Sarah Larbi: REITE club community. Welcome back to another awesome episode this week. I'm Sarah Larbi, and I'm joined today by Francois, my co-host. Hello, Francois. How are you?
Francois Lanthier: I'm good Sarah. Thank you. And how about you?
Sarah Larbi: I am doing awesome. Today we have a great guest and that is the one and only Daniel Patton. From BM Select Butler Mortgages.
He's a real estate investor, but he's also a really awesome mortgage broker that works with investors. And we have a really awesome conversation today. And part of it is actually about financing recreational properties.
Francois Lanthier: Very timely. It's awesome and has great tips and advice. So how to work through this crazy market and look for opportunities.
Sarah Larbi: Absolutely. And if you haven't yet, please leave a rating and review for our podcast and check out thereiteclub.com. There's a ton of great things on our website. We have revamped it and we are adding things every single day. On that note, let's bring in Daniel Patton. Daniel, welcome back to the show for your second time with us. Really excited. How are you doing?
Daniel Patton: I'm doing great. Thank you so much for having me. Always a pleasure to be a part of the podcast. I feel special my second time, so yeah. Thank you. It's great to be here.
Sarah Larbi: Awesome. And I've got and we're gonna be asking you lots of great questions about financing. Financing different unique types of properties, and then all the good stuff for people that may not know who you are. Could you give us a 30,000 foot view of what it is that you do? And then also just from a real estate investor standpoint.
Daniel Patton: Sure. I work with Butler Mortgage BM Select. I've been doing mortgages for, I'm gonna date myself. I've been doing mortgages for almost 19 years. More specifically, I've been working with investor financing for about 15 years. Investor financing involves a lot of Planning it involves, some hand holding.
It involves, on the fly. We call it real-time adjustments and pre-approvals because numbers change. So there's a lot of interaction with our investors. So we've just, my history specifically with investors is building portfolios, working with different lenders, scaling, buying different sorts of properties, and it becomes a bit of a niche.
The investor world obviously, it's a big world, but it's also a small world in that sense. We've been doing it for 15 years. My team is the number one mortgage team in Canada. I've got 20 to 20 to 25 staff on hand now that work sort of processing applications, underwriting, and closing.
We really take investors from, depending on who they are, whether they're first time investors, or whether they're multiple time investors we really focus on taking them from start to finish, whether it be planning to to closing that file.
Sarah Larbi: Awesome. And what about you specifically in terms of investing?
Daniel Patton: I've been an investor for a long time. So things like private lending, owning multiple properties. I've got a duplex, I've done a BRRRR yourself as some people call it. I know Sarah, obviously that's something that I'm talking to the queen of now, but Real estate investing is a bit, is one of the reasons I got into mortgages.
I love the real estate market. I believe in the real estate market despite it being so crazy right now. So owning multiple properties, different strategies, private lending, things like that. Definitely something.
Francois Lanthier: Since the REITE club is really coast to coast, do you service all of Canada?
Daniel Patton: Absolutely Francois. It's great to see you too. Thank you so much for having me back. It's always good to have Francois. He is the best host. We see him all the time.
Francois Lanthier: That's great.
Daniel Patton: Thank you. We do, we definitely, we're actually, more so in the last couple years. We've seen absolute growth all across Ontario, or all across Canada. Sorry. We primarily started in Southern Ontario. The market obviously here has been really kind to investors. But it's tough now. It's tough for different reasons. It's tough because of competitiveness. It's tough sometimes.
If cash flow is a focus of people, it's tough. So we're seeing a lot of investors branching out to different provinces. We're doing more mortgages in BC, we're doing mortgages in Alberta, we're doing mortgages in Quebec. So yeah we do mortgages all across Canada properties and investing isn't just limited to Southern Ontario.
Francois Lanthier: That's excellent because I get asked all the time, okay, I need a referral, especially for Quebec. Because I speak French, I'm not Quebec Cudo, but I always get asked because people seem to think I'm from Quebec, but that's good. It's a huge market and a lot of people there. It's underserved and there's a large English speaking population in Quebec. And they're looking for mortgage brokers and so this is excellent. Thank you.
Daniel Patton: It's tough. It's Quebec, it's a different ballgame when it comes to financing and conditional offers. It's just a different process. So absolutely you wanna work with somebody who's familiar with doing deals in Quebec, cause they can be a little bit trickier than your typical Southern Ontario or Alberta type.
Sarah Larbi: That is pretty interesting cause I did want you to expand a little bit. I know we focus often on Ontario, but because we are Canada-wide, are you able to share some of the differences that somebody investing in Quebec might encounter versus Ontario or Alberta?
Daniel Patton: Yes I recently had a deal where it, here we have a very simple process. You put your offer in the offer. Depending on the amount of offers it is generally conditional on financing or on an appraisal or some sort of home inspection, and you proceed to fulfill those conditions during your, three to five day timeline and then you fulfill the remaining conditions leading up to the closing date.
Recently I had a deal where, They literally took it to closing. It's a different process. They take it right to closing before they'll even sign off on the condition of financing. So they want the appraisal done. They want the client signed off on all the paperwork, like the realtor wants to see all of this stuff upfront before they'll actually firm up on the deal.
It led to extensions on what was originally supposed to be the closing date, because the closing date there, there was no way to have, Specific to the times, the appraisers, we couldn't get an appraiser out there in time. It was a fast closing, but it ended up pushing out the closing date because the banks and the realtor wouldn't firm up the deal until we had everything satisfied.
Little bit different when it comes to processing there for sure. But banks rate wise, all that stuff's pretty much the same. It's. There's a barrier sometimes when you go from province to province, and this is true, this can be very true. Sometimes dealing with local brokers can be helpful.
