Why It’s Hard to Get a Mortgage in Canada
One of the things that all investors face sooner or later is a head-on confrontation with tough financing rules. Over the last 20 years, the Canadian federal government has tightened the rules around getting a mortgage. These moves have been aimed at cooling Canada’s hot real estate market as well as protecting borrowers by attempting to ensure they will be able to afford their mortgage as interest rates increase.
There is a lot to unpack if you want to analyse interest rates and the ever-tightening mortgage qualification rules. But the bottom line is that, for most investors, you run out of new mortgage qualification room fairly quickly. It’s become very hard to qualify for more than three or four mortgages.
And, not only is it harder to qualify for a standard bank mortgage, what about that required down payment? For anyone buying a property and getting a conventional mortgage where your down payment is 20% (or more) of the purchase price, saving up that down payment can be incredibly difficult. For example, if you are purchasing a property here in Alberta for $400,000, then 20% of that purchase price is $80,000! That’s how much you have to put up as a deposit—assuming you can get a mortgage.
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Real Estate Investing Strategies Beyond Buy and Hold
In the above scenarios we’re talking about long-term Buy and Hold. Long-term Buy and Hold is the bedrock strategy of most real estate investors and a strategy we certainly agree with. My wife Donna and I have the majority of our portfolio in long-term Buy and Hold. For investors wanting to buy a lot of properties, the two-pronged difficulties of mortgage qualification and accumulating big deposits make Buy and Hold tough.
But real estate investing is more than long-term Buy and Hold! There are many other approaches that I collectively call Creative Real Estate Strategies. These are viable investing methods that work across Canada. Under the Creative Strategy umbrella we have: Agreements for Sale (AFS), Rent-to-Own (RTO), Wholesaling (sometimes referred to as Assignments), Fix and Flip, and Joint Ventures. You can also combine these strategies for even more powerful and versatile real estate investing!
Whether you are a brand-new investor looking to get started in real estate, you already own property and can’t get more mortgages, or you’re wondering about purchasing property for little or no money down, and you want to educate yourself on Creative Strategies, we’ve got you covered. Our flagship, live education event, the Rapid Cash Program is coming up May 7 and 8, 2022 in Calgary. You can also access the next best thing by buying one of our online home-study kits.
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Buying Canadian Real Estate with no Mortgage
For this Tale, our student found a tired landlord in a small-but-vibrant Alberta town. This landlord had a portfolio of six fully rented four-plexes. It was time to retire and enjoy life but the landlord wanted to maximize his cash from selling the six four-plexes. He had done the math. Between realtor’s commission at about $18,000 per four-plex and payout penalties on his recently renewed mortgages of about $15,000 per four-plex, he was looking at paying around $200,000 in commissions and penalties.
As much as the landlord wanted to sell, his problem was losing $200,000 right before retirement. The loss was way too big of a hit to sell conventionally.
Enter our student who proposed that the landlord sell to our student by way of the Creative Strategy called Agreement for Sale. AFS is a seller financing strategy, so the seller is your bank. You don’t have to go to your regular bank and qualify for new mortgage financing. Once the landlord understood that he wouldn’t have to pay $200,000 (or more!) in real estate commissions and payout penalties he was very interested.
However, having owned the properties for quite a while, the landlord had substantial equity in them, so he wanted a decent down payment. Now remember, the standard conventional mortgage financing deposit is 20% of the sale price. Our student negotiated a down payment of not 20%, but a much more manageable 10%!
And, because the landlord was retiring and wanted some income, our student agreed to pay the seller 3% per month on his remaining equity, which gave the landlord about 2.5% more income then he would have received if he put his sale proceeds in a normal savings account at a bank.
This deal turned out to be a classic win-win. And, folks, it’s best to always play for win-win! You’ll find more deals when you genuinely try to help people with their problems, and you can feel good about your real estate investing business
Lessons Learned:
1. If you can solve someone’s problem, there are endless deals to be done.
2. Creative Strategies can solve your own financing and deposit problems
3. Solid real estate education is the key to real estate success!
Want to learn how to implement Creative Real Estate Strategies like our student used in this Tale? Take advantage of our upcoming Rapid Cash Program on May 7th and 8th, 2022, in Calgary, and you too can start buying properties without having to qualify for a mortgage!