US Lending for Canadians

Sarah Larbi: First up Michal Leviathan partners and customer success manager at Lendai US Inc. Michal is an auto restorator, entrepreneur, real estate investor, and someone who truly embodies and is obsessed with providing the best customer service in all areas of her life. That's why she's a perfect fit for Lendai.
And finding the right financial fit for real estate investing purchases throughout the US. She's gonna share with you, she's got some slides prepared on what they do and how they can provide some funding for certain types of deals for Canadians in the US. Michal, welcome.

Michal Liviathan: Thank you. Good evening everybody, and thank you Sarah for the kind introduction.

Sarah Larbi: I'll leave it to you. You could feel free to share your screen and take it from there. I'm gonna take myself off camera so the floor is yours.

Michal Liviathan: Thank you. I'm gonna start sharing my screen here. I know I don't have a lot of time, so I'll try to keep it in the frame and then you guys will give me the queue. My name is Michal Liviathan. I'm from Lendai, US. Lendai is a private lender financing foreigners only investing in US real estate. And so we are focusing on four nationals only.

We're a global company. Our mission is to take that trillion dollar market and utilize our technology to just level the play field for foreign nationals. Foreign investors with Canadians is fairly easy. Canadians investing in the US for many years before Lendai. And then for Europeans and Middle Eastern it is a little bit more of a problem. And then over there we're covering a lot of informational gaps, financial gaps.

It all started from when one of our founders went to his bank in his country of origin, and he said that he would like to invest in a property in the US. The bank said, you're great. You have a great credit history. We have known you for a long time, but we don't know the property. We can't take it as a collateral and that makes sense. The same founder flew into the US and got into one of the big banks over there, I think it was Chase and said the same.

I would like to invest in a US property rental investment. The bank said we know the property we can take and we can assess in terms of risk management, we can assess the deal. We know everything about the financials and what we need to do. We don't know you as far as we know.
You can be under a bankruptcy in your country of origin, you can launder money. And essentially we don't know you. And that's where they recognize the problem of financing for four nationals. And so three years later we are servicing clients from five countries around the world. My office in Toronto we have our tech and development center in Tel Aviv, Israel.

We have our London, UK', European office to support the United Kingdom and Europeans. We have our headquarters in Miami, Florida, and another little office in India. We are operating in 15 states. Going in, hoping to go into New York and California during 2023. That's exciting and before we start talking about how the rates look like inflation, recession and all the good stuff. I will have to start with the US housing market, the real estate.

Here you can see how prices kept going up, almost tripled over sometime now. This graph is from 1991 and up to date. We can see here. 0.7% down from August, 2022. But then if we look at the big picture, that's 11.9% growth from last year, from August, 2021 to August, 2022.
Here you can see that the decrease is a little bit better. And that's coming up next. That's what's going on now. We can see how prices increase in inflation. Those were actually hectic times. Bidding wars investors battling over offering a higher offer and appraisers.

The value that you used to see on a property wouldn't weigh so much because investors are just coming and offering more. Crazy times from January, 2022 till now and then the party's over. I'm not gonna sugar coat it. I'm gonna be honest and I'm gonna give you the picture the way it is.
We are starting to see the decrease rates going up and that's what's gonna bring me to the next slide, the mortgage market. Before I'm gonna dive into rates two big differences between the Canadian mortgage market, which we know in Canada and the US. Number one and I think the biggest difference is the mortgage points buy down.

Whoever doesn't know it means that you can buy down your rate. And that's gonna be a one time cost during the closing stage you're gonna put more money down towards decreasing your rate. One point equals 1%. And you're gonna pay X amount to decrease it. That's something that we don't have in Canada.

The second thing is the secondary market. Private lenders like the US. I'm gonna give you our picture from our side a little bit. We are originating the loans. The notes keep rolling to different hands. And this is 60%. This is actually the private market in the US is the one that's controlling the market right now. 40% are going into conventional banks and getting their mortgages from there, where it stays on the books since it stays on the balance sheets. And then in the non QM private. The notes keep rolling into different hands. Some notes can even be sold five times over, let's say a 10 year term. That's a big difference.

