It’s no secret that we’ve been experiencing one of the largest real estate growth spurts, at least in the “905” regions, that Canada has ever seen. 

With the rising home prices comes a lot of skepticism and even fear. 

The Canadian regulatory bodies released the guidelines for their new stress test, just a few days ago. We’re going to be talking about how the new test works, and more importantly, what it tells about the state of the market, on today’s episode of the “Investment Property Income” podcast.

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Do you have any elderly relatives?

Today we hit pretty close to home with the “Investment Property Income” Podcast. 

Geoff is helping one of his elderly relatives get set up for a long term game plan, and he’s running the mortgage arrangements by me to make sure that everything is the best it possibly can be. 

We do a quick breakdown of the situation, and run over the concerns, and considerations. I offer a few different options to help set his elderly relative up for long term success, and there’s a bit of surprise ending to all of this. 

I’m sure you’ll find a ton of value in this episode. 

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Our topic today is a big one. There are all kinds of books out there about real estate strategy, and creative ways to get financing, but do they really work?

In short...it depends.

A lot of the books are written for US investors, and unfortunately a lot of what they talk about simply doesn’t apply to Canadians. For better or worse, things are just a little different up here. 

So let’s break down what I call the “Scale of Lenders” in Canada. A, B, C (or P for private), and everything else.

I like to start at the top with the cheapest rates...the “A” lenders. These are your “schedule 1” banks. Obviously your least expensive money to borrow, but they have an ever increasingly tight box of lending criteria, leaving a lot of folks ineligible for their loans. 

That usually means my clients need a “B” lender. Now, to be clear, this isn’t a bad thing. True, the rates aren’t as low as the “A” lenders, in most cases, but they’re easier to qualify for. There’s a thriving market for these lenders, and it’s a great alternative for those who don’t fit into the major bank’s profile of the perfect borrower. 

It’s important to note that there’s always going to be a lender that’s sort of a hybrid between the A’s, B’s, and C’s. 

Then of course we have the “C” or “P”, REGULATED private lenders. I’ll explain the “regulated” distinction in a moment. This is where the game gets very different. Not in a bad way, but this route requires a solid game plan to make it a viable solution. The rates are higher because they take riskier clients. They don’t make their decisions on the borrower as much as the A and B lenders do, they care about how much the property is worth, how long it will take to sell it in a worst case scenario. 

Here’s why I made such a fuss about “regulated”... in the world of private lending, there are two types of private lenders. First, and most reputable are the “regulated” private lenders. These are well established companies, with many investors, and the provincial regulators make sure that everything in their business is on the up and up. In short, these lenders have a good business of lending money to people who don’t qualify for the A and B lenders. They want to help you own a home with a shorter term loan (1 to 2 years usually), and make a good return on their money in the meantime. 

This type of lender requires a solid financial plan, but can be a great alternative. 

This leads us to the “Unregulated” area of private lending. This is the area not often spoken of by mortgage brokers because most brokers don’t deal with this area. There’s all sorts different, and sometimes very risky lenders in this arena. 

This is where you find strategies like Rent to Owns (RTOs), Vendor Take Back mortgages (VTBs), Hard Money lenders, Joint Ventures (JVs), and someone’s rich Uncle Barry that lends private money to people. 

These can all be very viable solutions, especially when you pair it with other types of lenders to make your strategy work, but you REALLY need to know your stuff when you start dealing with these types of lenders. 

That’s exactly what we’re talking about today on the “Investment Property Income” podcast. 

If you’re thinking about alternative financing, you need to listen to this episode. 

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This week we broke new ground on the “Investment Property Income” podcast. We did our first ever live Zoom recording. I’m happy to say, it went pretty well. We had a couple of guests drop in, and covered some pretty interesting stuff. Not the least of which…

...what makes a “bubble”?

Now I’m not saying 100% that we’re in a bubble, however there are a lot of signs that would traditionally indicate that a correction is coming. 

Things like the divergence of purchase prices and rent prices, bidding wars, and the exodus of people from major metropolitan areas. Each of these alone do not a bubble make, but when they start to stack on top of one another, it’s time to make sure you have a sound long term plan in place. 

