I received the information below from a mortgage broker I was not aware of until today, and thought it relevant to those of you who are interested in investing in real estate.

Residential and Commercial Multi-Unit (Underwriting Guidelines)

The following issue of Financial Report will concentrate on commercial and residential multi-unit underwriting. I will show you what banks, trusts and CMHC look for in clients and properties before recommending deals for approval. This info will be of particular interest to you, if you work with investor clients who are looking to diversify their investmet portfolios by adding some real estate to it as well as additional source of passive income.

Underwiting Residential Investments (1-4 units)

• 1-2 units as low as 5% down – purchase (refinance – 95%)

• 3-4 units as low as 10% down – purchase (refinance -90%)

• Conventional deals start at 20% down

• Must be zoned Residential

• Usually lenders ask Retrofit Certificate and Legal Zoning

• Can be owner occupied or pure rental

• 80% of the rental income is used to qualify the deal in addition to applicants income

• Minimum Beacon scores are 600 to 650 – depending on circumstances

• Down Payment can be gifted or borrowed as long as applicants qualify. Also Down Payment can come from proceeds of refinance of other properties, including principle residence.

• Income coming from other properties can be used as well

• Some lenders use Rental Offset, which helps a lot in qualifying new purchase or refinance.

• General rule is – Property should be self-supporting.

• Debt-To-Coverage should be between 1.25/1.00 (CMHC) to 1.10/1.00 (Convential)

• Some lenders require rental spread-sheets to be completed some only consider existing rental agreements.

• 2 year financial history on the property is preferred

• Maximum Amortization is 35 years (Important for cash-flow)

Underwriting Commercial Investments (5+ Units)

• CMHC will consider Multi-Unit Properties with as low as 15% Down Payment

• Down Payment can be gifted or borrowed as long as applicants qualify. Also Down Payment can come from proceeds of refinance of other properties, including principle residence.

• Ideally, investors should have some experience in running residential type of investments

• CMHC requires that the borrower have a net worth equal to at least 25% of the loan amount, with a minimum of $100,000.

• Minimum Debt Coverage Ratio (DCR) based upon agreed amortization period and the contract interest rate (minimum five-year term)

• Rental properties with five to six units: 1.10, 1.20 (for refinance)

• Rental properties more than six units: 1.30 (term less than 10 years) 1.20 (term 10 years or more)

• Loan-to-Value Ratio:
Up to and including 80% – 3.50%
Up to and including 85% – 4.50%

• Conventional deals start at 75% Financing

• Vendor-Take-Backs may be considered subject to qualifications.

• Financial History and Statements of the building are required for at least 2 years (Some times up to 3 years, depending on the lender)

• Amortization can be higher or lower then 25 years depending on the useful life of the building and general property condition.

• Appraisal by an AACI accredited appraiser and Phase 1 Environmental Assessment as usually required. (CMHC and Conventional)

• Commercial Insurance Specialist will prepare an Insurance Binder in accordance with lending institutions requirements.

Approval Process:

1. Application with all applicable docs is submitted to the lender.

2. Letter of Interest is Issued outlining various conditions.

3. Once signed and all applicable conditions are met, application gets sent to CMHC or internal department for final approval – if conventional.

4. Once approval is granted, internal credit sends the file to its treasury department to lock-in the rate.

5. Instructions issued to the lawyer to register upon closing.

This is great information, and very useful to keep bookmarked in your browser, so you can get a solid idea of cash requirements, lender requirements, etc. For an even better idea, let’s sit down and invest an hour in discussing your thoughts and plans for investing in real estate anywhere in Ontario.

Similar Wikipedia Articles

• Commercial mortgage

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2010 Rent Increase Guideline

Well, things continue to change in this wild and whacky real estate market. Just take a look at the numbers for this past week; sales down by 50% / listings down by 9% / days to sell all over the map / busiest price range is over $400,000.

Looking at the Weekly Total Market Overview, there are a couple of key points to note, which I will comment on below the chart:

The first thing to note in the above chart is the price range that has the most listings – $450,000 to $500,000. The thing that really makes that interesting is the average number of days it took to sell a home in that price range – 204. That number is somewhat misleading, as 1 of the homes sold was on the market for 375 days.

In fact, there were a number of homes sold that had been on the market for more than 100 days; taking those out of the mix, the average days to sell is reduced from the 58 shown in the chart to 21 days. I noted last week that the days to sell is derived from the date the listing contract was signed to the date an offer is firm. With the adjusted-average being 21 days, this means that houses are going under contract in somewhere between 5 and 14 days; not much time for buyers to get a look at things, really.

The Annual Summary will give you an update on how overall averages are fairing:

Where will the decrease in available properties fall to, before more people decide to take advantage of the excellent opportunities to move up?

Here’s the graph of listings and sales:

Over the last month or so, I’ve been asked this question by more people than at any other time in my career, so I thought I’d write about it here today, and then you can give me your feedback.

We are currently in an almost-perfect storm, as far as real estate investing is concerned; rates are crazy-low, prices are down, and there are lots of properties available in many areas. Combine this with the tougher qualifications to get a mortgage, and many would-be buyers are having to continue as renters. For investor financing, we can still get great mortgages, with only 5% downpayment.

These factors combine to make positive cash-flow an easy thing to accomplish.

Let’s look at one example property, a 7-unit plus 1 big apartment building in Kitchener. This property is offered for sale at $479,500, and has rental income of $3,375 per month if the big apartment is not owner-occupied. So, that’s $39,300 income from rents, and operating expenses of approximately $10,000 for insurance and utilities, leaving you $29,000 per year for debt service, vacancies, and repairs.

This property has had many major updates in last couple of years, including electrical panel, steel roof, asphalt, and new boiler, so there shouldn’t be any big-ticket items coming up in the near future.

On top of that, the tenants in this legal boarding house have been there for between 3 years and 35 years, so there is stability of income.

What would be the carrying costs with 5% down? Well, your mortgage payment will be approximately $2,138pm & property taxes will be $295 per month, for a total annual outlay of ($2,138 + $295) x 12 = $29,196. That’s a break-even opportunity!

If you put 10% down, you have a small positive cash flow every month.

OR, how about this one, in Cambridge:

6 apartments, 2 x 2-bedroom and 4 x 1-bedroom. Rental Income of $45,000; operating expenses of $9049 per year. Carrying costs are:

$1,663 mortgage, $350 property taxes = ($1,663 + $350) x 12 = $24,156 per year.

So, total carrying costs plus operating costs = $9,049 + $24,156 = $33,205.

Result = $11,795 positive cash flow per year.

I think it’s a good time to be a real estate investor. I do; will you?

For information on these, and lots of other excellent opportunities to put your money to work for you, give me a call at 905-208-7002 or send me an email to chris@chrisnewell.com

Smith Manoeuvre