That's the truth. Sometimes local brokers are more plugged into things like local appraisals or local realtors and their processes. So there's sometimes an initial battle. With just being out of province that you sometimes have to explain and somebody like myself or you may want to reach out to a real estate agent and let them know that you've done deals in Quebec, because there's certainly a barrier there for sure.
When you're dealing outta province, people don't , don't always love dealing outside their network, and when you get outside the province they can cause headaches, you wanna work in cohesion with the lawyer, the client, the re everybody needs to work together. So sometimes that's, that, that's a battle you have to fight up front.
Sarah Larbi: Absolutely. I wanted to ask you about appraisals. You mentioned appraisers and appraisals. And right now in this crazy market, it's with multiple offers and I don't know what it's gonna look like, in a year from now or two years from now. How are appraisers appraising currently? With things just going and being way out of whack? Things don't make sense anymore. And also maybe a second part to that is, how do we now estimate what an A R V is gonna be if we're doing any type of types of renos? Because again, it's all outta whack. So what are some things that you could do?
Daniel Patton: Getting your appraisal ordered early would be one thing. I think people sometimes have a misconception that appraisals can be ordered pretty quickly, two to three day turnaround, and that might be normal in a, in a regular market. But when we see a market like this, which to me, and I'm sure you guys would agree, it's very similar to 2017, right?
We're at a point now where we're getting multiple offers on properties. We're getting bully offers on properties we're buying homes. Closing them two months later and they're worth more, two months later, they could be worth tens of thousands of dollars more. This isn't a normal market. So first and foremost, appraisals like everybody else I say this a lot to clients. We, when we're out buying, and trust me, I know buying's the hard part for the agents, for the coaches, putting that time in to go find a property with multiple offers is. Is extremely difficult, but the busyness of the market transcends, and it's not just the buyers and the realtors.
The appraisers are backed up. There's a lot of deals closing, there's a lot of backlog on appraisals. There's a lot of rush files right now. Quick closing is a negotiation tactic, right? Hey, I can close it in three weeks. You don't have to wait two months. I'll close it quickly.
This puts a lot of pressure on things like appraisal. Banks, mortgage brokers, lawyers. So the market continuously is getting backed up because everybody nowadays, and I'm sure you guys again would agree, everybody's dealing with deals that are right in front of their face. And what I mean by that, you're dealing with conditions of financing that are coming up today or tomorrow.
You're dealing with closings that are coming up today or tomorrow. You're dealing with people that want pre-approval so they can put in an offer today or tomorrow. So there's just, it's a crazy market in that sense where everybody is backed up. So appraisals first and foremost, especially in smaller towns, banks are limited.
On the appraisers, you can't just pick an appraiser and order the appraisal. The bank will have a list of appraisers that's approved, and if you're going through a mortgage broker, we have to go through a third party to order these appraisals. So small towns can be two weeks, sometimes two to three weeks backed up.
Timing for sure, you wanna order it with enough time. Now, this will sometimes cause a problem because we know the market right now, everybody's going in with. I get this question every day. Can I go in with the firm offer? Can I go in with those? My realtor says I can't go in with conditions. I can't go in with conditions.
We have to appreciate right now that, despite the market conditions, okay, the condition of finance, the home inspection condition, these are there to protect the buyer. Okay. And that doesn't change in a competitive market. The market conditions might change and say look, the least amount of conditions will get the offer, but the risk is still there.
I can pre-approve a client as much as I want. I can tell them how great their numbers are. I can look at their credit. I can get them in a position where I know the bank is gonna approve them as the applicant. But the one thing myself nor the bank can confirm is the property, right? We need an accepted offer for that, for the bank to clear the property because the bank's gonna want an appraisal.
When you see a market like today where there's multiple offers, bully offers, a hundred thousand dollars over list, $150,000 over list, right? These are what properties are selling for in Southern Ontario anyways, right? That's the reality right now. The banks, that's gonna trigger an appraisal every time.
The problem some appraisers are having is very similar to 2017 when you get to a market like this is the prices that you're buying and that you're acquiring properties sometimes not in, I wouldn't say in most cases, but you're just seeing it more so than regular. The purchase price isn't supported by the comparables of this property.
The market's just increasing too much, so appraisers will sometimes. Despite the fact that we all say we know the house is worth what we paid for it. The appraiser can't find comparables to match the sale price of that property. And if the appraiser can't find those comparables to match the sale price, and you're firm on an offer, you could find yourself in a position where you have to come up with a shortfall of funds on closing.
Because if you buy for $600,000 and you're putting 20% down, that's 120 grand. If that appraisal comes in at $550,000, 50 grand less than what you're in firm for, the bank is only gonna finance the appraised value of the home. So you now have to do 20% down on 550, but you're in firm at 600,000.
Guess who has to come up with those funds on closing? You are the buyer who's in the firm. So appraisals is a very, it's an excellent question because it's a very important part of the process right now, and it's something that I get. I know the market's busy. I know we want to go in with the least amount of conditions.
To be quite honest, it doesn't matter to me. If a client comes to me with a firm offer, says, Dan, I had to go in firm on this. No problem. I'm gonna work on the file the same way I would if they weren't in firm. But appraisals and values, you certainly want to be talking to your coach. You want to be talking to your real estate agent.
You want to have a good idea of what the comparables are, and if you can, you want to try to get that appraisal done. And not to ramble on Sarah, but your question about the ARV and how are we getting, this is where great coaching and a great team will come in because you. There's always an element of risk in real estate.