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It’s no secret that rising interest rates, coupled with a real estate buying frenzy, are really starting to look like a bubble that’s gonna burst. 

So how do you avoid it?

Here’s the thing, the most important thing you can do is educate yourself. If you’re reading this email, congratulations, you’re already ahead of the crowd. 

Lots of people overextend themselves. They buy houses they can barely afford right now, and don’t really have a plan for the future when the interest rates return to a more “normal” level. 

Is it going to be “armageddon”? 

For some it will probably feel like it, but I believe that with a proper long term plan in place, and the right team around you, you just have to weather the storm. 

After all if you’ve got the right plan in place, what does it matter whether the home values drop, or mortgage rates rise? If you’re already expecting and planning for it, it should have very little impact on your long term goals. 

That’s what we’re talking about on today’s episode of the “Investment Property Income” podcast. 

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Today’s episode of the “Investment Property Income” podcast was a really interesting experience for me personally. If you’ve listened to a few of our podcasts, you know that Geoff and I have a good time and poke fun at each other along the way. It’s all good natured, and we try to keep the atmosphere light.

This time around though, Geoff really challenged me. Not in a bad way, but in a way that made me go back to the very basic, first time getting a mortgage, way of thinking. 

I’ve been in the industry a long time, and it’s easy to forget that a lot of folks have no idea where to start when it comes to mortgage financing. 

So today, we’ve gotten back to the very basics of mortgages, starting with the four cornerstones that every home buyer and investor needs to get started.

Credit, Income, Downpayment, & Property. 

We take a deep dive into each cornerstone, and really breakdown what each one is all about. For example, credit...it’s not just a number. We really pull it apart, and discuss what the number means, how credit is obtained, how it can be fixed, and some of the things to avoid…

…..especially when it comes to credit repair companies. 

I know you’ll get a lot out of this episode. 

www.guidetothegrind.com

Have you ever heard of the “the curse of knowledge”?

Simply put, it’s what happens when you become masterful at anything in your life. You’ve acquired so much knowledge that you don’t remember what it’s like for someone that’s just starting to learn. 

This is really common with entrepreneurs and business owners. They know so much about their business and tend to throw so much information at someone just starting out, that the person gets overwhelmed and can miss some pretty key things that could really help them.

Ever tried to explain a card game to someone for the first time? 

The concept is pretty simple to the people that already know the game. The new person however, looks confused as all heck. Then...even worse...everyone wants to tell them something they need to know right off the bat, and the new person ends up getting way too much information from everyone, and can even end up quitting before they ever start playing. 

Then somebody suggests that they just play along for a few hands, and they’ll catch on as they go. 

Before you know it, they pick up everything they need to know along the way and end up winning!

Beginner’s luck.

The real estate world is exactly the same. There’s so much information out there, from so many different sources, where do you even start?

My suggestion...at the beginning. 

Learn the key professionals in any real estate transaction. Then learn what they do, what makes them good, and what’s most beneficial to you. 

Today we take a bit of a step back, and try to shake off the curse of knowledge on the “Investment Property Income” podcast. We’re talking about the difference between the “Mortgage Specialists or Mortgage Advisors” at the bank, and “Mortgage Brokers”.

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It’s the day before St. Patty’s day, and to me that’s always the unofficial start of spring. As mentioned in my last email, that brings the spring market, and with the spring market comes another round real estate celebrities selling the next best course for investors. 

Now I’m not about to start bashing them. It’s just that my philosophy has always been, if you’re going to spend several thousand dollars on taking one of these courses, why not just invest that in your first property and learn by experience?

All that being said, this led us down a very different path on today’s podcast. Geoff and I began a conversation on the different ways that Investors, Realtors, and Mortgage Brokers all think. 

It’s not that any of them are wrong, or a bad way of thinking, but they’re all incomplete. That is, in order to become a truly savvy real estate professional, in any capacity, you have to acquire all three ways of thinking.

