Daniel St Jean: Claire Dridge is the Windrose group and is building a mortgage brokerage of over 200 plus transactions per month. And primarily real estate investors with private lending in both mortgages, private markets and promissory note loans. You do a lot of buy and hold. You do a lot of, all kinds of other strategies.Basically Claire is a jack of all trade when it comes to lending and mortgages.
Brian Hogben Mission 35. You called the company Mission 35 because that was your goal to become mortgage free by the time you reached 35. Have you reached 35 yet? Currently with more than 11 locations across South Ontario, Brian is also the author of How to Get Mortgage Free Really F*$%ing Fast! It's not exactly anyway, to show other people what becoming mortgage free many years earlier than what typical Canadians are doing.
Daniel Patton is BM Select, which is a division of Butler Mortgage. Daniel has been investing in real estate since he was 21 years old. Oh, you've only been investing for three or four years and I see. Okay. Buying rentals and private lending. He currently owns multiple rentals, properties with multiple units and continually invests in private mortgages. And finally, look at that nice bookends. Two nice ladies at the end there. And the guys in the middle.
Milena Cardinal is Cardinal Law where she and her team strive to approach law differently. Paperless, efficient, available, approachable. Tech savvy, creative human dis firm prides itself on shaking up the real, the legal world, and its traditions, a real estate investor itself. Milena practice focus on those in the business of real estate investing.
Hi everybody.
Brian Hogben: Hey everybody. Hey Daniel. Thanks so much for having us.
Milena Cardinal: Hey everyone.
Claire Drage: Great. Hi everyone.
Daniel St Jean: Alright. I'm gonna just throw a question out there and whoever wants to take it. What are you seeing from an appraisal? We're gonna be covering a lot of things, but let's start with this. What are you seeing from an appraisal standpoint in terms of changes in the last, I don't know, 6, 7, 8 months? Anybody?
Claire Drage: No one wants to answer . Everyone's shy, right? Who goes first? So over the last six to eight months, I've been thinking about appraisal reports, I have to divide them into two categories because the response I'm seeing changes in different categories.
If someone is purchasing a property, then of course there's a sale agreement, a purchase agreement. There is at least one measure of prospective value. The challenge with purchases right now is the comparables. Where are the comparables landing? So I'm seeing quite a wide range of lenders not accepting the appraiser's comparables because that comparable was either crazy or just right off the charts.
It just wasn't relevant or it's too far away from the subject property. I also am finding that appraisals like always are just covering their butts. Because they can get sued and will get sued. They have to have multi million dollar insurance. If they appraise a property, something goes south and the lender loses money.
Not that they often do that their butts are on the line. So definitely lots of conservativeness. Still a lot of covid protocols that are still being recommended by the AAC with regard to going into properties, etc. Which I find unusual on the refinance side, I'm still finding there's two categories.
Refinance when it's about total debt servicing of the borrower and the property. Not seeing that much discrepancy other than some investors feel their properties worth more, but the value on a refinance is not the same as a value in the open market if you listed it and sold. If we're looking for a debt coverage ratio, like a commercial appraisal where it's all about the rental income, I am not seeing much of a difference in those.
I'm still seeing them come in strong with regards to estimated market value because their valuation is based on the income approach, not the market approach. So there's not no black and white answer. I've had crazy appraisals, and then in a bad way, and then crazy appraisals in a good way. It's so subjective to the human's going in and how much they're prepared to put on the line to get the value that you want. Honestly it's a bit like throwing a dart with blindfolds on
Daniel St Jean: You know what? It makes a lot of what you just said makes a lot of sense because see, let's look at where we live. For example, on our street here, last year, every two weeks a house would come up for sale. And of course it began in three, four days, but we haven't seen anything on our street here for about six months.
While the value has gone down a little bit, this is after all Nigra on the lake. But still, if an appraiser came in today to look at the townhouse across the street, he would go back to the last sale. The last sales were like February, March last year, so he's gonna put up a price of $700,000 on those townhouses.
Maybe there were 625, but he has to go with what he saw the last one, and there hasn't been anything since. Mr. Hogben, are lenders requiring additional or different documents than they were doing before?
Brian Hogben: That's a great question. And Claire, thanks so much for breaking the ice. It's always the second good job on that, Claire. Appreciate it. I think additional documents right now, I think the lenders have been conservative based on the marketplace that we're living in right now. What we have seen a little bit more of is just additional due diligence prior to close. I think we've seen a couple of files from a couple of different lenders where they'll actually pull the credit one more time prior to closing.
It's just for people to be aware of this, that can happen. Where if you set a certain line of credit was gonna be paid out and you paid it out, but then you drew on it again and your closing date was within a month. It may come up again. So just to be aware of that. So whatever you're telling your mortgage broker lender, make sure that you're staying true to that through to the close, because lenders will pull the day before and it can drastically change a deal if you did get that car loan, if you did take out more line of credit than you thought you would.
I think that's one of the big things we're seeing. And then Claire's getting a mortgage deal coming in right now. So just tell them to wait for Claire, you're on a webinar. Okay, so I think that's one of the big ones and I think the other one too it's not necessarily new, but again, people calling income verification and just double checking prior to closing.
I think that is something that happens to more and more risk departments and banks. They're, they wanna make sure that they're doing their due diligence. So again, be transparent with that application. If nothing changes from the time it was approved to the time it's gonna close, you have nothing to worry about. The only time you do is if something did change in that interim period.
Daniel St Jean: Although we are gonna come back to that a little later, so hold that thought there about if you haven't made any changes, the bank will not change your mind cause Anyway we'll get to that a little later. Daniel, as C M H C made any material changes or any other kind of changes.
Daniel Patton: Aside from the stress test, no changes on the residential side, like no changes to the rules. Everything is status quo and first let me say thank you to Brian and Claire for going first and second. It's always easier to cruise in under third, get the big guns going first than I come in with a nice softball question.
Thank you, Dan. But no changes are on the horizon. People ask these days, is it more difficult to qualify? Is CMHC or the banks, are they making it more difficult? It's not so much that they're making it more difficult, but we're just in an environment where it is more difficult to qualify, right?
Banks are looking at higher stress tests, people's mortgage payments are increasing and that's, increasing people's debt service ratio, which is a key component. So it's not so much that there's any rules in particular that have really been pushed into fruition at this point, but it's just a more difficult environment to qualify overall.