Whenever we're investing in, we can look at our history to help predict the future so we can with experience and with a good team, you can help prepare yourself for an arv. You can look at comparables, you can find a good coach, a good real estate agent is gonna help you find those comparables so that you will have a good estimate.
You will have a good idea of what that house is gonna be. And what we're seeing now in a market like this as well, is sometimes like I've had purchases, believe it or not, where they're not closing for two months. Okay? We'll order the appraisal upfront sometimes, and the appraiser, if you have a good relationship with the appraiser may say to us, look, don't order it right now.
Wait a month. Wait for some sales to come through because we're not coming in at value. So ARV, again, you can make real time adjustments with comparables. So I would say just trust the coach. You have to work with a good team because your coach or your real estate agent is gonna really help you narrow down an expected ARV value. That's what I would say. The appraisal is just gonna be a reflection mostly of the comparables in the area to what you're gonna have built.
Sarah Larbi: The one thing I would just say, and, especially with the BRRRR strategy or if you're flipping, I'm sure the same thing applies, I'm starting to also suggest, so a hundred percent I agree with you. Obviously somebody that's got a good pulse in the market's gonna be able to help you figure out what the ARV is going to be.
However, the other thing that you can do, and I think personally I think it's a great tip for people to do this, but if they have, like you guys have a list of all of the appraisal companies as an example, you probably have a few appraisers that like you like more than others. If we can, somehow bring those people in. But the other piece of it is getting not only an appraisal done, but at the same time, paying 300 or 400 bucks to get a sweet one. Bring back that same person. So that you're mitigating your risk and eliminating I don't like surprises.
Good surprises. Sure. But what can you do to get the maximum lift? Have that conversation with the appraiser ahead of time. I can guarantee you, you are gonna be in much better shape.
Daniel Patton: 100%. I agree. Absolutely. And that's why it's important. Like I said, I agree to work with the same people because you're absolutely right. Ordering that appraisal from the same appraiser after you've had that conversation upfront on the purchase, huge. Absolutely. And can be very influential. Can really help determine it absolutely. Yep I agree.
Francois Lanthier: Yes, cause you build that relationship with the appraiser. I'm going through that myself right now, buying out a province, and yeah, the appraiser, you see the same guy on multiple buildings. I'm like maybe I need to reach out to this guy , have a conversation. Here's my plan. And that's an excellent tip. And even waiting, that one I didn't think about, but it makes so much sense because by the time you put in your offer I've had that many times. The building's gone up 100K or 200 K in two months, so That's awesome.
Daniel Patton: It's great. And you're right, there's appraisers that are known to be a little bit more conservative, I would say, and there's appraisers that are known to be a little bit more, I wouldn't say favorable, but maybe a little less conservative on their numbers. Of course. And that takes, that, like you said, Francois, in this business, a lot of it is about relationships and that includes appraisers. Absolutely.
Sarah Larbi: For sure. Huge part of the process. I wanna pivot a little bit and you've got a nice background. I thought you were originally at your cottage when I saw that, but this looks like you have a really nice backyard . But with that said, one of the things that you mentioned before we started recording is everyone's asking you about cottages financing, cottages three season, four season, trying to make these offers. What can you tell us from a financing standpoint on recreational properties?
Daniel Patton: Another hot topic. Last year I mean I had more, I think, cottage inquiries or recreational properties than I ever had before. They can be absolutely great depending on what the use is. Financing, however, can sometimes be a little tricky on these types of properties.
I'll explain. When you're buying a recreational home or as the banks or the insurers, call it a secondary home. Okay? This is a cottage type property. A place that you're gonna live in and you're going to share with family or whatever it is. This actually, you can qualify at five or 10% down, or you can qualify at 20%.
Now, a lot of people don't know that, but when you're buying a cottage that you're gonna, live in, or you're gonna again have family over whatever, 5% or 10% down, you can qualify, okay? The second you say, I want to rent it out, this property now becomes a rental property. Okay? And a rental property requires 20% down.
Now you can sometimes get in a situation where you want to do both. I wanna live in it and then I want to rent it out, and I want to do Airbnb well, Airbnb can pose issues with the bank. Banks don't love the idea of an Airbnb, so the recreational and cottage type properties a lot of time require a conversation with the finance person upfront to ensure that financing is available on this type of property.
Airbnbs fall into more of a hotel motel type property. Okay. And residential lenders don't love the idea of a property being Airbnb. So if you bring a property to me, an MLS listing that says two cottages on one plot of land, rent it out all summer, bringing in a dollar amount like this, the banks are gonna have an issue with that type of property.
Okay? If you're buying a regular cottage and your intention is the owner to occupy its secondary home. Again, you can qualify at five or 10% down if the plan is to rent it. One of the advantages of renting it, if you just say, look, I'm gonna rent it as a long-term rental, so let's just say I'm gonna do it as long, I can find this house.
My intention is I'm gonna rent it as a long-term rental where that's helpful for the buyer. And I'm sorry if I'm jumping all over the place cause this is a bit of a high multi-layered topic. When it's a long-term rental, I can use rental income to help you qualify to buy that property. So if you come to me and say, Dan, later on in life, I want to have a retirement home on the lake, and my intention right now is to rent this property out to a family.
I wanna buy it. I'm gonna rent it. I'm gonna move there later on. That's a rental. And now I can use rental income. I don't even need a tenant there. With some banks, I can use a market rent analysis and that will help propel your pre-approval. Okay. To a higher level. It's treated just like a rental. I can use rental income, so your pre-approval is gonna be higher.
When you say it's a secondary home and it's gonna be a cottage, yes you can qualify at five or 10% down, but the challenge becomes you can't use the rental income anymore because there's not a rental. Now this is a cottage that you're gonna occupy, so your pre-approval is much lower. Secondary home than it would be as a rental.
