abby mcquire financing 20140531...

CMHC Financing for Multi‐Family Properties As presented at the May 31, 2014 BC REIN Workshop

Abby McQuire, [email protected] | (416) 593‐3020 1

Abby McQuireDirector, Commercial Financing

[email protected]



• Apartment industry is active

• Difficult to find product

• Multiple offers on properties

• Buyers must be prepared to put down 25% to 35% of the purchase price plus closing costs

• Capitalization rates are compressing2



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All of this action is driven by historically low interest rates



• Why do I have to put down approximately 25% to 35% of purchase price when CMHC states they will lend up to 85% Loan to Value?

• Canada survived the credit crisis in 2008/2009 due to their conservative lending practices.

• Why choose a CMHC insured mortgage?

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In the long runCMHC offers the best rate of return

on multi-family buildings

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• Significantly lower interest rates for the life of the loan

• Higher loan amounts (up to 85% LTV)

• Longer amortization periods (up to 40 years)

• Typically no Appraisal Report is required

Plus…6



• Any location in Canada(conventional mortgages are typically limited to major urban centres)

• Insured loans are assumable by a qualified buyer

• #1 option for the “Buy and Hold” investor

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• Purpose built multi-family properties are preferred

• Additional due diligence for furnished suites

• Zoning requirements (all units must be legal and conforming)

• Student rentals can have a generous return but usually require a larger down payment

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The Rule:

• The Borrower must have 25% of the loan amount in net worth, of relatively liquid assets, outside of the down payment for the property

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For Example:

Purchase price: $1,300,000 75% Loan to value: $975,000Minimum net worth: $243,750 (plus down payment)



Assets123 Main Street, Victoria, BC $550,000 (Principal Res)10428 114 Street, Edmonton, AB $425,000 (Triplex)RRSP $165,000Jewelry $ 12,000Art $ 5,000Car, 2013 Audi A5 $ 52,000

Total Liquid Assets $1,140,00010

Sam WilkinsonBorn: August 5, 1967 | SIN: 123-456-789



Liabilities

Mortgage (PR) $289,000Mortgage (Triplex) $225,000Line of credit $ 50,000Car loan $ 35,000

Total Liabilities $599,000 11



• Does Sam qualify for a mortgage of $975,000?

• 25% of the loan amount is $243,750

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Sam Wilkinson’s overall Net Worth: $541,000



• NO!!!

• Why when Sam meets the 25% Rule?

• Sam must also have the funds for the down payment outside of the net worth requirement

• Following the example the down payment required is $325,000 (assuming a mortgage of 75% LTV).

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Includes:

• $325,000 for down payment PLUS

• 25% of the Loan Amount is $243,750

• There is a solution…

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Sam’s requirement: $568,750 overall Net Worth



• Name of borrower, principals, beneficial owners and 3 years financial statements

• Note: All beneficial owners of the Borrower company MUST provide a personal guarantee

• Net Worth Statement including:Date of BirthSIN NumberPrincipal residence

• Confirmation of all assets listed on Net Worth (RRSP Statements)

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• Details of registered debt on real estate holdings (Includes all rent rolls and annual expense statements)

• Confirmation of down paymentDocumentation of the funds going back 90 days

• Real estate resume

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• Current Rent RollTenant namesBedroom typeUnit #

• 3 years of Financial Statements for the subject property

• Copy of the signed Offer to Purchase

• Current year Property Tax Bill

• Copy of all Utility bills for the last 12 months17



• Property Description:

Address, number of units, number of storeys, age, construction type, site area, heating type, appliances, parking, amenities & who pays utilities

Details of recent improvements to the property

Recent colour photos18



• Your reputation as a Borrower/Investor is one of your greatest assets

• The Industry is smaller than you think

• Have a great relationship with your Lender

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• CMHC is the best option for the “buy and hold” investor

• All beneficial owners of the Borrower must provide a personal guarantee

• Be organized with your information for a quicker approval

• Take advantage of the low interest rate environment

• And…20



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It’s a great time to buy or refinancea multi-family property!



Abby McQuireDirector, Commercial Financing

[email protected]: (416) 593-3020

Toll Free: 1-800-463-0039

www.firstnational.ca

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abby mcquire financing 20140531...

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