Victoria Cluney: How about the timeline Daniel for CMHC? Are you seeing any change?
Daniel Patton: Actually, you know what the crazy thing is, the timelines are actually a little bit better these days. It's had a couple years when the banks and the underwriters were getting slammed with volume, right?
It's, you're dealing with. People and people at banks, they have a work threshold and it's as much as we like to think they do, the banks don't just say, oh, this person's overworked, let's hire them help. So there was a huge backlog of deals going on. I'm sure every mortgage broker was dealing with it.
Every bank rep was dealing with it. Like it was very tough because everybody was being overwhelmed with files. So that turnaround times probably lessened. Certainly on the residential side, I don't, commercial, not so much. The multifamily still has a long turnaround time. Claire? I know Claire would agree with me on that one, but residential things are a little bit faster.
Certainly on the appraisal side of things, just to add one thing I'm noticing nowadays you can get an appraisal in maybe a little bit quicker, whereas, previous years, if you wanted an appraisal turnaround in two to three days, you're paying extra money for that, right? You're, you could be paying $600, $700 for an appraisal.
Now the timelines on things like that are a bit more in our benefit, we can actually include conditions sometimes, which is another thing we haven't been able to do, right? Actually having a condition of finance and an appraisal take place. There's some give with the take, I would say, but just overall tougher to qualify for sure.
Daniel St Jean: And on that note we are dealing with somebody from Nova Scotia. And for that we use a Nova Scotia mortgage broker. We've been using her for 10 years for everything we do in Nova Scotia. So she told me, she was checking if our client, who was buying a property for $750,000, was checking him on Monday, and on Monday he would not qualify with the stress test.
What was it yesterday that the numbers went down a little bit and now we can qualify, but of course the question is what is it gonna be next week? So it's oh my God this fluctuation must drive you guys absolutely crazy.
Daniel Patton: It's tougher, right? People, one thing people don't realize is, earlier on this year people were qualifying to borrow money at five and a quarter percent, right? You're qualifying to borrow five and a quarter as a stress test. These days when you wanna borrow money on a rental property, you're qualifying at like close to 8% to borrow that money. Seven and a half to 8%. So that's a huge swing in terms of qualifying, for sure.
Daniel St Jean: Claire, what are you hearing from investors regarding their cash flow decrease with the increased rates and what are the risk and downsides with mortgages coming due?
Claire Drage: Definitely, I think it's two categories. You're absolutely right. People that have a mortgage due in the next 18 months that have been paying 1.5%, 2%, and 3% are gonna have massive sticker shock. I'm definitely having a lot more conversations with people wanting to be proactive on that Now.
We see big fluctuations in the bond market in the last three days. It's gone up and down by 0.4, 0.48%, which usually would indicate a drop in the fixed term rates. We don't have a crystal ball. It's gone up and down like a yo-yo over the last three to four months. My discussions are always, if it's just a renewal, then you can renew with some lenders 10 months, up to 10 months before your natural renewal date.
Either way you cut it. I don't have a crystal ball, nor does Brian, nor does Daniel. If you asked either of us what rates would be today, 18 months ago, I'm not sure any of us could have predicted we would be where we are because it's not just, it's a global issue we have not just specifically to Canada.
I think that, when I look at renewals right now I don't know, rates have been going up for, what, six months now. We knew it was coming. We've had it easy for 15 years, so it's no different to right now. The snow's fallen, so we're getting snow tires cuz we basically need to get a grip
So get a grip on the fact that everyone's rates are changing. If you are coming up for renewal, the best thing you can do is start your review now. Pull out your mortgage statement. Look, really look at your interest rate cuz many people don't know what they're paying. Look at your remaining amortization.
Run the. Think about why you bought real estate four years ago. If you are four years into a five year term, what was your reason? Then if you're why then it was cash. But since then, things have changed and things have happened. Is that property still aligning with your why? So if on renewal, your payment is gonna significantly increase, it might decrease your cash flow.
Does it still meet your why? So if it doesn't give you cash flow, but it's a forced savings plan, there is mortgage pay down and you feel that the value of the property will be best served selling it next summer or next fall, then suck it up buttercup, you're paying a higher interest rate. But the question really is, what if it is no longer serving.
To own that property. Maybe you can pick a shorter term to reduce the monthly payment on the mortgage. You don't have to take a five year fixed term. There's lots of options to consider. But I am finding that when I'm talking about interest rates and non cash flowing properties, things have changed.
Now you need to make a business decision as a business owner of a rental portfolio. And it's possible you need to redeploy your asset, which is the cash and income ability elsewhere. Selling is not failing. Selling is just making a smart business decision to redeploy your capital somewhere else, cuz that product, that property doesn't serve you like it did when you first bought it.
I really am finding, I'm having a lot of tough discussions with people where it's, you are going to pay a higher interest rate. It's reality for everyone. There is no. I do creative financing, but I ain't that creative. Like I can't change the interest rates and make them 1% again. So I know that's a long winded way of answering that question, but every one scenario's different.
I'm asking people to make some decisions, they're not tough decisions. It's to get that word out. It's a business decision. Does this serve me like it did when I first bought it? Will it serve me for the next three to five years? Real estate's always been a long term investment, a good, solid, long term investment are the get rich quick, times are behind us. Will they come back? Yes. And maybe, but that's the tougher discussions I'm having right now and just making people know you're not failing. If you sell, you're making a smart business decision to redeploy your capital. That works
Victoria Cluney: better for. There's an adapt and overcome mentality that, those savvy and wise investors that are here for the long run, you adapt to the market and there's always going to be the changes.
And so it's such a great point, Claire, that you bring up. I have a question for Melaina and with the continued interest rate rises, the market corrects lenders, they're becoming increasingly cautious around valuations. Advancing funds on occasion has resulted in properties not closing or terms having to be renegotiated at the last minute.
So have you seen any of this, or if you do see it then what would you recommendations be to one of your clients?
Milena Cardinal: Yes, we see it often. Okay. Yeah. Not necessarily, not closing, but in situations where two years ago we would've been asked for an extension or something would've been delayed, and we would've been like, that's fine.
