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Which banks use the 1.1 rule?

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Does anyone have a list of banks that follow the 1.1 rule (where they look at my first 3 properties as a portfolio and less at my personal debt service ratios)?

Ideally I would like to find a bank that doesn`t look at salary at all so that I can invest full time!
How did some of you make the transition into self-employed real estate investor?
 
Firstline is the only bank that used the 1.1 rule, but it is extremely difficult to meet their requirements now. Several banks have better programs by offering 70% or 80% rental offsets.

The problem with Firstline is that they will waive the overal tds requirement if your portfolio meets the 1.1 rule, but your subject property has to qualify as well based on a 35 year amortization.
 
QUOTE (RobMacdonald @ Feb 5 2010, 09:28 PM) Firstline is the only bank that used the 1.1 rule, but it is extremely difficult to meet their requirements now. Several banks have better programs by offering 70% or 80% rental offsets.

The problem with Firstline is that they will waive the overal tds requirement if your portfolio meets the 1.1 rule, but your subject property has to qualify as well based on a 35 year amortization.

Thanks Rob, I actually just tried to assume a FirstLine mortgage a couple months ago but their rules just changed due to the economic climate. Since I already had investment properties I would have to have at least $100k of liquid assets in the bank (i.e. excluding equity in the property)!

Are you sure there are not any others out there that wouldn`t look at my salary?
 
QUOTE (DWard @ Feb 5 2010, 05:55 PM) Does anyone have a list of banks that follow the 1.1 rule..
I venture to guess: NONE

use the 1.25 or 1.3 rule instead !!
 
QUOTE (DWard @ Feb 5 2010, 05:55 PM) Ideally I would like to find a bank that doesn`t look at salary at all so that I can invest full time! How did some of you make the transition into self-employed real estate investor?

I will take a stab at answering this part of your question for you. The jump from full time employed to full time investor is not an easy one. There are many challenges that come along. I honestly think it is easier to go from "no job at all" to self employed RE investor as you have nothing to lose and everything to gain.

I made the jump after 11 properties but not without significant backing and support from my wife and her business.

Since moving to FT RE Investor we have added 3 additional properties and for each of them financing was the BIG challenge. (We don`t get our investors to qualify for the mortgages for a bunch of reasons) You will need to find a broker that knows what this picture looks like and how to manage it very effectively. Since adding a great broker to our team this has been less challenging but I still need to kill two trees to get my mortgages approved (down from 3 or 4 trees)

The other challenge has been property management. I was self managing all of our properties. We have properties in Edm, Calgary, Okotoks and Cochrane and I live in Canmore. At first I was excited to give my tenants more time and energy but with each drive to the city that lost its appeal. I have just recently hired a property management company to help with the work load and this was a great business decision. I am now doing what I do best and that is raise capital and buy property and not dealing with toilets and tenant placement. The power of focus is not to be underrated. Make sure you are budgeting for a PM before you actually need a PM.

The other challenge you will face making the jump will be time management. You had better be very self motivated. Most of the Belize statements I read go something like.....I want 10 properties free and clear so I don`t have to work any more and can play all the time. It kind of sounds great at first but then you read between the lines. So you are so motivated to work like hell to get 10 debt free properties that now you don`t want to work??? It is like asking a horse not to run or a fish not to swim. If it is in you nature to work that hard than not working isn`t really that appealing to you. And if not working is appealing to you than you will never have the drive to get to 10 debt free properties.....so which is it?

All in all making the leap was one of the best things I have done in my life but it didn`t come without a lot of thought, hard work, support and perseverance.
 
QUOTE (ThomasBeyer @ Feb 6 2010, 12:49 AM) I venture to guess: NONE

use the 1.25 or 1.3 rule instead !!

I agree Thomas, the greater the number the better but I still need a bank who is open minded to looking at the portfolios and not my salary...
 
Thank you Wade for the detailed response!

What bank(s) did your broker find that make it easier for you to get financing? Did your broker have to say you were "self employed" and as a result you had to pay higher interest rates? I know many would say private lenders are the way but I am hoping there are banks that can be a second option...
 
QUOTE (wgraham @ Feb 6 2010, 10:06 AM) I still need to kill two trees to get my mortgages approved (down from 3 or 4 trees)
Ha Ha I take all my paper shreddings and put them in my composter - that way all the legalese comes full circle.


So you are so motivated to work like hell to get 10 debt free properties that now you don`t want to work??? It is like asking a horse not to run or a fish not to swim. If it is in you nature to work that hard than not working isn`t really that appealing to you. And if not working is appealing to you than you will never have the drive to get to 10 debt free properties.....so which is it?
Excellent point!
 