There's advantages in terms of qualifying when the intention is for the property to be a rental, because you'll get a higher pre-approval for the most part. So again, multi-layered, like more people are certainly looking at cottages and pre-approvals. But the first question that the financing person or the coach needs to have with the client is what is the intention of the property?
What is the plan so that you can construct the financing and run the pre-approval. Accordingly, to make sure the numbers are gonna work. And if you're in between, I'm gonna do both. Then talk to your financing person and come up with the game plan of how you're going to proceed on the purchase. Because when your intention can change in a sense, right?
There's nothing wrong with it. You sign that closing saying I'm gonna make this a secondary home. I'm gonna make it a cottage. But there's nothing wrong with you, years down the road deciding, oh, I wanna rent it out, or whatever. It's, your intention can change, but you have to dictate to the lender on closing through the lawyer, what is your intention on closing?
You can't say it's for both a rental and an owner occupied. So you have to make the decision on what your intention is with the property, and that's a conversation you want to have upfront before you start looking at cottages. It's a long-winded answer. I'm sorry to answer it like that, but it's a great question. It's multi-layered in that sense, but yes. Way more people looking at cottages, waterfront property. It's hard to find, especially Southern Ontario. There's not many places to go.
Sarah Larbi: Absolutely. And now that was a really good answer, and I know lenders don't like Airbnb. They don't like short term rental income so work with and plan ahead.
Daniel Patton: That doesn't mean that short-term rentals aren't a great idea, right? Because they're, there's private lenders that'll do it, and that I spend a lot of time saying this to investors. It's funny, we sometimes as investors, we get focused on whether the lowest rate is the best deal and we don't want to pay fees because fees mean it's not a good deal.
But when you're taking a property, like I explained, maybe a two cottage lot, which is cash flowing, three grand a month, in the summer or whatever, and annualized, maybe it's cash flowing, two grand a month. The rate necessarily doesn't matter in that sense.
If you can manage the property and the property is cash flowing at two grand, and you're paying a rate of 6% and you're bringing in those funds there's not many duplexes or single family homes that are gonna cash flow at two grand, at two 3% where the rates are. A lot of it's about affordability. So Airbnbs, maybe the banks don't like it, but that doesn't mean it's not a great opportunity through private lending.
Sarah Larbi: You're right. High season I get 600 bucks a night on my cottage that I purchased for 485. The prices have gone like crazy high in the last, since we bought it for the last three, four years. But I'll tell you, the cash flow on the short term rentals is much better. And yeah, I like that they probably do make sense. Can you touch base and then I'll have francois ask a question, but before we do that, can you touch base on the difference to finance a three season, what that looks like on average.
Daniel Patton: Again, a lot of it comes down to the appraisal. For the most part you're looking at some sort of private or alternate financing. I would say. Banks want to see year round access. Otherwise you're, again, it falls into the secondary home. If you're buying a secondary home that's a cottage and you're qualifying to own it, you can get traditional financing on a three season cottage.
That's no problem. They may want some sort of verification on, water potability test or something like that. But you can get traditional financing. But the challenge sometimes becomes if this property is a three season cottage and you wanna make it a long-term rental, how is it gonna be rented long-term if it's only three seasons?
Depending on, again, the type of deal that can influence whether or not the bank is gonna do it, because the bank will say it can't be a long-term rental. It's a three season cottage, so we can't do it. But a secondary home, absolutely. That you could buy a three season cottage for a secondary home. We sometimes see people self-finance, if they have a large HeLOC on their own or occupied home or on a rental or something, you can acquire these properties for cash sometime if there's enough on your HeLOC, pay the interest only.
That's one of the benefits of having a heloc. If the plan is to rent it out, you get the interest deduction on that. So lots of different ways to structure it, but again, the intention can sometimes be the driving force when it's a three seasons.
Francois Lanthier: You mentioned private funds earlier, so is the loan to value the same with private funds, does it still go up to like potentially 95 or do they keep it lower?
Daniel Patton: 95 might be tough in private. There's people out there that would, that might do it. I don't know whether the numbers would make sense at 95, you'll see 80% is pretty much the standard. Private lenders are just very much about the resale. That's the private lender.
They, all they care about is if what hits the fan, how am I gonna get my money back and how quick, am I gonna sell this house? So location and appraisal is what matters to the lender. So as long as it's in a resellable area, unique type properties are sometimes more expensive.
Your traditional cottage or waterfront, yeah, absolutely. Private lenders will do it. We're seeing pretty good private lender rates right now. We're seeing 5%, 6%, sometimes, depending on location. These are great rates. These are great rates for first mortgage, especially on Airbnb type properties. They can really be profitable.
Francois Lanthier: What about I know we're really exploring the cottage theme here, but I think it's very pertinent. What about cottages with no power? No running water. Cause I have friends, they have a cottage on a private island or somewhere you only access by boat. Is that easy to finance?
Daniel Patton: A little bit harder. Good question. Little bit harder. This is, you're starting to get into an area of the resale. The banks and the private lenders are about risk. That's what they lend based on. They are based on risk. And when you start to get out in island type.
Off the grid, how quickly can I resell that house? I need such a unique buyer that as a private lender, I don't want, if something happens, I don't want my money to have to sit in a property like that for four to six months while we find the specific buyer that wants to live off the grid.
Now I'm not saying they're not out there. Sometimes that. Especially amongst all this real estate seems quite appealing. Right off the grid, no cell phone, nothing like that. But financing can be a little bit tricky. Again, we look at things like that. Maybe at self-financing, if you have equity in existing properties.