Our client's fine with it another week, who cares? But now another week may mean that they're losing their interest rate, which on its own is not necessarily a big deal, but all of a sudden, if they don't qualify anymore at that new rate, that can kill the deal for them. And then you pair that with the fact that appraisals take a while and some people can't.
The buyer may not be able to get their mortgage as fast as they were able to before and have and were able to, when they put the offer and anticipated that they would be able to get it at the same speed as before. It kind of has this domino effect where everybody is affected negatively.
And then, so there's all kinds of situations where we are dealing with managing extensions every day. Like I would say two years ago, it was extremely rare that we would deal with an extension. Or if we did, it was like, oh, my client needs another week to move out. Okay, that's fine.
And I'm not necessarily talking about, we have a handful of investors who do very large volumes. I'm not necessarily talking about those investors. I'm talking about just your everyday investor or home buyers, right? So situations that would've been hot knife and butter two years ago are now pretty dire for some people.
And it causes deals to die and then litigation to be involved. And it is not necessarily pleasant. So a lot more. Poise and planning is needed more than before. I
Victoria Cluney: would say should buyers put, is there anything that they could put in their purchase and sale agreement that could help them down the road? Some sort of condition if interest rates or something changes that could help protect them at the end of the, at the end of it they could, but then they risk losing the deal.
Victoria Cluney: It's just that extra condition, right? Yeah. .
Daniel St Jean: You know what, we're gonna come back millionaires to the legal implications and stuff because since you brought it up, Victoria, cuz that was one of the main things we wanted to talk about tonight and I'm opening it to the uh, three people here. We've heard, so FASFA for example, you know all Mo FASFA who does other work for the REITE club.
Two mortgages were canceled within three days before closing. Victoria here has a very interesting story. She'll share in a minute or two or three about a deal she lost because of something that happened. So it seems that this is, I'm not saying that frequent, but there's a lot more reversal the last minute from the banks or the lenders. What do you see and what's happening?
Daniel Patton: I'll jump in on this one first, and then certainly comment for sure. I think more than ever now, I think most successful mortgage brokers that have a team or work with a lot of investors have put a bigger influence on, or focus on getting all the documents up front. That's huge nowadays, right?
It used to be, I've been doing this for 20 years. It used to be I would pre approved somebody on the phone. I'd say, okay, just tell me what your salary is. Okay? And where's your down payment coming from? Okay, RSP is great. You're pre-approved, go buy your house. They'd go buy, and then we'd collect their documents and get the file ready for closing while the closing date approach.
But that's just such a different environment. Now, Daniel, to your point, since off-sites came in and changed a lot of the rules and a lot of the guidelines with the banks, there's a larger influence, an impact on down payment nowadays, right? The banks have to verify down payment. You think about it like, Previously for down payment, if somebody told me that their down payment was coming from their RSPs, I would show them an RSP statement, a quarterly statement.
I'd send that to the bank. The bank would say, that's it, you're done. Condition cleared. Now I have to get the, with the RSP statement, we have to get the withdraw statement. We have to get the bank statement showing the money going into the account. And not only that, the bank is gonna scrutinize the bank account that the money is going into, and if there's any irregular deposits going into that bank account, they're gonna question those and want an explanation and track record of that.
These are things that if upfront, if I say to a client where's your down payment coming from? And they say to me it's coming from savings. If I don't put an emphasis on getting that paperwork cleared up front. Inevitably it will lead to problems prior to closing. Because listen, there's always a battle from the mortgage brokers.
We all know that there's, the worst part of mortgages these days is paperwork, right? It's the worst part. It's the bane of mortgages. But this is, we have to give the bank what they want. People need to realize, banks aren't there to just give people hundreds of thousands of dollars to buy properties.
That's not the, that's not the goal of the bank, right? They're, they have a product, they will allow us to borrow money, but we have to qualify for that money. And a large part of that is documents. So we've had to put more of a focus on collecting documents up front to avoid those problems down the road.
And Brian made a really good point as well. These days you could get everything cleared a month before closing. And they call it an audit department at the bank. They could rerun the credit a week before closing. See that you just got a new car loan for $600 a month and now the deal doesn't work.
Having these conversations upfront with the client, making sure they understand, look, we're not trying to inconvenience you, we're trying to make this process easy for you. So work with us, give us the documents, let us get things cleared. Let's make sure we stick to, a spending guideline prior to closing, and then we can avoid those issues.
But yeah, it happens more and more now because the banks they do scrutinize paper mer paperwork more. And if you're not clearing that stuff up front, another quick example is a client might tell you, I make X amount of dollars per year. A bank wants to know, how do you make that? Is that T4 income? Is that base salary plus commission? You need to clear these things up front, otherwise you're setting your client and yourself up for. I
Brian Hogben: wanted to add on that too. Daniel and I think he's spot on with that too, and Claire made mention of it as well, especially for our investors on this call right here, is having a sense of urgency with your file.
I know these guys do, and I do make sure you do as well too, because you can't take a la today's attitude today because with rules of regulations changing hourly, what it feels like sometimes you might be approved today and you might not be approved tomorrow. And especially we see it a lot with new constructions coming up where people thought they had a preapproval in place and then it lands on one of our three desks when they thought they had something elsewhere.
And now ratios have changed. Appraisals have changed, all the expectations have changed. And Claire made mention of it, on renewals. If you got something coming up for renewal in six to 12 months, talk about it Now. It's the same if you have a new construction or something that you're buying that's closing in six to 12 months.
Talk about it now because you may not have what you think you have. With another mortgage agent or broker, right? I know here everybody does their due diligence, but be urgent with it. To like when, I'm sure Daniel and Claire did this too, but like when we say we need it now, we need it yesterday, we're actually being kind.
We need it now because things change so quickly. And I think you need to, as a real estate investor, take that seriously and take it very urgently as well too.
Claire Drage: And also I think to add what Brian and Daniel have said is we have a saying in our office, which is that your lack of planning should not become my urgent problem. But the reality is it does because we're good people and we're just gonna try and fix it. Be honest with your banker or broker, whoever you are working with tell us everything. Is it a joint venture? Is your money coming from someone else isn't even on the deal, when you hear about someone who said I didn't have to show that my, my, my bank, my broker did abc, that's not necessarily correct.