There are a few excellent points in this thread so far but I`m still no closer to finding the bank that will allow me to grow quickly as a Real Estate investor. Do I have to hire a VA to call them all to see or can someone narrow it down for me with their experience?
 
QUOTE (DWard @ Feb 6 2010, 05:41 PM) There are a few excellent points in this thread so far but I`m still no closer to finding the bank that will allow me to grow quickly as a Real Estate investor. Do I have to hire a VA to call them all to see or can someone narrow it down for me with their experience?
phone 3-4 mortgage brokers that regularly post in this forum.

You will likely need more CASH, i.e. your own or that of partners, to buy more real estate.

Getting money above 75% or 80% LTV is much harder than it used to be ! MUCH HARDER. Not impossible, but harder !
 
QUOTE (wgraham @ Feb 6 2010, 11:06 AM) I will take a stab at answering this part of your question for you. The jump from full time employed to full time investor is not an easy one. There are many challenges that come along. I honestly think it is easier to go from "no job at all" to self employed RE investor as you have nothing to lose and everything to gain.
I made the jump after 11 properties but not without significant backing and support from my wife and her business.

Since moving to FT RE Investor we have added 3 additional properties and for each of them financing was the BIG challenge. (We don`t get our investors to qualify for the mortgages for a bunch of reasons) You will need to find a broker that knows what this picture looks like and how to manage it very effectively. Since adding a great broker to our team this has been less challenging but I still need to kill two trees to get my mortgages approved (down from 3 or 4 trees)

The other challenge has been property management. I was self managing all of our properties. We have properties in Edm, Calgary, Okotoks and Cochrane and I live in Canmore. At first I was excited to give my tenants more time and energy but with each drive to the city that lost its appeal. I have just recently hired a property management company to help with the work load and this was a great business decision. I am now doing what I do best and that is raise capital and buy property and not dealing with toilets and tenant placement. The power of focus is not to be underrated. Make sure you are budgeting for a PM before you actually need a PM.

The other challenge you will face making the jump will be time management. You had better be very self motivated. Most of the Belize statements I read go something like.....I want 10 properties free and clear so I don`t have to work any more and can play all the time. It kind of sounds great at first but then you read between the lines. So you are so motivated to work like hell to get 10 debt free properties that now you don`t want to work??? It is like asking a horse not to run or a fish not to swim. If it is in you nature to work that hard than not working isn`t really that appealing to you. And if not working is appealing to you than you will never have the drive to get to 10 debt free properties.....so which is it?

All in all making the leap was one of the best things I have done in my life but it didn`t come without a lot of thought, hard work, support and perseverance.

Hi Wade, Excellent points!
can you please elaborate on "we don`t get our investors to qualify for the mortgages for a bunch of reasons".
What is the main reason? re-fi risk? renewal risk? legal?
THANKS.
 
QUOTE (investmart @ Feb 6 2010, 10:16 PM) Hi Wade, Excellent points!
can you please elaborate on "we don`t get our investors to qualify for the mortgages for a bunch of reasons".
What is the main reason? re-fi risk? renewal risk? legal?
THANKS.


The first property I bought with a joint venture partner we had 4 people on title and mortgage. For me, each time we needed a document signed it was like herding cats! From that moment on I decided that I would do whatever I could to keep the deals as clean as possible. It was one less hoop for my investor to jump through. They put up a full 20% deposit and I get the mortgage. Simple and clean.

This strategy also forced me to find great properties that would support my goals and business. I couldn`t buy an over-leveraged asset with negative cash flow as I wouldn`t be able to qualify for my next mortgage. It really helped keep me on the straight and narrow path.
 
QUOTE (DWard @ Feb 6 2010, 05:41 PM) There are a few excellent points in this thread so far but I`m still no closer to finding the bank that will allow me to grow quickly as a Real Estate investor. Do I have to hire a VA to call them all to see or can someone narrow it down for me with their experience?

Call Garth Chapman at Jencor Mortgage (403) 891-2204
 
QUOTE (DWard @ Feb 5 2010, 06:29 PM) Are you sure there are not any others out there that wouldn`t look at my salary?


If you are currently employed and have a salary, then yes there are many more options that Firstline. Firstline is one of the more difficult lenders to get approvals through at the moment.

With a salaried income, as long as your personal debts can be covered with a 40% TDS ratio, then you should be able to add more properties to your portfolio. Other banks will allow 70% or 80% offset on your portfolio, which is far more preferable than the 1.1 rule in the given market.
 
