, properties are valued based on price per LEGAL rentable bedroom. A legal, licensed property for, as an example, five bedrooms, will trade for less than an unlicensed property.

You will find a good example of this on my website, www.teammilovick.com. I have two listings in the same complex - 2-451 Albert which is licensed for five bedrooms ($239,900) and 9-453 Albert ($189,900) which has no license, and with work can be legal for a maximum of four students (and probably worth around $215,000 when licensed for four).

In other municipalities like Hamilton, there are no by laws that proactively regulate student housing. As such a carved up home for five students with no respect to zoning, fire, electrical and property standards SHOULD trade for the same money as, say, a three bedroom home next door that hasn't been carved up.

Mike
 
Ahilan Thurairajah said:
They are 5 detached houses.
In this case the vendor's motivation is different and the price is well within the market range. VTB is open and I am in a position to pay it off if that is the best move.
But thank you very much for your concern.
Click to expand...
Well then your best bet is to talk to a mortgage broker and she/he will get you 5 mortgages with willing (but likely slightly more expensive) lenders, perhaps 70% LTV at 3.5-5% as opposed to 80% LTV at 2.x% !
 
MikeMilovick said:
As such a carved up home for five students with no respect to zoning, fire, electrical and property standards SHOULD trade for the same money as, say, a three bedroom home next door that hasn't been carved up.
Click to expand...

Correct. That was my point.
 
When I started this conversation, I have already contacted CIBC and some mortgage brokers. Based on suggestions given hear, I did contact few other brokers too.

Currently I have narrowed down to CIBC and they are willing to get what I needed.

Most banks and mortgage brokers will not be able to work on this. But I don’t need most of them. I just need one of them. Sometimes finding that one vendor may be a challenge. But in the process you will end up networking with lot more talented people and it is worth it.
 
Ahilan Thurairajah said:
Thanks Mike for pointing me in the right direction.

Also I did review the opportunities you posted in Waterloo region. I have forwarded your posting to some other potential investors.

We will keep in touch. May be we could meet at the monthly meeting tomorrow.
Click to expand...

Hi Ahilan;

I will not be at tomorrow night's meeting; however, my clients, Property Manager Adam Hoffman likely will be, as well as my client, Joe Mancini.

They would be able to give you their scoop on recent success in the KWC Region.

Mike
 
Hi Mike,

I like KWC region. That's not the issue. I am looking for cap rate of minimum 7.00.

Sometimes it may not be available in the current business model. But we can come up with some creative ideas to change that.

For the moment, I prefer to first close the deals I am working on and stabilize it.

Let's keep in touch.

Ahilan
 
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