That could be just someone bragging that there's some, I don't know. They've got pixie dust falling all over them and didn't have to provide a single piece of paperwork. I'm sorry, but they probably lied. So tell us everything, if you're also buying three other purchases and, or, whatever it might be, or down payments coming from a different source, there's other people involved that you forgot to tell us about. I'm putting it in a corporate name. Did I not send you the articles? There is, or the worst one, I'll be honest with you, is not having vacant possession on closing. And then it can fall apart at the lawyers and or you actually don't get vacant possession and the lawyer says there is no vacant possession.
Your deal will die. And it's not necessarily your fault, it's just being prepared for those things. If there's conditions on the purchase agreement that might not be financing, they can affect funding, right? Because all of those conditions need to be met. So don't be frightened of tearing up brokers like ourselves and others that are specialists in this area.
Tell us everything.
Daniel St Jean: Okay, so somebody buying a car a month before closing, okay, somebody not supplying the paper. I can see a bank changing their mind because all of a sudden they ask for something and it didn't come. But does it happen once in a while that for. Let's say nothing changes in my situation since a month ago when I was approved and now three days before we hear that the bank has reversed their decision are, does it happen sometime that for no obvious reason, a bank will change their mind and all of a sudden the deal's dead.
Claire Drage: I'd say yes and no. Yes, I've heard it happen. In my 20 years of doing this, I've had one call from a lender who said, we have to withdraw from the deal. We cannot tell you why. . Okay. For privacy reasons, which means they've done something behind the scenes and figured out, I don't know, I had one.
Now we do a Google search, but had one that did a criminal. And there was something weird many years ago that kiboshed the deal. I only found out afterwards, the reason for the withdrawal. So sometimes, but I have heard of that happening before. I will tell you the likelihood is the bank will never wanna tell you, the bank never wants to be the bad person.
They don't wanna be the one to be blamed, but they also know good luck going up against the bank. Good luck and a CBC special isn't gonna save your deal. Put money in your pocket, it'll make you feel better for a few minutes and you get five minutes of fame. The banks, it's the golden rule.
Whoever has the gold makes up the rules. They don't have to tell you when they don't wanna give you the money. And the chances are 99% of the time there was something. They just don't wanna be the one to say you. You were an ex murderer or had a criminal record or something.
Daniel St Jean: Victoria, you had a little experience recently. Can you share with us what happened?
Victoria Cluney: Can I can, and it's at the end of the day, it's always lesson learned. And so for investors out there, it's never to be afraid of something failing or making that mistake. What we do with it afterwards, and this was a very hard lesson for me to learn. I had an 11 unit mixed use commercial residential property.
And we did an assessment on the property on whether or not we needed to get an environmental phase one completed. And the lender at the time said that according with the assessment, there was no need to do an environmental. And it had in the back of my mind, maybe I should do one anyways. But I was cheap.
That's it. That's literally, I was cheap. I did the search for a gas station and a laundry mat. There was nothing there. I knew other investors that had purchased in the area good to go. So we got to the final day of approval financing approved on condition of an environmental. It was still okay for me because we still had enough time to book the environmental before the closing date.
But it, the seller was freaked out, did not wanna do the environmental and lost the deal, and it was just thousands and thousands of dollars had already been spent on the due diligence. And that was just a situation where they reversed what they had said to me. And so it's just one of those things that, fortunately for me, it was within my condition deadline, and I had to make the call if I was going to move forward or not.
But because of the seller, they wouldn't actually let an environmental event happen. I just decided to walk and cut my losses there. It's not cheap to go through due diligence on a commercial property that size, but it was a hard lesson.
Daniel St Jean: Great education and the lesson is what?
Victoria Cluney: Don't be cheap. Get your environment. Understand also that's right. Just because you have that approval, it isn't set in stone. And so that constant communication, listen to your gut. The next property, which I purchased was another commercial. I didn't even question an environmental From now on, if I'm buying commercial, anything, five units and above, I'm just getting the environmental, it's a good piece of mind for myself as well, because when you're going in, if you wanna resell that, then you would need to have that potentially.
Claire Drage: I agree with you, Victoria. I always say to people, just cuz the bank didn't ask for it doesn't mean you shouldn't do it.
Victoria Cluney: Exactly, there are big repercussions if it were to come up requiring a next phase two, potentially, if you had to go and dig underground. There's a lot to it. So for peace of mind it is a couple of thousand dollars, but I'd rather pay that than hundreds of thousands of trying to fix a problem. I didn't uncover.
Daniel St Jean: I have one more question for one of you here and then I'll get to you Melina. Either Brian, Daniel, or Brian, what are you hearing?
Are you hearing any changes coming from the banks on their end to possibly help people getting mortgages, for example, longer amortization? Cause I, I think in England you can buy a house with a hundred year mortgage or something like that. Generations of people pay that house.
So is there anything coming here that can help people buy houses?
Brian Hogben: I'll try this out first here to help people buy houses, but and Daniel can chime into and Claire, but when we're fighting inflation, the inflationary battle right now my understanding is the government's not gonna make anything easier to.
Because they want people to spend less. So for us to think that mortgage rules and regulations are gonna get easier anytime soon, I think we gotta get to the other end of the pendulum first before that would happen. So I don't think we're gonna see that. We have seen a lot of alternative lenders come out with the 35 year and 40 year amortizations again, which definitely helps when like to when the renewals come up, if they need to access some equity.
And because the stress test is so high, those 35 year and 40 year amortization are just amazing right now to help access some of that money. Maybe bridge the gap until rates change a little bit. I actually think rules and regulations on the rental side of things are gonna get a little bit. And probably January, February, March, we're likely gonna see more conditions, more paperwork.
Hallelujah. Don't all cheer at once. Okay, . But we're gonna see, like sometimes we can get a rental property approved with just a Schedule A that's saying the market rent for the property, even if it's vacant, is $2,000 a month. What some, what I'm hearing from some lenders is the schedule A for certain situations is not gonna be good enough.
They're gonna wanna see the first and last month's rent deposit in addition to the lease agreement, in addition to the Schedule A. And if it's a Nonobject property, so meaning that you're buying a rental and you have one or two other rentals, they're likely gonna wanna see six months of bank deposits of the rents, or 12 months of deposits of the rent.