Before we look at private lending, more expensive and look, Equity in existing rentals is something that if you've done investing in the past 5 years, 10 years, you know you probably have. So coming back and re-accessing the money through existing rentals can really help for that stuff for sure.
Francois Lanthier: That leads me, sorry, Sarah to another question. So equity in other rentals. What's happening with refinancing, because I'm hearing from some of the people I know it's taking forever for refis because it's not a priority. You mentioned it earlier, people need quick closing. They need this and that. A refi is definitely secondary, so can you tell me what's happening?
Daniel Patton: Refi adding a home equity line to credit, absolutely. We live in a little bit of a bubble with real estate. We work, mostly with just investors. And investors right now are in just as quick of a rush as the people that are trying to buy the people that are, have costs coming up.
People that are closing. Why? Because investors are realizing, and this, they've been realizing this for a long time. It's no secret. Money is cheap right now. And if you've bought a property in the last 5 years to 10 years, especially, again, I keep mentioning Southern Ontario, that's where we are. But if you've bought a property in the last five to 10 years and the GTA specifically, it's like winning the lottery.
It literally is, you've made six figures, potentially multiple times, depending on the property you bought. And what a lot of investors are doing now is they're realizing. I'm sitting here with a property I bought for maybe $400,000. Or $500,000. In 2015, 2014. This property's now worth $800,000, and I got a mortgage on maybe 380 grand.
What can I do? Look how well this has worked out for me. I bought this property for $400,000.. Now it's worth $700,000., $800,000. This has worked out really well. I haven't really, pe, first time investors, a lot of the times they worry about, what if I can't rent it out? I'm sure as multiple time investors you realize there's no shortage of renters.
That's one concern. You don't have to worry. You can be specific. There's lots of renters. You don't have to worry about that. But these people have gotten in their home. Maybe you've learned through the learning curve, issues with tenants, but they've basically come now and realized, look, five years later, I've got all this equity in my house.
I'm coming up for a mortgage renewal. What should I do? I want to do this again. I wanna buy more properties. And the affordability of money right now on the interest rates, I know the housing market's very high, the cost of housing. Is expensive, but the money is cheap to acquire it. And I'll give you a quick example.
This is just so the listeners can get an idea here. So if you're buying a five and I say 500 cause it's easy math for me, but if you're buying a $500,000 house in Southern Ontario, okay, which is gonna be hard to find, but let's assume you can find something for $500,000. Okay? A hundred thousand dollars borrowed off of a home equity line of credit right now is gonna cost you about $245 of interest only payment.
Why do we pay interest only? Because it's deductible. It's being used towards an investment property. So we pay interest only on $245. Okay? It's a tax deduction every year. Then we're acquiring the property. So on this $500,000 property, we've borrowed a hundred thousand for the down payment. We're now gonna borrow $400,000, right?
We're gonna borrow $400,000 for the remaining mortgage. Now, if we set that up at a variable rate, that $400,000 mortgage is gonna cost us about 1500 bucks a month. So if you look at the overall cost to acquire a $500,000 property right now, you're looking at 250, it's 245, but $250 a month of interest only payments to borrow the down payment.
Then $1,500 to borrow the mortgage payment. So all in for the mortgage and the down payment, you're $1,750. Okay? Plus your property taxes plus your insurance, so you're maybe all in around two grand. Most properties, this was a number I might have used a year ago or a year and a half ago, but most properties are cash flowing.
Over that, that two five, you're renting a $500,000, $600,000 house out, you're probably bringing in $20200, $20400. So these investors or people that have equity in their home are realizing, look, I can borrow, I can leverage all of this money to go buy more assets. And that's what you want to do in finance. You wanna leverage deductible debt and pay off your non-deductible debt.
They're coming back and they're acquiring these assets that are covering themselves, every time they've done this over the past 10 years, they've made money because the market continues to go up and the equity continues to appreciate. So a lot of people, and again, I'm just a lowly mortgage broker in Southern Ontario, but people ask me all the time, what's driving the market?
The cost of money, number one. I wouldn't say that's number one, but that's one of the reasons. The cost of money, supply and demand, obviously. There's a shortage of that. We're still, people don't realize we're still processing the immigration applications, right? No. The borders are closed.
Nobody's coming over. But these people, the majority of immigration that's coming over, and if you look at the amount of numbers that are coming, the bulk of them are coming to Southern Ontario. It's supply and demand. You can just say anything you want about economics. We can't take away supply and demand.
When you compare cheap money to supply and demand and you have people that the only way, now these people are really able to acquire properties. Look, it's very tough for first time buyers now to buy properties. That's something that's getting lost in this whole shuffle, right?
You're, we're changing these mortgage rules. They're, we're trying to slow the market, but it's really only affecting the 5% to 10% down, which is tough because those are the people that are trying to acquire products. The next generation, that's the youth, but they need that kickstart.
These people, these investors that have all this equity in their properties. They're steps, they're miles ahead now. They've got hundreds of thousands of dollars. They're putting 20% down on multiple properties. They have that ability. So it's really creating a gap between the people who own the assets and the people that don't.
The money is cheap. It's 2000 bucks and you could be all in for a $500,000 house. That's appreciating at, I dare to say 5% to 10%. I used to be scared to say 5%. I'd tell people two to three, just 2% to 3% expect, five percent is a great return, 5%. Now people would balk at that. They have 5%. That's not enough. That's crazy. Markets down here are nuts. I forget what the initial question was. I went on another.
