VTB Financing on property transitioning to CMHC long term debt

[TangoWhiskey]

I've got a 22 unit townhouse property under contract for 850 K. 30 year old homes, 25 % vacancy, seller is giving 90 % VTB for one year to allow me to invest the downpayment into upgrades to fill the empty units. If I sort out the vacancy issue I can get the rents up and revenue increased to support a new valuation north of one mill. I would like to refinance out of the VTB into 10 yr CMHC debt once the property is stabilized.



However, I've talked to Montrose mortgage and the broker there said that CMHC is bound by policy to accept the lower of purchase price or assessed value unless I have two years operating history to support the higher valuation.



How true is that? Does CMHC need two stablized years before they would consider a significantly higher financing value than purchase value?



If this is true, then don't I just need a one year conventional float mortgage to cover my funding gap after the VTB expires, with that lender then rolling over into CMHC insured debt?



It seems like this should be a common problem with a re-positioning of multi family. Does anybody or Thomas have anything to share about how much stabilized history long it will take before CMHC will appraise to a higher take-out value?



Thanks very much

 

[Thomas Beyer]

CMHC is far more conservative today, and Montrose is one of the best commercial mortgage shops around, so yes, they tell you the cold hard facts of today's more conservative lending environment.



However, in most instances CMHC valuations are also so conservative that is frequently easier to get conventional debt, without CMHC. We re-financed a property this spring at 75% LTV at 3.03% for 5 years whereas the CMHC value would have been around 70% at 2.5% PLUS a 4.5% CMHC fee (based on 85% of CMHC's value) .. hardly better over 5 years, and less cash in our jeans after refi.



Thus, base your target re-fi on 75% of future value, likely without CMHC.



Thus, convince seller that his VTB is too low or price too high, or that he has to give you a 6 year VTB that will drop after 12-18 month, say from 750K to 150-250K ! Or make him an equity partner at re-fi, say 10-20% !



Is the market sufficiently strong that you can get higher rents with close to 0 Vacancy ? Then the valuation must be north of $1.1M after upgrades for the deal to make sense (or more, depending how much cash the property needs for rehab).

 

[ChrisDavies]

Brilliant advice here from Thomas. That's a good sounding deal and I agree about going conventional. I'm also a big fan of the guys at Montrose.





[quote user=ThomasBeyer]CMHC is far more conservative today, and Montrose is one of the best commercial mortgage shops around, so yes, they tell you the cold hard facts of today's more conservative lending environment.



However, in most instances CMHC valuations are also so conservative that is frequently easier to get conventional debt, without CMHC. We re-financed a property this spring at 75% LTV at 3.03% for 5 years whereas the CMHC value would have been around 70% at 2.5% PLUS a 4.5% CMHC fee .. hardly better over 5 years, and less cash.



Thus, base your target re-fi on 75% of future value, likely without CMHC.



Thus, convince seller that his VTB is too low or price too high, or that he has to give you a 6 year VTB that will drop after 12-18 month, say from 750K to 150-250K ! Or make him an equity partner at re-fi, say 10-20% !



Is the market sufficiently strong that you can get higher rents with close to 0 Vacancy ? Then the valuation must be north of $1.1M after upgrades for the deal to make sense (or more, depending how much cash the property needs for rehab).