Very important for everybody that's a real estate investor, be really organized with your paperwork. Be prepared. For financing in January, February, March. To provide more ? Yes. Provide more. There's gonna be more. That's my prediction. So I don't think it's gonna get any easier January, February, March, maybe the latter half of 2023, but I think we'll be, I don't think it's gonna be impossible to get rental properties by any means, but more paperwork, more verification is going to be in our future.
Daniel St Jean: All right, thank you. Daniel, what are you seeing on the private lending side?
Daniel Patton: Oh, definitely tightening up, private lending for the most part, for lack of a better term, is based on risk and the risk of the property, right? For as you strip it all down, the private lender wants to know, if I don't get my payments and I have to sell this house, how secure am I in getting my money back?
In a market where houses are going up, you can see private lenders going 80, 85, even in some cases 90% of the value of the home because they're confident that market's gonna continue to grow and their risk will shrink. In a market like this, where the housing market is unstable, where and the property might drop.
If you invest your money at a. 80% loan to value in five months from now, I might be at, 85, 90% loan to value. And as a private lender, that puts me at greater risk of getting my money back. Because when a client is, when you have to pull money as a private lender from a client, at that point, they're probably behind on all their mortgage payments.
They're probably behind on the property tax there. They owe a lot more, a lot of money over top of what is owed on the mortgage. So your loan to value shrinks, your rate increases or your risk increases. So in private lenders that I'm seeing are scaling back on their loan to value, certainly 75 like eighties.
Tough to get. Nowadays, if you're getting 80%, the rates, are getting up there. Like anything, the cost is going up, right? The interest rates are going up. The fees are relatively the same. You could find yourself paying anywhere from two to 4% depending on the deal.
Commercial, residential. But more so just to scale back on the loan to value, I think is the most important part. Large emphasis on the appraisal, but that's generally the case when it's private. For
Victoria Cluney: those that are refinancing. Daniel, are you seeing people switching more to helos than the cash out these days?
Just to almost hold it for a while and wait.
Daniel Patton: It's a good question because we get that a lot, right? Should I move my money if that's sitting on a HeLOCK into a mortgage because the interest rate on a mortgage is lower and the interest rate is higher? This is a conversation that I'm sure we've all had with clients every day.
It's a personal conversation with each client. An investor's portfolio these days is not so much about cash flowing property, a cash flowing property. B in times like this, it's an overall portfolio. It's what's your monthly payments? Do you wanna start paying off that HeLOCK? One of the things we like about the home equity line of credit, especially if it's being leveraged for investing in other properties, is the repayment on that is interest only, number one.
It's lower than a mortgage. And two, we're able to write off that interest payment. So we get a hundred percent write off on a lower monthly payment. So am I getting clients that wanna convert from helos to mortgages? Yes. But that also, they're thinking a lot of the time they're thinking by doing that I'm gonna get a lower mortgage payment because the interest rate's lower and that's not always the case.
We're spending time these days not to drag this question on, but we're spending a lot of time these days going over an investor's entire portfolio. Okay. When you're asking this question of, do I convert it from a helo to a mortgage, what are you really asking? Are you saying that your payments are getting to the point where you can't cash?
Because if that's what you're saying, then let's look at other ways. Maybe we can restructure one of your mortgages on renewals. Maybe we can stretch out your amortization and offset some of the payment. It's an, it's a conversation to have with each individual client. It's just not something you can answer on a broad basis. Does that make sense?
Victoria Cluney: Absolutely. And it's such a good point to make is to have that conversation with your mortgage broker, to look at the big picture and think about ways that you can just structure what you're doing right now for the interim while you're riding out this wave. And it doesn't have to always be like that, but there is different ways and strategies that you can lessen the burden of the payment.
Daniel St Jean: All right, so take a break you three for a minute. I'm gonna come back to you. I'm gonna come back to you as real estate investors, but now I wanna talk to Melina cuz when we decided a few days ago that we were going to talk tonight about, banks canceling or reversing or whatever, just before closing, my first thought yeah, but hold on here legally, there must be some repercussions here.
So let's bring a lawyer on the panel here. Tell us about, so what happens if three days before my closing, the bank calls my loan back and I'm supposed to close on Friday and they told me yesterday I'm not getting a mortgage. What's happening? What happens?
Milena Cardinal: I'm gonna give you the same answer. I give 99% of your questions. It depends, it's actually a really complicated question. So it largely depends on the wording of your contract, of your commitment. I've had situations with private lenders. It's typically more black and white. You have some commitments that are really black and white, and you can tell the lender, look, you committed to this mortgage.
My client made some decisions and set things in motions that are attracting liability to my client. On the basis of this commitment that you made. So if you don't honor this commitment, we will pursue against you for all the damages that will incur, right? And including the damages that the sellers gonna incur and sue us for.
There is more more oomph behind that with a private lender. There's also you also have to be careful with the commitment I had. I had a client, this happened to them last week, where we had a closing that was supposed to occur actually like the week prior, and it had still not closed because the lender's lawyer was dragging their heels, sending their instructions.
So my client called and is I'm facing a huge penalty on my existing mortgage. I need, I absolutely need to close this refin. And I'm like, oh, like I can't do anything. I can't go and, kick the butt of the lawyer that's not doing what they're supposed to be doing and sending me the documents.
And he said, is there anything I can do? And I'm like, no, because your mortgage commitment says that your lender can back out at any time for any reason whatsoever. So the chances that you'll actually be successful against this lender if you say I've got all these repercussions, is pretty unlikely.
And especially since it was in big, bold red letters. I'd actually never seen that before on a commitment. But I said yeah, that lender is covering their butts. Now, of course, my client's gonna think twice before using that lender again, unfortunately, for that lender. But that's the situation, right?
Like it's all about the wording on the commitment. Now banks are a whole other beast. And the problem. With banks is that even though typically their commitments are pretty solid and typically, it's pretty clear that you get a bank mortgage, you get a commitment in place, you have it going, and if the bank backs out for something other than what's in the contract, it's probably on the fine print somewhere that they can back out whenever they want because they have that lang, that language.
But They also have a type of contract, which is typically a contract that you don't have a choice but to sign as is. So it gives you a little bit more flexibility or not flexibility, but it gives you a little bit more power in the contract when it comes to lawsuits, the problem is, the reality is that if you're going after RBC or CIBC or Scotia or whatever because they didn't, fund your mortgage on time, you're probably like facing like a massive organization that's got like hundreds of lawyers who are extremely savvy and that are gonna track their heels until they bring you into bankruptcy, even if you do have a case.
