Vine Group Presentation | Volition Properties Masterclass
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Vine Group Presentation | Volition Properties Masterclass
- 2. HUGO DOS REIS DAVID GONCALVES Founding Partner & Mortgage Broker | David@vinegroup.ca Partner & Mortgage Broker | hugo@vinegroup.ca Founding VINE Group, David has expanded the company in Ontario, British Columbia, and Alberta. Leading a team of high performing, experienced mortgage professionals, David continues to be a mentor to many of his team members and a leader within the industry. He has always referred to the mortgage industry as a people business, guiding them and providing advice rather than a business solely sales focused. With 12+ years of experience in the financial sector, Hugo has provided financial planning education presentations to thousands of investors through seminars and workshops, has authored numerous articles, contributed insights to several news outlets and hosted a financial news segment for the multi-unit rental sector. His signature client-focused approach, value-added advice, and background in financial planning is what has helped Hugo with his success year over year. ABOUT US
- 3. WH O WE ARE
- 5. 1. Choosing a Financing Partner (Bank vs. Broker) 2. Canadian Lending Environment 3. DNA of a Mortgage Application 4. Strategic Mortgage Financing - BLUEPRINT 5. Mortgage Trends AGENDA
- 6. Strategic Investors adjust with changes in the market
- 7. Choosing a Financing Partner Bank vs. Broker?
- 8. • Financing is the MOST IMPORTANT part of the real estate process • Most bank representatives are NOT familiar with rental financing BANK vs. BROKER
- 9. • Pre-approval vs. Pre-positioning • Long-term relationships • Mortgage Options BANK vs. BROKER
- 11. 2 major financing categories: Residential 1 - 4 Units Commercial 5+ Units CANADIAN LENDING ENVIRONMENT
- 13. • “A” lenders o Big Banks o Monoline Lenders o Credit Unions • Alternative Lenders (B Lenders) • Private Lenders CANADIAN LENDING ENVIRONMENT
- 14. Big Banks • Scotia, TD, RBC, CIBC, BMO & National Bank • Familiarity or brand • Typically use their own funds, so it’s easier for exceptions when needed • Competitive pricing CANADIAN LENDING ENVIRONMENT
- 15. Monoline Lenders • Non-bank lenders • First National, MCAP, XMC, RMG, etc. • Can only access via 3rd party providers (Brokers) • Better pricing (lower overhead) • Unique solutions • Use investors for financing (pension funds, etc.) CANADIAN LENDING ENVIRONMENT
- 16. Credit Unions • Desjardins, Duca, Meridian etc. • Service local communities very well • Able to get exceptions (have their own funds) • Provincially regulated – different rules • OSFI (Office Of The Superintendent Of Financial Institutions) – Federal (Stress Test) CANADIAN LENDING ENVIRONMENT
- 17. Alternative Lenders (B Lenders) • Equitable Bank, Home Trust, Optimum • Being used more often in today’s environment as it’s now harder to qualify • Common sense lending • Rates typically 1% - 1.50%+ higher • Fees are 1% on average • Accept lower credit scores • Larger portfolios • Self-employed friendly CANADIAN LENDING ENVIRONMENT
- 18. Private Lenders • Lending on asset • Up to 80% LTV (sometimes 90-100% with cross collateral) • Rates 8%+ with fees estimated at 3%+ • Interest only payments • Low documents requirements • Construction financing/flips CANADIAN LENDING ENVIRONMENT
- 19. • Most lenders now charge rental property rate premiums • Some lenders will not consider purchases in Holdco/corporate ownership CANADIAN LENDING ENVIRONMENT
- 20. DNA of a Mortgage Application
- 21. Income • Salary employed (T4’s, paystubs) • BFS/Commission Employed (Last two year T1’s + NOA’s) • Part-Time • Investments/Rental Income DNA of a mortg ag e application
- 22. Ratios – GDS/TDS • TDS (Total Debt Servicing) ✓ All expenses divided by all income ✓ Ideally 40-42% • GDS (Gross Debt Servicing) ✓ Subject property expenses divided by all income ✓ Ideally 35-39% DNA of a mortg ag e application
- 23. DNA of a Mortgage Application INCOME EXPENSES GDS MAX 35% (income/expenses) Verifiable Income + 50%-75% of rental income ✓ Mortgage stress test payment ✓ Taxes ✓ Condo fees ✓ Heat TDS MAX 42% (income/expenses) Verifiable Income + 50%-75% of rental income ✓ All other debts payments ✓ Credit cards ✓ LOC’s ✓ Other mtgs ✓ Car loans ✓ Subject property expenses