Lendai also sold them notes to securitization companies and in this time today. Those securitization companies have tightened up their rules. They want more due diligence, they want more documents. Everything became much harder. Like I said, the party is over.
It's still going, and I'm gonna talk about all the benefits of investing in the US, but not as easy as it was. And so here we can see the rates of covid times all time lows where the prices were at all time high, and then when rates went to all time low and values went to all time high. That delta in between was the perfect opportunity.

We see how we see a very sharp increase. The Feds are meeting tomorrow. They have two big meetings. We're expecting another hike. We are expecting a second hike sometime around December. That's the situation and that's what we have to live with.

And now the next one is about what we should consider, what investors should consider. That's still gonna make sense to invest. The first one is to lock your value. The discussion we see seasoned investors investing in the US and when I say people, I'm talking about foreign nationals. I'm talking about people without SSN. The discussion is not about locking your rates anymore, it's about locking the value before it might go down to maximize leverage.

There's always many smarter people who have said it before me. You can't time the market and sitting on the fence is also not the best idea. And so the discussion now is lock your value. Before it goes, it goes down. I'm not saying it's gonna go down in all the markets. The US is a very big place. And some of the markets are gonna stay strong. Some of them we're gonna see decrease. We are already seeing that.

The second one is tax benefits. Lendai provides business to business. The foreign investor is gonna open up a US entity. It could be an LLC or an LP or S Corp, or C corp, whatever it may be. And you should consult with a tax advisor before you do that. All expenses around the US business loan, our tax deduct.

You are gonna pay the fees for closing costs. You're gonna pay the title company, you're gonna pay taxes, you're gonna pay the appraisal company. And then all those are tax deductible. And so for the most accurate number, when you are calculating your NOI and ROI you should calculate after tax returns.

That's where you're gonna get the most accurate picture of your investment. The third thing, currency exchange, the US dollar getting stronger and stronger. And that means that if you are purchasing. With your own capital. So let's say you're putting a hundred percent of your capital towards the investment and you're not gonna use leverage that's gonna give you the benefit of a strong buying power.

You're gonna go in, you're not gonna wait in line you're just gonna get the deal. But then you're exposing all your Canadian dollars to that exchange rate. And Lendai is offering loans with US dollars. Where you need to put 30% down payment and take 70% leverage with US dollars you're saving on that exchange.

These are the benefits that we see at the moment to invest. And now let's talk a little bit about Canadians. Top destination for Canadians, Florida. We like the sun. And so 38% over there. We also like the sun on the other side in Arizona where we see gated communities higher age away. But that's also in Florida. Both are very similar.
In terms of investments and then we see 7% California and all the rest would be little ones. We can not see the numbers here are different. I'm sorry. But the other slide was most accurate. We can see how, why, which is very surprising.

It's 6% and we are not financing why. So, moving forward, the benefits of leveraging, I already started to talk about the three biggest ones, which are currently the currency exchange and locking your values. So protection against inflation.

But there are obviously many more benefits for investing in real estate. Cash out without paying sales tax. There's no capital gains. When you refinance and you cash out, you extract the equity from in between the walls. We talked about the tax tripling your buying power. Obviously, you're not using all your capital.

You can use the rest of the capital that you have for either one, buying one more. Now instead of one, you have two. And I actually gonna show an example of how from one you get three in terms of property but also you can take the other capital for improvements and improvements will get you a higher rental income.

We see these days, especially in the lower markets, we see how the property value might go. But hey, market rent analysis is coming back so high, and so when we provide a DSCR based loan, that service coverage ratio. We calculate that rental income and then we deduct tax insurance, principal interest and property management.

When rental income is higher. We might give you more leverage and higher cash on cash return. I'm gonna show an example of how at the end your ROI is bigger than or higher than using your own money, a hundred percent your own capital. You're lowering your risk by diversifying.
That's another big one. Now, instead of having only one rental income, you have two. Let's say one thing went wrong. Now you still have the other one to generate your cash. And the last one, professional due diligence on your investment. So many times we see how the lender catches the little things that maybe the investor didn't see. Flood insurance roof or a tree growing off the roof. And there's something you need to fix.