Sarah Larbi: You know what? It is so interesting because we've really in the last 10 plus years, like it's gone at me like even you mentioned 2017, but was a short little blip and then, things continued anyways, so we haven't had a real big shift for I don't know how many years.
I'll say we talk about it and we say we've got some great equity at some point, things may change, right? So we can't always predict that it's gonna keep going up, whether it's 5%, obviously it's not gonna be, I hope not, anyways. Another 30%, 40% like it just did, in the last year, however, at some point things will change.
I think you, you talked about cash flow. Cash flow is super important because you wanna be able to hang on and then you wanna be an investor. You don't wanna be a speculator. A lot of people that look, at the past 10 years, they're like, I could have bought anything really. You could have bought anything pretty much across Ontario, even, 12 hours north. And you would've done well in the past 10 years plus.
Daniel Patton: I agree a hundred percent. everything you said and that's one of the things, you'll notice, and I'm not saying flips aren't a great idea. I mean look, everybody's investor strategy is whatever it is, but to me, real estate, and I agree with you, Sarah and I can't stress enough, it's a long-term game.
You will see dips, you will see massive increases like this. And you're right, this market will not sustain like this. There will be changes much like 2017. In hindsight, you're right. I even myself, I bought in 2017 and there was a time where I'm sure I probably did at that point.
The values dropped a little bit and I probably overpaid for my house. But now looking back from 2021, everybody's going, I should have bought in 2017. So you're right. Paralysis by analysis. We say, right? And people, you could spend a lifetime going, I should have bought five years ago. I should have bought it 10 years ago.
That's every investor that I've ever come across in my life. Their one regret is that they didn't buy more early on. That's everybody's right. That's the market, that's why real estate is long-term, right? The dips will happen. You're absolutely right. And we have to remember that this won't stay like this, but it's long-term.
Sarah Larbi: Absolutely. That's like time in the market. It's not about timing it, but you talked about immigration and I'm a big believer and that's obviously the supply and demand. You talked about potentially the middle class dwindling away where it's going to be investors or people that have owned their homes for a long time and renters, and I don't know what is going to be done to try to stop it.
At some point the government will step in, I'm guessing. They're talking about raising the Bank of Canada, right? I think in early 2022. Once that happens, A, how quick are they gonna do it? And B what is that gonna do? But I also, and I don't know Daniel, what your thoughts are, but I also think that the ones that are gonna be affected are usually gonna be the luxury types of real estate when there's things that happen.
Look back at 2017 when they added the stress test and they added the tax, for foreigners, that slowed things down. But I think it still didn't really slow down the investment market, right? Where you're putting in tenants you're doing your conversions, your cash flowing, it slowed down more of the higher end market.
Again, we've gotta invest. We can't be speculating. But what do you think? Potentially, it's hard. Nobody has a crystal ball but it will potentially slow down the market. Do you think it's gonna increase over time with the rates? Do you think it's gonna be government intervention down the road? Or are people just gonna need offers?
Daniel Patton: Really good question. I think a lot of things have to happen. I think there's a lot of factors. And you're right, there's no crystal ball, but not that you're seeing a peak, but I think now I'm seeing like literally right now.
Just so everybody knows, we're sitting here, what's the date today? April 30th. We're sitting here on April 30th. I'm literally seeing a point, and I've never seen this in my career, where the realtors, the people that are out on the street looking at property or the investors, if they're doing it themselves, they're literally at a point where they can't take on any more clients.
They literally can't take on any more clients. These people are working, if they're busy and they've got investors, they're working with 5 to 10, maybe 15 buyers, and they're going out and they're spending time with their 15 buyers and they're putting offers in on one property and 10 of their buyers are trying to buy, and they might miss out with all of their buyers and it gets sold to somebody else and they gotta start all over again with all the same buyers.
It's a very difficult time for real estate agents in particular to take on new business. So you're, we're, I'm I'm finding that realtors right now are just the deal that the new clients aren't making their way to us as much because they're not advertising I can't take on, I have to unload clients now because in fairness, I gotta have time for them.
I can't take up any more clients. So I'm seeing a little bit of a slowdown in the new client generation. First time buyers sure. They're always gonna be out there, but I, investors and busy real estate are slowing down. So that's one small factor. Okay. One small factor, more supply.
We're starting to see a little bit more supply on the market, right? More with people. We expected this last year, right? More people are selling. People don't wanna sell in the winter. They wanna sell in the spring. They wanna show their nice house, the colors, the grass, right? The landscaping. We wanna show that in the spring and the summer, so you're starting to see a little bit more.
Inventory comes available, right? Because that's the one thing everybody says, there's no inventory. I got buyers, but there's no inventory so you're seeing a little bit more inventory. So there's two factors. Okay? You're seeing interest rates starting to creep up. If you were to look at a snapshot, and this is crazy, you look at a snapshot over the last six months.
As we sit here, April 30th, this could change, but we sit here today, people say what's my five year fix rate? And you're gonna be somewhere if it's a rental or an owner occupied about maybe 239 to 269. Just depends on the bank. 2 3 9 2 6 9. I have people that say to me, oh, It's too high.
2 3 9 2 6 9. It's too high. That's way too high. I'm hearing 199. That's true. Rates were 1 99 3 months ago. Okay. You could have even gotten down to maybe 169 on a five year fixed rate. But the bonds are more expensive, more expensive. So the cost of that is going up. The rates are going up. Now, if you looked at a snapshot over the last.
Again, three to six months you'd say. Sure rates are higher now than they have been over the last six months, but if you looked at that at a similar snapshot over the last 10 years and looked at where rates are today, you'd go, oh my God, this is the lowest I've ever seen interest rates. So rates are at a low, but they are starting to climb.