QUOTE (wgraham @ Feb 8 2010, 11:36 AM) The first property I bought with a joint venture partner we had 4 people on title and mortgage. For me, each time we needed a document signed it was like herding cats! From that moment on I decided that I would do whatever I could to keep the deals as clean as possible. It was one less hoop for my investor to jump through. They put up a full 20% deposit and I get the mortgage. Simple and clean.

This strategy also forced me to find great properties that would support my goals and business. I couldn`t buy an over-leveraged asset with negative cash flow as I wouldn`t be able to qualify for my next mortgage. It really helped keep me on the straight and narrow path.

Thank you Wade for the clarification,

It`s interesting how much effort you put in order not to have your JVs on title/mortgage, perhaps even willing to lose some deals,
in order to keep it more clean/have only you on mortgage/title(?)
maybe in cases of one JV (not 4) you wouldn`t find it that problematic to have your JV on title/mortgage if it enhances Financing(?)

Regards,
Neil
 
QUOTE (RobMacdonald @ Feb 8 2010, 07:11 PM) Other banks will allow 70% or 80% offset on your portfolio, which is far more preferable than the 1.1 rule in the given market.


Hi Rob...not sure what you mean by above? Thomas Beyer mentioned now to use 1.3 and someone else mentioned you needed $100K in cash. Please clarify.

Thanks

Paul
 
QUOTE (PaulW @ Feb 10 2010, 09:05 AM) Hi Rob...not sure what you mean by above? Thomas Beyer mentioned now to use 1.3 and someone else mentioned you needed $100K in cash. Please clarify.

Hi Paul,

Every bank uses a different formula and policy when it comes to assessing your portfolio. For example, Scotiabank will take 70% of your gross rental income, then subtract the mortgage payments. The difference is either added to your monthly income, or if negative, is considered another debt payment. Other lender will use 80% of your rental income, but will then substract mortgage, taxes and strata.

So if you have a salaried or verifiable income, a portfolio with positive cash flow based on the formula above, can help cover off your personal expenses. The reverse also needs to be considered.

So as you create a higher postive income from the portfolio, this will put less pressure on your personal income. If your income was increasing, then there is less pressure on the cashflow of the portfolio. It`s a relationship that`s easy to miss, but it`s really the secret on how an individual can create a large portfolio of properties. This is why the majority of people can`t understand how it`s possible to be qualified for more than just a few properties.
 
QUOTE (RobMacdonald @ Feb 10 2010, 01:14 PM) Hi Paul,

This is why the majority of people can`t understand how it`s possible to be qualified for more than just a few properties.

In another words, positive cash flow. What when CMHC comes into play? I think they look at it as 50%? Would that mean if mortgage is $450 and rent $800 this property would be negative?
Thanks
DEJAN
 
QUOTE (RobMacdonald @ Feb 10 2010, 03:14 PM) Hi Paul,

Every bank uses a different formula and policy when it comes to assessing your portfolio. For example, Scotiabank will take 70% of your gross rental income, then subtract the mortgage payments. The difference is either added to your monthly income, or if negative, is considered another debt payment. Other lender will use 80% of your rental income, but will then substract mortgage, taxes and strata.

So if you have a salaried or verifiable income, a portfolio with positive cash flow based on the formula above, can help cover off your personal expenses. The reverse also needs to be considered.

So as you create a higher postive income from the portfolio, this will put less pressure on your personal income. If your income was increasing, then there is less pressure on the cashflow of the portfolio. It`s a relationship that`s easy to miss, but it`s really the secret on how an individual can create a large portfolio of properties. This is why the majority of people can`t understand how it`s possible to be qualified for more than just a few properties.

If I`m following...

If my gross rent was say $2,000 - a bank would take 70% (let`s say) or $1,400 as "income". Let`s just say that my mgtg payment and taxes was also $1,400. Does that suggest that this property would "hold" its own mortgage? Is there a limit on how many properties you can buy under this rule and does this just apply to Alberta where you are from?
 
QUOTE (kanabel @ Feb 10 2010, 03:08 PM) In another words, positive cash flow. What when CMHC comes into play? I think they look at it as 50%? Would that mean if mortgage is $450 and rent $800 this property would be negative?


When CMHC comes into play, the lenders policies even change further. When you refer to CMCH at 50%, what that actually means is that the lenders policy on a high ratio mortgage is for a 50% addback. In other words, they will add 50% of the income to your income and then debt service the full payment.

CMHC`s actually policy on rental income is an 80% offset. But what happens is the lenders choose how much risk they are willing to take. If the lender doesn`t want to got to 80% offset, then they put their own more conservative policy in place. And with an application on a high ratio purchase, more lenders go the conservative route than then CMHC policy.
 
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