Financing Options & Strategies

Transcription

1 Financing Options & Strategies Pierre-Paul Turgeon Pierre Paul Turgeon, 1

2 MY WHY! Pierre Paul Turgeon, 2

3 Pierre Paul Turgeon, 3

4 Financing strategy depends on specific circumstances of the deal & lender! Pierre Paul Turgeon, 4

5 Purpose: Overviewpossible financing strategies Not exhaustive Conventional lenders make up own financing rules CMHC too, but has basic guidelines Pierre Paul Turgeon, 5

6 3 Categories of MF Mortgages: 1. Conventional mortgages 2. CMHC-insured mortgages 3. Interim or Bridge mortgages Pierre Paul Turgeon, 6

7 Conventional Financing Conventional Loans Pierre Paul Turgeon, 7

8 Conventional Financing NOT insured by CMHC Lender can be: Private lender (Individual) Institutional (Insurance Co) MIC (Mortgage Investment Corp) Pierre Paul Turgeon, 8

9 Conventional Financing Max LTV = 75%: VALUE = lesser of purchase price or appraised value - IMPORTANT! Closer to market value Generally max. amortization is 25 years Sometimes 30 years Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 9

10 Conventional Mortgages: Advantages Faster turn-around time for approval Lenders more business-like / FLEXIBLE Value closer to market value (appraisal) Will user lower Cap Rate in Valuation Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 10

11 Conventional Mortgages: Disadvantages Larger down payment Higher interest rate Available ONLY in large cities (lower risk) Pierre Paul Turgeon, 11

12 CMHC-Insured Mortgages Pierre Paul Turgeon, 12

13 CMHC-Insured Mortgages Underwriting guidelines NOT CAST IN STONE! Insure anywhere in Canada based risk profile Up to 85% LTV: VALUE = LESSER OF PURCHASE PRICE OR VALUE AS DETERMINED BY CMHC. IMPORTANT! CMHC does not care about market value! Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 13

14 CMHC-Insured Mortgages Advantages Lower Interest rate Higher Loan Amount because higher LTV 40 year amortization Available anywhere in Canada Pierre Paul Turgeon, 14

15 CMHC-Insured Mortgages Disadvantages Long turnaround time On top of lender turnaround time Don t like deals outside box Minimum of 5 years holdings to make it worth it because of insurance premium Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 15

16 Bridge Mortgages Pierre Paul Turgeon, 16

17 Used When There Are Extenuating Circumstances Such As: 1. Tight deadlines to remove conditions and / or closing 2. Cash flow does not meet institutional lenders underwriting guidelines & require time to increase cash flow Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 17

18 3. Renos or upgrades required to bring property to acceptable standards for institutional lenders (timing issue) Pierre Paul Turgeon, 18

19 Must Have Clear Exit Strategy E.g. refinance with conventional loan OR CMHC Pierre Paul Turgeon, 19

20 Bridge Mortgages Advantages Max Loan Amount = 85% of acquisition costs If strong deal, lender may include funds for: renovations and interest reserve Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 20

21 Bridge Mortgages Advantages Lender will consider either flat or negative DCR (Case Study #3) QUICK TURNAROUND TIME Pierre Paul Turgeon, 21

22 Bridge Mortgages Disadvantages Higher Interest Rate Short term typically 12 months Pierre Paul Turgeon, 22

23 Conventional vs CMHC Financing No issues CONV or CMHC Timing issues Quick approval /funding Interim Financing CONV or CMHC START A. Minor Issues H/B For Repairs CONV or CMHC Condition issues B. Major issues Interim Financing A. Short time frame Rental achiev. or rental increase notices CONV or CMHC CONV or CMHC Pag 76 Rent issues B. Long time frame Interim Financing CONV or CMHC Pierre Paul Turgeon, 23

24 Case Study #1 Pridewell Apts 20 unit building in Edmonton PURCHASE PRICE: $2.2M Potential to increase NOI from $120K to income to $138,000 CURRENT RENTS BELOW MARKET AVERAGE Pierre Paul Turgeon, 24

25 Strategy for Pridewell Apts Timing issues Quick approval /funding Interim Financing CONV or CMHC START Rent issues B. Long time frame Interim Financing CONV or CMHC Pierre Paul Turgeon, 25

26 CURRENT RENTS MARKET RENTS CMHC Bridge Loan Conventional EQUITY CREATION CMHC Refi in 9 months NOI $ $ $ $ CAP RATE: 6.0% 5.5% 5.5% 6% LENDING VALUE $2.0M $2.2M $2.5M $2.1M LTV 85% 75% $300,000 NEW 85% Loan Amount: $ $ EQUITY $ Loan type: Amortized 25 YR Interest Only Amortized 25 YR Term: 5 years 1 year 5 years Interest Rate 2.8% 4.5% 2.8% Fee $3 000 $ $3 000 Ins. Premium $ $0,00 $ Annual Principal pay down $ $0,00 $ Monthly principal $3 928 $0,00 $4 517 Monthly interest $3 943 $6 469 $4 535 Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 26

27 REFINANCING TRANSACTION in 9 months CMHC Loan $ Bridge loan PAY OUT - $ Equity takeout $ Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 27

28 Case Study #2 Glenwood Apts 15-unit building Average rents 17% below market average Bachelors had large walk-in closets Converted 2 bachelor units into 1-bedroom & increased rents from $650 to $885 Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 28

29 Strategy for Glenwood Appts START Condition issues B. Major issues Interim Financing CONV or CMHC Rent issues A. Short time frame Interim Financing CONV or CMHC Pierre Paul Turgeon, 29

30 Case Study #3 Fortune Apts 20-unit building Foreclosure sale FLIP, Flippers did FULL RENOS But building 100% VACANT - NO INCOME Purchaser needed to lease up Used BRIDGE LOAN WHILE LEASING UP Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 30

31 Strategy for Fortune Apts START Rent issues A. Short time frame Interim Financing CONV or CMHC Pierre Paul Turgeon, 31

32 Recap Need To Know What Financing Strategy To Use Upfront Choose Appropriate Financing Strategy Based On: Goal Timing Market Conditions (Cycle) Condition Of Property Etc. Pierre Paul Turgeon, 32

33 Recap CMHC Financing: Freaking Pain In The Butt!!!!!!!!! Long Turnaround Better ROI Higher LTV LTV Not Based On Market Value Won t Do Deals Outside Box Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 33

34 Recap Conventional: Faster Turnaround Higher Interest Rate Use Market Value Business-like Approach Pierre Paul Turgeon, 34

35 Recap Bridge Financing: Outside box deals Fast turnaround Short term Expensive Must have Exit Strategy Pierre Paul Turgeon, 35

36 Recap Bridge Financing: Used In Funky Situations Faster Turnaround Higher Interest Rate Use Market Value Business-like Approach Pierre Paul Turgeon, 36

37 Only Two things Change your Life: either something new comes into your life or something new comes out of you! - Brendon Burchard Pierre Paul Turgeon, pturgeon@matterhorninvesting.com 37

38 Pierre Paul Turgeon, 38

39 Multi-family Investing Blueprint Live Event September 12, 13, 14 Courtyard Marriott Edmonton, AB Pierre Paul Turgeon, 39