So that's problem number one. Problem number two. You're not only burning yourself with that lender, but I'm suspecting that if you sue rbc, you're burning yourself with pretty much every bank. And how are you gonna operate as a real estate investor? So for me, I get the frustration and I get it.
The bank, like they promised something and they backed out and they didn't do what they were supposed to do and all of that. The, but the concern is, your rights and what you're entitled to and what the contract allows you to do is one thing, but the strategy, the negotiation, your reputation, all of that is another thing. And you have to navigate both of those waters, to operate as a real estate investor.
Victoria Cluney: It's a pick and choose your battle. Type situation. It's such a good point to make. And something for people to really think about when sure, there's an injustice there and you wanna fight the injustice, you wanna stand up for that.
But you have to consider what is the outcome, even from that fight? And as you're saying about that could really put a red mark on you for all other lenders. And is this a battle worth fighting? And, peace of mind is something that it should be valued quite a bit more. That's true sometimes then the justice.
Milena Cardinal: And that's true in so many areas. When we make, when we when we make a request for a title insurance policy, when we sorry, I can't remember the word, but when we order a title insurance policy for a client, there is always a question that says, do you have knowledge of this person ever making a claim to title insurance?
And if you click yes, that policy's flagged, and then they're gonna research and they're gonna look and it's gonna take days for them to even release it if they do. So it's even if you have a title insurance claim, which is one of the easiest insurance companies to make a claim with, especially when you have a completely legitimate claim, which is common, think about it because that can be quite costly.
Daniel St Jean: I hear here that these cancellations or reversal can happen, but from a legal point of view, tough. Claire would say, suck it up buttercup, because there's not really anything legally. Can do, or even if you can, you probably shouldn't do. When something like that happens, just buy a nice bottle of wine and get drunk over the weekend and then back to work on Monday.
Victoria Cluney: Call an investor friend. I'm sure they've got a story. They can share the misery with .
Milena Cardinal: All right. Across your fingers that the seller is also a real estate investor and gets it . Yeah.
Daniel St Jean: The three of you down below here, you are real estate investors who are also in the business of real estate focus mortgages and financing. But what are you up to and what are you doing as real estate investors in this market right now that you can share with our audience here that might help them, guide them in the right direct?
Brian Hogben: I'll jump in first on that cause I actually see this market right now as a tremendous opportunity. When I look at how properties have, and I'm in Hamilton here, I love investing in my backyard cause I like it around here. And the values have come down significantly and as we've all probably seen, the rent have gone up significantly as well too, right? So I found it great opportunities with vacant properties when we can find 'em.
To Claire's point before, you really find the properties that are in your portfolio that are not being served anymore, are not serving your goals anymore. So I had one that wasn't serving my goals. It was significantly under cash flowing just because I had a tenant in there for 10 years.
And even with reasonable rent increases it was probably 50%. It was operating at 50% capacity. And I was able to, so I sold that property. And took the exact amount of equity. It was it was a bungalow, sold it for 500. The mortgage was a hundred, 400,000, less capital gains, but let's for simple mass, I don't put everybody to sleep.
We'll say $400,000. And and the rate was 2% on that mortgage. But the rent was only $1,150 for a bungalow, right? Which was significantly underperform. I was able to move it into a triplex that actually closes on Monday. Hopefully there's none of these things we gonna go on Monday.
Now jinx in it. Don't worry. I got a good mortgage broker. So anyways but it's just for 1.2 million and it was vacant and now my rate, and I, and I. I encourage you guys to stop looking at rates so much because it's really about the numbers, right? It's about cash flow. So now my rate went from 2% to 6.8.
I had to go with an alternative lender and I got a 6.8% rate. I decided to take a one year term because that made sense for me. But now I'm cash flowing significantly more on that same $400,000 I 10 x. My mortgage amount went from a hundred thousand to 800,000. And now, and way I always look at it too is because now I've upped my property, it's performing way better.
I've got way more debt. Hallelujah. I love way more debt because I'm paying down way more principle, right? And it's getting back to these fundamentals because the bigger the loan that I have, the more principle my tenants are paying down every single month. So now I've got better wealth creation from that 400,000 instead of sitting in the property.
I think it's a great opportunity to look at. Properties that now that are vacant or if there is the possibility of vacant possession where you can utilize this uptick in the rental market right now because you can get phenomenal rents for good products right now. And that's what I just did personally and I think up and don't be afraid of the interest rate.
Going to that interest rate. You work your numbers, it doesn't matter. So if rates go down a little bit or up a little bit, personally, I think personally the market that we're in right now is not too dissimilar from 1, 2, 3 years ago. At any given time, the rate could go up a quarter or a half or three quarters.
Thankfully, I think we, most of us can agree. I believe we're in an environment where that's probably the case. It might go up a quarter or a half or maybe one, and then it might go down a half or a quarter or three. So we're that environment right now that I would really stick to your game plan and your goals, making sure that it cash flows and using making sure your debt's performing to how you want it to.
Daniel St Jean: I wanna add one quick comment to something you said there about the market, cuz I think and I mentioned that to somebody last week and they thought it was a good observation. So I'll make it here again. If somebody had a house on the market last February, okay, so somebody has a house on the market last February, there's two reason why they would be on the market.
They have to sell cause they're moving, divorcing, whatever, or b, they're on the market because they see the market and they want to take advantage of the crazy situation and make as much money as you. Correct. But today, if you see somebody with a house in the market, what are the chances that person puts his house in the market?
Cuz he wants to make as much money as he can. I think slim to none. The reason why somebody has a house on the market today is cuz he has to sell it that. So to me that's a great opportunity because it means multiple offers, but on, on the way down as in, offering less than asking price and stuff like that because anybody with 2 cents of brain who wants to maximize his return on the property when he sells it will not put it on the market. Now they're gonna wait.
Brian Hogben: Yeah, and I would just include on that market topic too, Daniel, is that if you're selling and buying in the same market, what's the different. If you're selling in a poor market and buying in a poor market, like you're utilizing your capital better. If you're selling in a high market and buying in a high market, what's the difference if you're not trying to time it? I personally see it as the same thing.
Daniel St Jean: What are you doing as a real estate investor right now that that could be useful for our listeners to guide them?