The perception out there is that, oh, rates are going up now. That's the end of the cheap money. So you're starting to combine different factors. You're starting to combine. Realtors business, the buyers, they're maxing out right now. They, there's a lot of buses. They can't take on any more business.
The good ones anyways. Two, where more inventory is coming to the market. Three, the money is becoming a little bit more expensive now. We also have rumors of a stress test. It might be in the stress test might be coming June 1st, the increase to the stress test so that it's making it less affordable for people.
You're starting to combine this and I agree sir, and this is where you start to get in. So what else could happen to start to tip this, towards maybe where we saw in 2017, influx of inventory not as many. Cause you're starting to unload these buyers. That's the benefit, right? The realtors now, if there's more inventory, they can start to unload some of these buyers.
Hopefully that inventory supply lasts and the realtors can unload and go back to a little bit of a normal market, but government intervention. Okay? One thing, again, I'm no crystal ball, but one thing you could see is the end of 5% down. Okay. That's something that could just end. You can really only do, for those that aren't aware, you can only do 5% down on 500,000.
Now, you used to be able to do 5% down on a, I think you could do it over a million. I've been doing this long enough, I can't even remember. But you used to be able to do it over a million, I believe they cut that all back, right? Now you can do 5% down on 500,000, and you have to do 10% down on the amount above 500,000.
When you talk, the government changes. Listen, the government doesn't want to crash the market. That doesn't benefit anybody. So you'll see a slow increase in a lot of this, like the stress test change, which may affect people 5% on their purchase price. Give or take, maybe 20 grand on a $400,000 or $500,000 house, 2025 grand.
Not the end of the world. But that's gonna affect first time buyers more than it will people that are buying at 20%. And first time buyers. I'm just, I should say 5% to 10% down buyers because 5% to 10% down buyers are held to a much more strict qualifying rule. They have to have their ratios in line because it's mortgage insurers that are approving you, so you have to follow their guidelines.
When you have 20% down, the bank is actually the one making the call. Now there's no mortgage insurance, so the bank can make an exception if ratios, they call it, if your debt servicing ratios are a little high, so if you're talking a slightly higher stress test and you're talking the bank, being able to make exceptions for investors, they're probably gonna make a lot of those exceptions for those people.
That's how I see it anyways. Conventional deals, the bank, for the most part, will just make the exception, whereas those 5% to 10% down buyers are just they're getting scaled. So you're getting, the people that are doing 20% down are probably still qualifying, and if they gotta come up with an extra 20 grand, a lot of them have HELOCs, they have equity, they have cash, they can do that.
The five to 10% down buyers, you're sitting in a market now where you could buy at 550 and now you're getting scaled back to it doesn't seem like a lot, but 525, that's the wrong direction.
Francois Lanthier: That's excellent information for people out there. Good summary. I'm curious about BM Select, so I know Butler mortgages, but BM Select what's behind this?
Daniel Patton: BM Select is the brainchild of my business partner, Dave Butler. And I've known each other our whole lives. We grew up together. We've been doing mortgages for a long time. So Butler Mortgage is more of an online brokerage. Okay. And they're great. They do a lot of rate advertising and they do a lot of first-time buys.
They're great, but they're an online brokerage. So we've created something a little bit separate from Butler Mortgage, which is BM Select, and BM Select caters more to, what we call VIP clientele investors, clients that need interaction, clients that need to be able to call somebody and get on the phone.
There's a lot of mortgage brokerages out there, that process, online application. Send us your application. We'll run your pre-approval. We'll email you your numbers. You can go out and shop. You, email us back to your docs. It's a very simple process, but we wanted to create a sort of a brand for investors for even first time buyers that there's more involvement, there's more hand holding, and I think with investors, that's key.
That's what you want. This whole investor game is built on relationships. We talked about that earlier, right? It's with the appraiser, with the coaches, with the investment clubs, with your broker, with your lawyer.
There's no replacement for surrounding yourself with people with experience and people that you can trust. So we wanted to create a brand that reflected that. We wanted to give people, our team, we wanted to give them our service. We want to show them we're available. This is what we do. We've been the number one mortgage team for four years in a row, primarily driven by investors.
We really wanted to put a focus on that. So BM Select in a nutshell. Premium service, select clientele, and a lot of that is investor focused referral sort. We deal a lot with referral sources coaches, real estate agents in that world. So yeah. Thank you for asking. We've done a little bit of a rebranding over the past six months and BM Select is just our VIP division of Butler Mortgage.
Sarah Larbi: Very cool. I think it's a great tool, especially because we need so much, different things than a regular home buyer. So it is good to separate the two and then you can really ensure that you work with somebody to grow their portfolio because it's one thing to buy one or two properties, but if you're going to scale and you're gonna be, going to 10 properties, 20 properties, like you have to be very strategic and even how and where you start so that you're, at least borrowing at the best terms, the best ability to like, have options, I think down the road.
Daniel Patton: Even first time buyers, if you're, think about it. You and you would know, sir, if you're doing things like BRRRR strategy, you gotta make sure that mortgage is set up properly if you're planning on breaking it, if you're planning on getting HeLOC.
Whether you're dealing with a branch or a mortgage person, you have to ensure they know investors, they know how to structure the type of deal you're trying to put together. Whether it's commercial, residential, you just want to work with people with experience.
Sarah Larbi: All right, cool. So Daniel, we can keep talking forever cuz there's so much information and I actually love talking about financing.
Daniel Patton: Awesome. I don't know why you say that all the time. I'm like, oh, this is boring stuff. Who's gonna wanna listen to this?
Francois Lanthier: It's essential.
