CMHC

More on the new CMHC Mortgage Rules for Real Estate

My friend Jeff Zabel with Mortgage Alliance Canada’s Mortgage Choice in Kitchener Waterloo just sent me some more info on CMHC’s new mortgage regulations for homeowners and property investors:

1)  All changes are effective April 19, 2010 with exception to change # 7 & 8

2)  Qualifying rate – For loans with fixed term of less than 5 years and for all Variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of:  the benchmark rate and the contract interest rate.  (The benchmark rate will be the average of the 5 major banks posted 5 year rate. This will be posted each Monday on a website to be announced later.

3)  Refinance loan to value maximum will be 90%

4)  Maximum loan to value for rental (non owner occupied) will be 80% LTV 1 to 4 units.

5)  Rental income qualification.  50% of the gross rental income from the subject property may be included into the borrower’s gross annual income for the purpose of calculating the borrower’s Total Debt Service Ratio.

6) Maximum numbers of Units under CMHC Second Home. Second home product only available for 1 unit owner occupied properties. 

7) Changes to CMHC Self Employed Product will be effective April 9.

• For purchase and portability the maximum LTV will be 90%. 
• For refinance the maximum LTV is 85%. 

Also qualification rules have changed for this product.  If a client has been self employed in the same business for more than 3 years, they are NOT eligible under the CMHC Self Employed Product without Traditional third party validation of income (qualified deal).  CMHC will continue to require that the borrower have a minimum of 2 years experience in the same field.  This can include time spent working as a non self employed worker in the same field.  Lenders are expected to obtain a copy of the business or GST license or Articles of Incorporation.  Therefore if a client is self employed over 3 years, then you cannot do a self employed product. It must be qualified.  If a client is self employed up to 3 years, you can do a self employed product.

8)  Commissioned income will no longer be eligible for the CMHC Self Employed Product without traditional third party validation of income.

Bottom Line

If you qualify under today’s standards for a loan for 1 or 2 investment properties (whether its a condo, townhouse, older home, student rental or apartment building) that you planned to rent out and hold as long term assets, come april 19, you may no longer qualify to purchase it. 

Let’s talk before then so you know all of your options.

PS – if we have an agreement of purchase and sale (a real estate contract) dated before april 19, and the mortgage is approved, the rental property can close after (they may set a timeframe, contact me for full details).  You don’t have to complete the purchase by april 19, just have the contract written and accepted.

If you’d like to talk to a mortgage broker to explore your options, I can recommend one who does a lot of work with real estate investors.

Leave me a comment below with any questions, and please contact me for more information at 519-772-4376 or via email at Benjamin@BenjaminBach.com.

CMHC

New Home Construction is up in Kitchener Waterloo

Canada’s Mortgage and Housing Corporation, CMHC, released their report on housing starts (the number of new homes starting construction) for the area containing Kitchener Waterloo, Cambridge, Woolwich and North Dumfries, Ontario.  Housing starts are up:

Construction began on 168 homes, up from the 103 units started in the same month last year. This was the fifth consecutive month with starts higher than a year ago.

Foundations were poured for 92 single-detached homes in February, up from the 45 units started in February 2009. Townhome starts decreased to 18 units, down from 37 units last February. There were 24 rental apartment units started in February, up from the 19 apartment starts a year ago.. All municipalities in the CMA, except Cambridge, recorded higher starts in February.

“New home sales outpaced starts through most of 2009 which will support starts activity in 2010,” said Edgard Navarrete, Market Analyst for the  Kitchener CMA. “A tight resale home market (see Market Update- Real Estate selling fast in Kitchener Waterloo and Tight Real Estate Market in Kitchener Waterloo) and low interest rates (see Interest rate updates from a mortgage broker) have encouraged home buyers to consider the new home market. Any increase in demand for new homes must be met by new construction, as new home inventories are low,” added Navarrete

Many of our clients have been investing in new construction homes recently; there are some good deals out there, and some of the builders are offering incentives to purchase. 

Here are some more detailed stats from CMHC

If you’re interested in more information, or to see what type of cash flow you can generate from a new investment property, contact me at Benjamin@BenjaminBach.com or call me at 519 772 4376

CMHC

CMHC Mortgage Regulations to Restrict Real Estate Investment

I’ve been hearing rumours recently that CMHC was changing their financing criteria for real estate investment properties.

