“There is no time
like the present”
When it comes to investing in apartment buildings
(what I call Big Deals), that statement says it all.
Why do I think that there is no better time than NOW to get into Big Deals?
There are actually 3 really good reasons…
Reason #1 – Rental Shortage (Now + Future)
Our country is experiencing a serious rental shortage. Why is that?
Growing demand, low supply – CMHC states that 50,000 new tenants enter the rental market each year but there are only 15-20,000 new rental units being created
More renters – Decreasing % of home ownership from 68% to 63% being predicted
Affordability – with low interest rates more people can afford home ownership today but as interest rates increase so will the size of mortgage payments and many people will no longer be able to afford these homes
Rising housing costs – People’s income is not keeping pace with rising cost of housing
Aging population – As people age they may downsize for health reasons or to eliminate stairs, or to reduce their household expenses, etc. Many seniors need to sell their homes and use the equity (cash) to live on because their retirement savings are insufficient.
Reason #2 – Money is CHEAP!
In 2012 when the mortgage came up for renewal I was able to renew at 3.8%.
My most recent acquisition is a 53 unit complex which I purchased in August 2014 and our mortgage rate is 2.7% for a five year term.
Many people believe that commercial financing is expensive and the rates are always high. As you can see, the rates can be very attractive and on top of this you can purchase with as little as 15% down.
These low rates and low down payment are achieved if you use insured financing. Yes, there are some up-front fees with commercial properties but the low interest rates and excellent terms can easily make these fees worthwhile.
Money will NEVER be cheaper and if you wait until rates start to climb then you will end up paying the bank more money.
Reason #3 – Qualifying is easier
The challenge with this strategy is that it makes it very difficult to qualify for conventional mortgages.
Another challenge many people with good income experience is not being able to qualify for residential mortgages because they already own too many rental properties.
The reason why it is difficult to qualify for the residential mortgages is because it is the Borrower who must qualify and the property is only used as collateral.
You will also need to put more money down (20-25%) when you by an investment property with a residential mortgage.
When you enter the world of Big Deals, you use commercial financing which is very different from residential financing.
With commercial lenders they look at the property like a business…
- Does this business cash flow?
- Can this business afford the debt plus all of the other expenses necessary to run the business?
If the numbers are strong and the business is profitable then the Lender will lend money against the property secured by the property and guaranteed by you, the Investor.
You don’t need a good paying job but what you do need is excellent credit.
The Lender will look at you and determine if you are the type of person who pays their bills and then they will look at the property to make sure the property (business) can generate profit to pay the mortgage.
You can start with the “School of Hard Knocks”, trying to do it on your own and repeating many of the same mistakes I made early on.
One benefit of doing it this way is it won’t cost anything upfront but the mistakes you make could result in costing you tens of thousands of dollars (or more).
It can also take you many more years to achieve the level of success you’re aiming for.
My recommendation? Education!
In my opinion you can never go wrong with education. My wife and I invested over $80,000 to become educated and this education allowed us to fast track our goals, reduce our risk and reduce the FEAR.
In fact, that investment in our education has been the absolute best investment Joanne and I have ever made. It has allowed us to build a portfolio of real estate worth more than $8,000,000 in less than 8 years.
I’m not suggesting that you need to invest $80,000 to get started, but what I am suggesting is that you need to invest in some education that focuses on investing in Big Deals.
The cost is insignificant compared to the money you’ll save avoiding common mistakes, and the time you’ll save learning lessons the hard way.