地产投资者普遍存在的8个错误观点

Here are some of the most common myths about financing investment property.

Myth 1

I need 25% down in order to purchase an investment property.

This is a huge mistake that many investors make. There are lenders that will lend on revenue property with as little as 10% down, and mortgages with only 15% down is also very common. The traditional banks, deal largely with a homeowner with a great income, long-term job stability and a large down payment. The big banks like these kinds of deals, and when a deal comes in that doesn't fit this criteria it can be difficult to fit into their tight procedures and guidelines. By working with lenders that are more flexible and make a habit of dealing with investors, you're much more likely to find a lender that will be more flexible with your down payment and what restrictions they place on you. Since many investors are self-employed and entrepreneurial in nature, it's no surprise that by trying to deal with traditional lenders and bankers that most investors get frustrated. It doesn’t have to be that way.

Myth 2

I am self-employed and can't qualify.

Lenders have finally started to notice that self-employed people are a major and growing part of our population and an integral part of our economy. There are numerous products currently available (and more coming) for self-employed people, small business owners and even 100% commission salespeople. For tax reasons, keeping declared income low and keeping profits in the corporation make sense - but when it comes time to qualify, this is something that they hold against you. By working with a knowledgeable mortgage broker, you can actually use retained earnings, shareholder loans and add-backs to actually increase your qualifying income. The last 2 years company financials will usually be needed if incorporated, as well as Revenue Canada Notice of Assessments to verify that any taxes owing were paid.

Myth 3
My credit history isn't strong enough to qualify.

Sometimes in life there are circumstances that are out of your control. A divorce, death in the family or something as simple as a lost "change of address" notice can cause major financial stress and frustration. When you're working with a good lender, a written letter explaining what happened and how that impacted your credit rating can carry a lot of weight with a lender or underwriter (the person making a decision about your application). Of course, great credit helps but there are lenders with products available for individuals with past credit blemishes. Even if you have had court judgments filed against you, orderly payment of debts or bankruptcy, it is still possible that you can obtain financing. These more significant credit problems will require a larger down payment but can be overcome in most situations.

Myth 4
It's too bad I can't use my RRSPs in real estate investing!

The good news is - you can! It first involves transferring your funds to an institution that will administer your self-directed funds. You can then direct your RRSP account to invest in 1st and 2nd mortgages at much higher than market returns. The payments are credited back into your RRSP account. So now you can achieve returns of 10% + inside your RRSP - without ever cashing them in.

Another recently discovered product - allows you to borrow against your RRSP for revenue property purchase, small businesses expansion or un-bankable projects. This program is similar in the fact that you must transfer your funds to an institution that will administer your self-directed funds.

Each of the above listed RRSP strategies involve detailed paperwork and 1-on-1 discussion with a competent advisor, such as a mortgage broker who is familiar with them and a lawyer. There are some fees involved and each program has certain restrictions. However, it's good to know what's out there so we highly encourage you to do some research on these new and innovative products.

We absolutely suggest independent legal and tax advice in every case, as each investor has different tax consequences.

Myth 5
I cannot verify my income, so I can't get a mortgage.

A lot of people cannot verify their income for various reasons. For example, small "cash" businesses, service staff/bartenders where tips are a large part of their income or self-employed people where the income is kept in the company for further expansion and/or tax planning ... all of these situations make it difficult to provide verification of income to a lender. However, there are now mortgage products available where very little paperwork - and no verification of income - is required as part of the application process. In some cases even a self-declared job letter stating how much you make is sufficient for the lender.

Myth 6
Mortgage brokers are expensive and charge too much.

In the vast majority of situations, mortgage brokers work for FREE! Usually there are no fees paid by you (the borrower). Instead, the lender who provides you the financing pays the mortgage broker a finder's fee for bringing them a credit worthy customer. The lender did not incur any overhead, the broker is on your side to get you an approval (and they only get paid if you are approved - so they have your interest in mind), and you saved your most valuable resource - time. In some cases, such as commercial lending or where you are using a non-traditional or alternative financing lender, some fees may apply - this is something you just need to ask your mortgage broker about.

Myth 7
I cannot qualify for the amount I want with my income.

There are a number of ways to qualify, even if you don't believe your current income is sufficient. How about a partner or co-applicant to make your application stronger? The combination of 2 incomes and credit histories may help get the numbers in line with what you want to achieve. This is different than a co-signor or guarantor. Each strategy has its own application. The best one to use will depend on the overall plan and your exit for the property.

Another example might be to arrange a private 2nd mortgage in subordinate position to the 1st. This would help reduce the amount of cash required for closing. This could be arranged from a lender, someone's RRSP as a loan, or perhaps a joint venture partner.

Still another example would be to use a vendor take back. This is an excellent strategy in many cases, since it allows you to reduce the amount of cash you need to put into a deal. Using this strategy will depend on the seller of the property of course, but by being creative you do not have to let the traditional banking system restrict you.

BONUS Myth 8
The lowest rate is the lowest cost.

This is where many people are penny wise and pound foolish. They pay more attention to the rate than they do what the actual, real cost of the full deal really is.

The best deal is what costs you the least $$ at the end of the day, depending on your strategy for the property. If you get a fixed low interest rate mortgage and you intend to flip it, you may be faced with HUGE payout penalties if the new purchaser does not want to assume your mortgage. Also check the fine print, some deals are totally closed for the term while some lenders make it difficult to be assumed. 

Do not be hypnotized by the interest rate - think about the profit and $$$ by doing your calculations thoroughly!