These are things that sometimes it's like opening a business. I was self-employed for many years, and when you're just, before you know you are opening a business, you're full of hope. That your business is gonna make it, your business is gonna be the best you know what you're doing and you're gonna go with that feeling a positive feeling that you want to succeed. You want that success and you feel like you can do it. But then, the landlord is coming or someone related to the business is coming and saying, hey, listen, you're not the only one.

And not only that, you're not the only one. I see so many flaws that you have to fix or things that you need to take care of. So the question is how you're taking what is your approach? The lender is, Like the big scary, or I guess private lending is not like the big scary bank that's gonna control everything and they're gonna say the last word.

They're gonna ghost you for a while. They're gonna keep you in the dark. For us, we're on the same boat. We want a very healthy, good transaction. We want DSCR, we wanna see the cash flow. And if we are seeing something that is not working in your investment, then maybe you shouldn't go for it, right? So professional due diligence on your investment.

Cash on cash return example. I'm sure you all know it, but if not, here's some calculations. We see how, here, let's take round numbers. And lower interest rates but purchase price, a hundred thousand. You put in all the cash, a hundred thousand. You have it in equity and your net operating income, your NOI will be 10%.

Now, you leveraged 50% loan to value. So you took 50% from the bank, you put 50% from your pocket, your debt service would be 2,500 a month, net operating income, 75, and now you have 15% in ROI. That's the easiest slide for me in numbers. There was no argument about it.
Next I'm gonna show you. This is a little bit outdated, but still a good example. This is what we're gonna get in Toronto for 921 699 000. Now it's a little bit less. But that's what we are gonna get. We're gonna get a bungalow with a nice backyard and lots of snow. And then Miami, Florida 500,000, that would be the average.

We are gonna get nice single family residents Detroit. The price is gonna be even lower than 80. We saw a high increase in property values over there. And now again, 0. 7% decrease. And then yeah, talking about the bubble, right? Very hard to go into the bubble when there is not so much you can do.

That is the example that I wanted to show you. A Canadian client extracts 70% loan to value from his investment in Detroit, Michigan, where he purchased an all cash investment. 70% out of that were used to go towards a down payment for two more new purchases. And you could see the numbers and LTV was 70% at the time.

And that's how a Canadian investor turned his one rental investment into a free rental properties portfolio. I like to call it buy one, get one for free except closing costs. Let's talk about the details of Lendai. Like I said, we are a DSCR based loan. We are at 8.75 to 9.75 fixed rates for 30 year. And we are gonna change the prepayment penalty. So the penalty right now is a five year step down, so that's where it's gonna be locked.

Your loan is gonna be locked for five years. We are gonna change it very soon. Already changed in Detroit to 1% as well as Ohio and more to come. We're always gonna be the first property value, minimum a hundred thousand. C1 to C4 condition. That means I don't wanna go into that too deep, but basically deferred maintenance or some deferred maintenance or mint condition. So we are not gonna find for fix and flips or de-stress properties that need a full.

We are gonna provide business loans. Like I said, the foreign investor will have to open their US entity. And it's fully recoursed 15 states operating type of properties, single family residence, two to four doors, so up to four units, townhouses as well. That occupancy is ready to be linked.

Sarah Larbi: Michal, I wanna just mention you've got about one more minute left and then we gotta wrap it up.

Michal Liviathan: Let's move to the next one. I think we went over that too. We're up to 70% LTV practical tips preparing for financing. So get your house in order. Be organized with your documents. It's gonna save you a lot of time and effort. Work like a pro which means no. Everything, know your rental income. You'll be surprised by some investors, especially for nationals, they don't even know. They're like, oh, I need to talk to my property management. I'm not sure where I'm at.

And then put an extra effort on the legal side. A CPA, a lawyer, anyone who can save you a lot of money later. How to choose the right lender. Don't paint anything up front except the appraisal. Redefine prints and make sure your lender works with four National. You don't want to hear at the last minute that you need to go south of the border to sign a deal.

Obviously, with Lendai, everything is remote, especially the closing, remote online closing. Everything is online from the comfort of your home and what we are looking for at the end of the day. Property value, liquidity, and DSCR. Thank you Sarah.

Sarah Larbi: Amazing Michal. Thank you so much. That was great.