It takes the entrepreneurial spirit of the investor to take that first step and start acquiring knowledge, and then to actually buy their first property. 

A Realtor’s knowledge is indispensable when it comes to finding and obtaining the right property. 

Then of course none of it happens without the proper financing, and a Mortgage Broker that understands the way lenders think.

On this episode of the “Investment Property Income” podcast, we discuss these different mindsets, and how to avoid some of the pitfalls that can happen by sticking to one way of thinking. 

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I don’t know about you, but I meet the spring time change with mixed emotions. Yes it’s the end of winter, and the start of nice weather, but I also lose an hour. I am acutely aware of just how precious time is, even a single hour. 

Jim Rohn said it best with his quote, “You can get more money, but you cannot get more time.”

As the spring market rolls in with the nice weather, timing is everything for investors and homeowners alike when it comes to finding, and making the right deals happen. 

Having a mortgage broker on your team can either make, or break a deal. 

Back in 2017 there was  massive media coverage on the bidding wars that were taking place in Toronto. Homes were going for outrageous “over asking” amounts. Everyone was trying to buy at the same time. What the media didn’t cover though, is how many of those homes actually closed. 

You see, a lot of those homes weren’t appraised at the same value that people were buying them for. Those folks came up short on the financing and couldn’t make the deals happen. This resulted in lost deposits, angry sellers, and even lawsuits. 

However, the most important thing that it cost those people was time. 

Whether they lost a couple of months, or a couple of years, they lost time that their investments could have been growing. 

That’s why it’s so important to have the right team around you when you’re looking to buy and invest. I’m willing to bet that most of those folks that couldn’t close their transactions weren’t working with a good mortgage broker. 

So how do you know if your broker is good?

That’s the topic of today’s podcast. This episode of “Investment Property Income” is all about what to look for in a really good broker, and some of the red flags to avoid.

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A number of years ago I was sitting with a group of friends, and one of our other friend’s name came up. By this point in life he’d done very well for himself by investing in real estate early. 

As we were sitting there talking about how he’d become rich, and had a lifestyle that many will only dream of, I was surprised by the comments that followed next. 

We all agreed that we’d love to be rich and have that lifestyle, but then the most common objection I hear about real estate starting coming out…

“Yeah he’s done well for himself, but I don’t want to get phone calls at two in the morning to change lightbulbs and fix leaky toilets.”

Good grief!

If I had a dime for every time I’ve heard this. 

Could it happen?

Yes.

Is it common?

Absolutely not.

I’ve owned many properties, over many years, and not once have I ever gotten a call in the middle of the night to change a lightbulb, or fix a toilet. 

In fact, I had one tenant completely redo the bathroom for me, for free!

Two things tend to happen psychologically that keep people from taking the step into becoming a real estate investor. 

First, we lie to ourselves. We as humans have an incredible ability to tell ourselves something long enough that we start to believe it.

Ever heard someone say they’d love to win the lottery, and then turn around and say that all rich people are money grubbing scoundrels? 

The truth is, because they don’t have it, and they don’t know how to get it….other than winning the lottery, they convince themselves that money is bad, or that it changes people. 

The other thing that happens is the “fear of loss”. 

This is such an interesting behaviour. We’re more scared of what we could lose, than what we could gain. This fear makes people procrastinate for years, sometimes decades. 

As my partner Geoff always says, “I’d rather regret something I’ve done, than something I haven’t.”

I know what real estate investing has done for my life, and my financial future. Have I had challenges? Absolutely. The rewards have far outweighed the risks though. 

So how do I overcome this fear?

By understanding that every year my money isn’t invested and growing, I’m losing far more future money than present money. I look at the long term. Sure the money I have in my bank account today feels good. But it’s not going to feel good in a few years when inflation has devalued its buying power and I still can’t afford the lifestyle I want. 

Today we talk about some of my investing stories, and the things that keep most people out of the game far longer than they should, on the “Investment Property Income” podcast.

As the saying goes, “The best time to invest in real estate is ten years ago. The next best time is now.”

www.guidetothegrind.com