Over the last couple of weeks,we’re heard about raising the minimum downpayment (New Mortgage Rules for Real Estate Investment in Canada) that an investor would need to put down on a rental property (that wasn’t owner-occupied, meaning the owner or a close relative was living there), and that rates will be heading up come July 2010 (Interest rate updates from a mortgage broker).

This week I’ve learnt that CMHC is also planning to, effective April 19, 2010, change things a whole lots more.

Rental Offsets

Currently when you buy a rental property, CMHC will allow you to use a 80% rental offset, which means that they used to take 80% of the gross rental income that the income property generated, and subtract that from the borrowers total debt, to establish the total debt service (TDS) ratio. 

What that means is that you don’t have to have the household income to cover 100% of the value of the rental property, like you do with a home you live in, because the bank will let you offset the debt using 80% of the revenue the rental produces (does that make sense?).

They’re changing this amount to 50%, which makes it much tougher for people to qualify for investment properties, but the real kicker is that…

CMHC is also changing how they evaluate the current debt and income on your existing rental portfolio – they are treating the rental income here the same as other non-salaried income too, meaning your current portfolio, while it generates cash flow every month, might hinder the growth of your portfolio going forward.

We also think that most lenders are going to adopt these standards, even for non high ratio loans that are not CMHC insured, just to be cautious.

Bottom Line

If you qualify under today’s standards for a loan for 1 or 2 townhouses, come april 19, you may not.  Let’s talk before then so you know all of your options.

PS – if we have an agreement of purchase and sale (a real estate contract) dated before april 19, and the mortgage is approved, the rental property can close after.  You don’t have to complete the purchase by april 19, just have the contract written.

Leave me a comment below with any questions, and please contact me for more information at 519-772-4376 or via email at Benjamin@BenjaminBach.com

CMHC

What Student Rental apartment buildings can you buy in Waterloo?

…and what return will you get on your money by investing in these student properties?

This is something I’ve been asked a lot recently, especially with the news that CMHC is now back in the student rental financing game.

In this video, we look at a 180 bedroom property that an investor is considering near both Universities in Waterloo. It is brand new, in a great location, and fully leased at favorable rates.

If you’re interested in buying, selling or developing a student rental property in Kitchener Waterloo, I’d love to talk to you.  Call me at 519-772-4376 or email me for a complimentary no-obligation investment consultation

PS – Make sure you’re following our updates here http://twitter.com/BenjaminBach

CMHC

CMHC *finally* returns to Student Housing Rentals in Waterloo

The day is upon us.  Many of our clients have been waiting for this since 2008, when the tap of money for student rental properties seemingly dried up. CMHC stopped insuring loans on this asset, and when CMHC gets out of the game, banks tighten up their available financing terms and start looking for much larger down payments, shorter amortizations, and higher fees.  Yuck

Well, CMHC (Canada’s Mortgage and Housing Corporation) announced a new program, creatively titled CMHC Multi Unit Student Housing.  Watch the video embedded below for details on what CMHC is looking for before loaning you money to buy, refinance, or develop a student property

Some notes:

This program is for refinance, take-out, construction& new purchase loans for purpose built student housing projects “located on campus of within walking distance” from the universities (WLU, Conestoga College & University of Waterloo if you’re investing in Kitchener Waterloo).  CMHC will insure up to 85% of their lending value, which depending on the asset, will probably be between 70% and 80% LTV of the purchase price.  There is the option for fixed interest rates or a floating rate with a ceiling. Second (or pari passu) mortgages are permitted on title (presumably with CMHC and lender in 1st positions permission).

Additionally, CMHC wants to see that the borrowers have a track record of running similar projects, and in the case of a construction or development loan, that the borrower has the personal net worth to sustain the debt payments (mortgage) for a full year, in the case that the property isn’t completed for September and sits vacant (not a pretty scenario, and rare with an experienced developer).

For construction loans, CMHC will advance up to 75% of the value or cost during construction, and increase the loan to an 85% LTV (of lending value) once the property is complete and the rental income stabilizes.

If you’re interested in how you can get into the student rental market, contact me at Benjamin@BenjaminBach.com or 519-772-4376. I’d love to sit down with you for a free, no-obligation consultation. 

PS – Make sure you’re following our updates here http://twitter.com/BenjaminBach

CMHC

2009 Kitchener Waterloo Investment Real Estate Market Update

2009 was an interesting year to be buying, selling, and brokering investment real estate.

The turbulence in the global credit markets put a halt on a lot of lending, especially mortgages for student housing.  When CMHC stopped insuring loans on ‘student housing,’ many lending institutions and banks stopped lending against those assets, since without CMHC insurance the loans were harder to sell on the secondary market. 