- 24. Example • Client earns $100,000 or $8,333.33/month • Has car loan of $500/month • Needs $300,000 mortgage: Payments of $1,565/month • Subject Property Taxes + Utilities: $400/month • Total Subject Expenses: $1,965/month • Total Expenses: $2,465/month • GDS: 23.50% • TDS: 29.58% • Max mortgage is around $525K DNA of a mortg ag e application
- 25. *For illustration purposes only Mortgage Amount 2021 Income Needed $250,000 $55,000 $400,000 $80,000 $500,000 $95,000 $750,000 $135,000 $1,000,000 $175,000 DNA of a mortg ag e application
- 26. Down Payment • Minimum 20% down payment (25% sometimes) for rentals • Minimum 5% for primary residences • Most lenders will not accepts gifts for rentals • Need 90 day source history • Consolidate if possible prior to close (easy statements) DNA of a mortg ag e application
- 27. Credit • Credit scores range from 300-900 • Reported by Equifax and Trans Union • A Credit score above 680 is ideal DNA of a mortg ag e application
- 28. Best Practices to Improve Credit ✓ Keep credit roughly 60% below the limit ✓ Don’t miss a payment ✓ Have at least TWO credit facilities over 2 years, don’t close older accounts that are active DNA of a mortg ag e application
- 29. Asset Type • Where is the property located? • Is it in an area of less than 50,000 people? • What is the condition of the property? • Are they legalized units or self-contained? DNA of a mortg ag e application
- 30. Net Worth • Lenders have a net worth requirement for rentals • General rule of thumb is 10% for EACH rental property owned (in addition to the down payment) DNA of a mortg ag e application
- 31. BLUEPRINT Being Strategic With Your Financing
- 32. Now more than ever, financing requires proper and strategic PLANNING
- 33. PLAY IT LIKE a CHESS GAME
- 34. 1 - 4 Properties • Most lenders have a “Global Limit” of 4 rentals • Preferred pricing and solutions • HELOC’s for rentals • Split mortgages BLUEPRINT - STRATEGIC FINANCING
- 35. 5 -10 Properties • Reduced lender options • Full portfolio should have DCR of 1.10+ • Some big banks (branch relationship) • Credit unions • Consider a REFINANCE before you buy the 5th property BLUEPRINT - STRATEGIC FINANCING
- 36. 10+ Properties • Very small lender pool • 30-year amortizations + rate premiums • Credit unions (NO global limit) • DCR requirements • Alternative lenders BLUEPRINT - STRATEGIC FINANCING
- 37. 15+ Properties • Turn your portfolio into a business • Commercial blanket across your portfolio • Up to 75% LTV • Up to 25 year amortizations (30 years on exception) • Commercial rates + fees • DCR ideally 1.25+ BLUEPRINT - STRATEGIC FINANCING
- 38. Multi-unit/Commercial • 5+ units • Asset focused • LTV as high as 85% • Amortizations between 25-40 years • No issue with # of properties BLUEPRINT - STRATEGIC FINANCING
- 39. Mortgage trends
- 42. “ STRESS TEST”
- 43. 1920 1940 1960 1980 2000 2020 GEN Z MILLENNIALS GEN X BOOMERS TRADITIONALISTS 1946-1964 1996- 1965-1980 1980-1995 1925-1945 WH O ARE MILLENNIALS?
- 44. 6% 24% 20% 23% 24% Traditionalists Boomers Gen X Millennial Gen Z Millennials are about to surpass Boomers in population size Population by Generation (% of total) WH Y YOU CAN’T IGNORE MILLENNIALS & GEN Z
- 45. It’s estimated that by 2025, 75% of the global workforce will be Millennials.
- 46. 65% Rent or live with family 94% Intend to buy a home 37% Own their home 67% Haven’t started saving yet 58% Worry about rising interest rates MILLENNIALS and housing
- 49. Downtown Toronto office vacancy rate hits highest level since global financial crisis RACHELLE YOUNGLAI PUBLISHED JANUARY 13, 2021 UPDATED 1 DAY AGO
- 51. 51
- 52. Let’s Start With an Inventory WH ERE ARE YOU NOW?
- 54. Making Your Mortgage Application a SUCCESS
- 55. • Rules are now HARDER, so you must be ORGANIZED! • Create a MORTGAGE BINDER (or Cloud storage) ✓ Recent mortgage statements, tax bills, leases for all properties, etc. ✓ Updated T1 generals + NOA’s (last two years) ✓ Updated savings/investment statements • Updated Paystubs + Letter of Employment MORTGAGE APPLICATION SUCCESS TIPS