Sarah Larbi: It's not I don't know, like maybe the financing and I should say the refinancing is really where you're like, oh, awesome. Like I just made a shit ton of money on the refi and maybe that's why I love it so much cause it's like that's where and when you get the cash, but everything that happens before you need to sort it out.
Daniel Patton: That's the pot of gold at the end of the rainbow. You spend these years, and I know you do specifically, you spend time on the project, in the budget, in the financing, in the ARV. So at the very end, when it all comes together, it's like you painted your picture, your Picasso, it's done.
Sarah Larbi: Maybe that's why. Awesome. So the next part is our lightning round. So we are gonna ask you a series of four questions that every guest gets the same questions. And I will start, are you ready?
Daniel Patton: I'm ready. As ready as I'll ever be.
Sarah Larbi: All right. 20 second or last answers, number one, what is the best advice that you have ever received from another investor or at a networking event?
Daniel Patton: I would say to build a team of people you trust a hundred percent. When it comes to investing, you have to work with people you trust. You're never gonna be able to handle every aspect of investing yourself. So it's absolutely essential to build a team of people around you that you trust and that are honest.
Francois Lanthier: Excellent answer. What is your favorite resource for real estate investing? Anything like a book training person, an event?
Daniel Patton: I read books when I was a kid for sure. So things like, wealthy Barber, how to Win Friends and Influence People are great. My dad got me to read that when I was a kid. So books for sure on how to deal with relationships and invest. But specifically investors, it's the investors. I love these, I love going on webinars, talking to people. I love seeing how they're structured. We get a lot of info just from doing the deals. We see the appraisals coming in, we see the areas people are buying in. Just being physically involved in deals in different areas, it's the best teacher around for sure.
Sarah Larbi: That is a great point. Number three, what is the one attribute in your opinion that has made you most successful?
Daniel Patton: 20 seconds. Honesty, I mean hard work and honesty. I think that's crucial. I think, in this business, not all news is the news. People want to hear when it comes to appraisal values, when it comes to deals, maybe not getting accepted when it comes to terms and, you have to be willing despite the fact that maybe people are upset or they may not want to hear it.
You have to be honest with people, and you have to tell them the truth, and you have to give them the numbers so that they can make the decisions. We never try to influence anybody into buying or not. My job is to give you the numbers, help you make decisions, answer questions, give you all the ammo, but it's being honest and being fair with people. I hope that doesn't sound too typical, but that in hard work that you'll beat anybody.
Francois Lanthier: It's awesome. And I agree. I feel I wanna send you business now.
Daniel Patton: Oh, thank you.
Francois Lanthier: It's so true, thank you very much. So the next question in our last one, what do you typically do on a Sunday morning?
Daniel Patton: Oh my goodness. If it's football season, I'm getting ready for the Kansas City Chiefs. I'm a big Kansas City Chiefs fan, so I watch football as much as I can. I'm probably ordering breakfast or may I say, or I should have said making breakfast. But the truth is, I'm probably ordering breakfast for the family and going for a walk with the dogs for sure. In the spring or summer morning, I've got two little chihuahuas. So we take them for a walk every day.
Sarah Larbi: Awesome. Sounds like fun. Very cool. So Daniel, where can our REITE club community reach out if they want to connect or know more about you or BM Select or Butler mortgages?
Daniel Patton: Absolutely. So for now, I would say you can email us. You can email me at Daniel@bmselect.ca. We also have info @BMselect.ca either one of those myself, my sales team, or someone will reach out to you for sure. Reach out anytime we work with. Investors, first time buyers, all different scopes of investors.
Thank you both, but really for having me on. You guys are, you make it so easy. I was worried. Oh my God, I'm not gonna have enough to talk about. And here we are an hour later. I've rambled on. Thank you both. You guys are amazing. I really appreciate the opportunity and thanks to all the listeners, REITE, we love being a part of it.
Sarah Larbi: Amazing. Thank you so much for all the insights and all the great tips guys, and reach out to Daniel and his team.
Daniel Patton: Thank you so much everyone.
Francois Lanthier: Sarah. So what did you think about this interview? That was some amazing content and some great tips.
Sarah Larbi: Absolutely. Lots of great information. I think we could have talked for another hour or two. And gone in so many directions. We'll have to have him come back and, and talk about I just love talking about financing. I don't know what it is. I hate paperwork with a passion.
That part I don't like, but talking about financing and talking about refinancing, I think it is for me anyways it's fascinating. Anything on your end Francois that, like a key takeaway or a big, you know, aha moment as part of the discussion?
Francois Lanthier: A few things. So Daniel first of all makes it sound very easy, which is probably why you like talking about financing , cause I hate the paperwork as well, the stacks of stuff. But he mentioned the relationship, so working with a higher touch Vip kind of service, like this is essential. And one big takeaway is they service all of Canada. So for me, I do lots of long distance investing. And I have a lot of people. We have a lot of people in our network all across Canada, from Ontario, investing in other provinces or other provinces, investing elsewhere.
You can call Daniel and get service anywhere. He had some awesome insight as well, like the Quebec market, which is always a bit more elusive. Even though I speak French, I learned some tips there, like conditions and things. It's very different. So you need those experts on your team and that was a really good insight.
Sarah Larbi: Absolutely. And I think, like you said, there is some value in working with a broker that can go anywhere across the country if you are looking at spanning into other regions or you are from other regions because then they can keep working with you and they have your file, they have your information, they have the plan.
I think that's really valuable. And that's a great point Francois guys, REITE Club community. I wanna thank you for tuning in this week again and have a great weekend, great rest of the day. And don't forget to come grow with us.
Francois Lanthier: Cheers.
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