Daniel Patton: I'm putting a bit more emphasis on my own portfolio, reevaluating the interest rates that I'm on. If I'm on variable rates, I'm looking to see whether or not I want to convert those.
I'm putting a little bit more focus on private lending these days. I'm freeing up a little bit more capital for private lending. I really love what Claire said about selling's not failing. I agree with you. Look, and Brian mentioned it as well, if you can sell off an asset and redeploy that capital in a way that's going to perform better than your investment.
That's a win. That's not a loss. People for some reason, associate look, I've made all this money on my house and if I sell it, that's a failure. It's not like redeploy. So I'm freeing up a little bit more capital myself because I am seeing a little bit more opportunity on the private side, especially at the brokerage level.
We tend to get, the first chance at a lot of these deals when it comes to people, with good loan to values that maybe are in a position where they need to borrow private funds to complete a project or consolidate debt or whatever it is. I'm freeing up a little bit more money for private lending these days and just focusing a little bit more personally mine.
But I do think the opportunity is there to buy, it's not, like Brian said, you buy in a down market, you selling in a down market. It's the same thing as buying in a upmarket and selling in a down market. So I think it's important to be cash rich these days, right? Capital have capital available because there will be opportunities that present themselves that haven't been there for the past few years.
Daniel St Jean: Thank you very much for that. Claire.
Claire Drage: I'm way older than these two guys, so I'm done with owning real estate and being a landlord. I have been for about the last eight or nine years, private lending, I'll do the promissory note loans, really private lending specifically for real estate investors.
Not so many flips right now, just cuz the numbers don't make sense, but more on the birth strategy. So I don't know I'm, I guess I'm the lazy investor on my, my own portfolio where I just like my money making money. I've, I, when I lived in Spain, we managed 144 properties and had new tenants every week.
I feel like I've got the wrinkles and the scars from that and just and like someone is putting in the comments here, lazy is great. I have enough going on in my regular business as a mortgage broker and fund manager. So yeah private lending. And I wanna add to what Brian and Daniel were saying, which is it's something that someone told me at the weekend, I'm not gonna take credit for it cause I thought it was a brilliant idea and wish I had thought of it.
And it was at the Wealth Hacker Conference this weekend, someone had said, if your prompt is not cash flowing and you feel like you have to sell, Because you can't afford to put in the negative cash flow each month. Is it okay to have a fair discussion with your tenant and say, listen, you're paying 1500 market rent is 2100 and can no longer cash this property.
I have to sell and provide that talent with the option to increase the rent. Now of course you don't wanna get yourself into legal trouble. You want to truly not just have that conversation cuz Yeah, that's a great idea, Claire. I'll use that to get higher rent. Like you've gotta be able to back that up so you don't get into trouble, with the fact that it doesn't cash flow and you're financially struggling to maintain that portfolio.
Is there anything wrong with having a heart to heart with the tenant? Because they know if they move they probably have to pay an extra thousand bucks a month in rent, as opposed to. Could that additional, it's not cash flow now. It's helping you keep that property as opposed to forced to sell it.
It could be an option, especially if you're on the fence, right? If you're on the fence on, oh, I dunno, I can manage an extra couple of bucks, couple of hundred bucks this month, but if it goes up by half a point in December I'm gonna be in bigger trouble personally. So yeah, private lending, lazy is great. Gonna take that tagline. Thank you, .
Daniel St Jean: I like that idea that you mentioned because you're right. If a tenant has been there for three years, they absolutely love the where they live. And they, if basically you come to them and go to them and say, look, either we find a way here to work together on this, or I put the property up for sale, I can guarantee you that the next person who is gonna buy the property is go, is going to want it.
With a vacant, probably vacant uhn. And then then you'll have to move, it'll cost you two, 3000 bucks and on top of that you're gonna pay 2100 somewhere else. And you may not like it anywhere near as much as you are now. So can we sit down and talk? Just
Claire Drage: make sure you can back up that and it's not just a way to get higher rent.
Daniel St Jean: No, absolutely.
Victoria Cluney: Eyes twitching a little bit over there.
Daniel St Jean: Mil, what are you doing? Cause you're a real estate investor as well. What are you doing right now in this market?
Milena Cardinal: Oh boy. I'm leaving it in the hands of my husband to make decisions. . I don't know. I think we're in a phase right now where we're trying to figure out our identities as investors.
That's really what's been coming up for us and figuring out our why. So we're having lots of discussions and digging deep. And in the meantime we've done mostly like passive investor kind of investments. And Yeah, otherwise, yeah, we haven't really put any effort towards a new project.
We also have four actual projects, meaning renovation projects on the go right now. And my husband is spread so thin running from city to city cuz they're all in different places of finishing these projects for us. So I think once these projects finish, we'll have a better understanding. But for the time being, we're just doing some passive invest.
Daniel St Jean: Victoria, you're going a hundred miles an hour, so what are you doing?
Victoria Cluney: Yeah I'm deploying a lot of different strategies in order to adapt to this market. And so for me, vendor takebacks, like just about every single offer that I'm doing, I'm connecting with the seller, finding out exactly what the seller needs, and then I'm finding like a win-win situation in the creative financing to make it.
And so really when I go into a property, I'm very transparent with the seller and I explain to them I'm not willing to take on a property that can't service the debt, and that's it. And so if we can work the numbers in some way, so the commercial property that I'm working on right now, the seller has agreed to an agreement for sale.
And so we will do an agreement for sale with this property and then move into a vendor, takeback even so when the mortgage is up for the seller. Then I will take over the financing and then we'll even move to a vendor take back for that situation. And I have three other properties that I'm doing seller financing, vendor take back with in order to make the numbers work.
I'm doing the due diligence. I don't do, I don't buy properties without conditions. And even when the market was hot, I still had conditions. And for me, that is one of my risk tolerance. And getting appraisals done so that I can get that clear picture doing at least like a five point building assessment.
I might not need to check all the outlets to see if they're working in the plumbing, but I really do wanna make sure that the capital expenditures are what condition they're in. Yeah, I'm loving this market to be honest. Tell lot of pain points with the sellers so we can make it work.
Daniel St Jean: And tell us briefly here, what like you went a little bit a different direction too with a motel in cause you're gonna run this as a business.