There were 148 Multi Family & Apartment sales on MLS or $94 million volume in 2009, which is down 21.7% from last year.

While volume was off more than 20% from 2008, the value of Multi Family sales was down just 2% this year, reflecting a number of larger sales.

Specifically, there were nine apartment buildings, student rental towers and townhouse complexes that closed for over $1,000,000 in ‘09 on the KW MLS, including a $28 million dollar tower on King Street in Waterloo that was purchased by investors represented by our firm, Keller Williams in Kitchener.

In addition to a lack of financing, another reason that sales were down last year was that buyer’s were looking for higher cap rates, while sellers still wanted top dollar.  In Canada very few owners of Multi Family properties are ‘distressed’ and need to sell like we sometimes see in the US; that means they have cash flow coming in, rental income from their tenants, and can often afford to wait for a buyer to recognize the value and reach an agreement on price and terms.

There were 398 Multi Family listings processed through the MLS in 09 down 22%

CMHC

Waterloo Vacancy Among Canada’s Lowest

Waterloo’s vacancy rate is among the lowest among Canada’s real estate rental markets, according to a recent Canada Mortgage and Housing Corporation (CMHC) report (which we covered here: Vacancy rate in Waterloo falls to 1%), “thanks to a crush of high-tech workers and university students looking for short-term housing.” (via The Record)

The one-per-cent vacancy rate in Waterloo also means that city has the highest average rents in the region, according to the fall 2009 rental market report complied by Canada Mortgage and Housing. The data looks at the Kitchener census area, including all of Waterloo Region except Wilmot and Wellesley townships.

For example, (average) two-bedroom units go for $937 a month in Waterloo, compared with $835 in Kitchener, $850 in Cambridge and $709 in Woolwich and North Dumfries townships.

Nationally, the highest average rent for a two-bedroom apartment was $1,169 in Calgary, where the vacancy rate was 5.3 per cent. Toronto was second at $1,099, with a 3.1 per cent vacancy rate. The lowest nationally was $518 in Saguenay, Que., with a vacancy rate of 1.5 per cent.

“It’s more than the availability; it’s the cost of it,” said Trudy Beaulne, executive director of Kitchener-Waterloo Social Planning council.

High-tech workers and student housing are king in the city of Waterloo, creating a challenge for low-income families looking for options to live there. They may have to move to Kitchener to find an affordable apartment, she said.

“It’s different housing stock, too. If you’ve got a pretty high income, you have more choice . . . it’s not like if you’re on Ontario Works (social assistance).”

…

“[High Tech Workers] typically move to the area, rent for a year or two before they buy… you have a market where if they were in another area, they just buy a house.”

Kitchener is more of a balanced rental market, but there’s an “upscale pocket” growing downtown around the new satellite university. “It kind of mirrors Waterloo.”

In Cambridge, tenants are eager to rent within a few minutes drive of Highway 401 [emphasis added], because it makes for an easy commute to work in Mississauga. Move away from the freeway and the rental market is soft, Traschel said.

A one-per-cent vacancy rate in Waterloo doesn’t surprise Mike Belanger, director of residential services for students attending Wilfrid Laurier University.

That’s the usual fall vacancy rate for apartments to serve the 50,000 post-secondary students in Waterloo. The vacancy rate jumps to about eight per cent in mid-winter as students take out-of-town work placements. In summer, when school’s out, the student vacancy rate bounces to 30 per cent.

In the early 1980s, Belanger remembers student housing vacancy rates as low at 0.5 per cent. That student housing crisis eased long ago — just look at all the student lodging built along Columbia Street — but Belanger wonders if another crunch is looming.

As Laurier and the University of Waterloo continue to expand to help fight the recession, bank financing for new student housing projects has “dried up,” Belanger said.

“There is some anxiety if the universities grow and the private accommodation does not.”

The note about being close to the 401 in Cambridge is spot on.  We just bought, along with a number of our clients, in a new construction Cambridge development just off the 401, on Fisher Mills Rd (which turns into Maple Grove which turns into Sportsworld Dr and connects up with the Kitchener Expressway), and we’re seeing very healthy rents there (between $1250 and $1399 a  month plus utilities)

If you have any questions about the current conditions in the rental market or how you can take advantage of investment opportunities in Kitchener Waterloo & Cambridge, Ontario you can email me or call me at 519-772-4376.  You can also follow me on http://twitter.com/BenjaminBach for up to the minute updates