Victoria Cluney: I am running, so this is actually a share sale, so I'm actually purchasing the business, which has been a different way to navigate it. And we went through the asset due diligence itself, and then once that was satisfied, we turned it into the share sale. So we moved to a different agreement for sale. I really moved into this I'm calling it feel good investing. I was also feeling that that pain between the landlords and tenants and really like inflations going up, our expenses are going up.
Rent sometimes is grossly under market value and I don't come into these properties to displace tenants, but I do look to find some type of, some balance and there isn't much balance these days. And for me, I like to have a little bit more control on my properties. And so moving more into the commercial space has allowed me to do that.
So the motel. Feels amazing. It's fun. We it's waterfront. It's in Nova Scotia. We have two vacant lots with it. So we've got development opportunities in the future. I'm talking to like marketing agencies. We're gonna be just like beautifying this property. And so the value that we put into the property is the value that we expect to get back, and we can control what what we're going to generate in revenue based on what we produce. So that feels really exciting to me.
Daniel St Jean: All right. If somebody was gonna ask me what we are doing,
Victoria Cluney: What are you doing, Danielle? That's my job.
Daniel St Jean: What are you up to by the way? After this, which will take about one minute. I'm gonna come back to everybody one by one with a, cuz I realize we are already a few minutes over but it was all really good information.
I don't think anybody, actually, only a couple of people have left us. So that means they are appreciating the information they're getting. I will ask everyone of you one by one for a last comment that. Help in some way the people who are still in this call. So what we are doing is we decided more, almost a year ago to use what I call the BOC strategy, which is buying outside of Canada.
So right now we have, we just bought four villas in when say we with my partner who is a great tycoon, we bought four villas in Santorini, and we have three other projects in development in Santorini. Plus we have nine income properties being built in Costa Rica. And then I just we just went into a partnership with another developer.
We just bought a nice piece of land on the beach. We're building 26 houses and 16 townhouse. So we're going all Santorini and all Costa Rica. That's what we're doing. So I don't care what the market is you like, cause I'm not in it anymore. . All right, so Claire, last words of wisdom for our people.
Claire Drage: Reevaluate your why, reevaluate your portfolio and reevaluate whether your portfolio is serving you. Ultimately you are a business owner, as a real estate investor. Make good solid business decisions based on fact that applies to your own personal scenario. Not every investor is, equal the questions we get asked Melaina said, it depends.
So just reevaluate. Now's the time to reevaluate. And I love what Melaina said about what she's personally doing. It's okay to take a pause. It's okay to take a breath and don't just, throw it under the carpet and hope it disappears because it won't, it will come and rear its roaring head.
Just reevaluate and don't be frightened of making good, solid business decisions for you, your family, and your portfolio.
Daniel St Jean: Thank you, Claire, Brian.
Brian Hogben: You know what I would just one that I quote that resonated me the other day that I heard was you only get what you have the courage to ask for. And I think in this market, you know what?
Have the courage to make an offer. Have the courage to try something different. Have the courage to maybe adjust your plans. Have that courage. Be brave, make decisions. Ask for something that's completely outlandish. Ask for something that you maybe think you don't deserve. Ask for something that is just wild and crazy.
And when it comes down to real estate investment, even listening to you, Daniel, right now with all the projects you got going on that's wild. And I think some people, and I even myself, I know I couldn't picture myself doing certain things that I do today, but just ask for it. Ask for the knowledge, ask for the deal, ask for it. And you'll only get what you got the courage to ask for.
Daniel St Jean: All right, Daniel. Thank you. Thank you, Brian.
Daniel Patton: I would encourage everybody to remember why they got into real estate investing in the first place. I think that it's important to remember for most of us, real estate is a long term game.
It's hard sometimes to see the forest through the trees, and today we're looking at times where interest rates are high and maybe investing in real estate doesn't seem like, the hot thing to do in this moment. But we have to take a moment to look at perspective look back on investing, look back on real estate, realize why we're doing this, what we believe in the long term goals and gains of real estate.
And, stay strong. I agree with everything Brian and Claire said. Take this as an opportunity to, regroup. Look at your portfolio, if you're struggling, make some adjustments for sure. It's a time to be strategic, but remember why you got into real estate investing. We all love the long term expectations and goals of real.
Daniel St Jean: Could it have something to do with what's on my t-shirt here? Can you read that ?
Daniel Patton: I can read it, yes.
Daniel St Jean: Okay. Victoria.
Victoria Cluney: Lean on your community perspective is a really powerful thing. The way that you perceive the situation is the way that you'll respond to that situation. And so if you're looking at this market as negative, then that's all you're gonna see about the market. But if you look at this market with opportunity and you can change your perspective, then you're gonna start to see these opportunities out there. And so by leaning into your community, you are going to absorb other people's perspective. So make sure that you're surrounding yourself with strong investors, people that are actually being active in the market, not the ones that are holding back and basing it on fear.
Talk to the ones that are buying properties still today and get that courage going because failure is just, one step towards success. And everything that we do and we fail in is a lesson to make us stronger and more experienced investors. So don't shy away from that. Just move forward.
Trust in your own ability to know when to pivot. You'll know when you've taken it too far. And so really trust that and just take the leap. Keep going.
Daniel St Jean: God, you know what? If I didn't know any better, I would think that you have some knowledge about psychology there a little bit.
Victoria Cluney: Just a little bit. I think it's so important, like our mindset is just so incredibly important. When you can control your mind, most powerful thing that you can ever control. Daniel, what would you say?
Daniel St Jean: By outside of Canada, Melina , what's your last. Last word of advice for our listeners.
Milena Cardinal: I think more than ever reading your documents is essential. Things are changing and they're changing fast. If you read commitment with a lender that you've been working for with, for five years that you now blindly sign, they have likely changed their documents. So now's the time to read, now's the time to really be thorough and engage your lawyer to review things for you before you sign.
Also, I was gonna say something else. I lost my train of thought because you guys are so amazing, just asking in the, in all of the wonderful advice you guys have. I was gonna say, Contracts and Oh yes. And get creative. Learn about creative strategies because more than ever shifting your opinions and your beliefs about what real estate is it's more important than ever. And there's some phenomenal opportunities out there for people who can adapt and get creative.
Daniel St Jean: All right. Thank you very much. So Victoria you want to thank our presenters?
Victoria Cluney: Thank you, presenters.
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