New member from Ontario Canada, Best Financing Solutions

[Natalie Treasure]

Hi Bigger Pockets Family,

I have a quick question......

As a newbie to investing (haven't started yet).  What would you say are the best financing options to consider when entering the market to flip?  Canadian market in particular.  I am also open to buy and hold as well.  What financing options would best for buy and hold?  I am overwhelmed when I hear about hard money, credit unions, traditional mortgages etc.  I have about $20k deposit but obviously need the rest.  Help.......

[Roy N.]

Originally posted by @Natalie Treasure:

@Roy N. Hi Roy, what does second property 1st mortgage (in first position) mean?

 Natalie:

When you seek financing on a property, the lender writes a note (makes a loan).  You in-turn, pledge the property as collateral - this is the mortgage.   The lender will register the note/mortgage against the title of the property.  If this is your only lender, they will be the first to register a lien on the title and are first to get paid if the property is sold.  This is referred to as being in first position.   

Continuing my simple example, suppose three years down the road, you have paid down a fair amount of principal of this first note and have made improvements to the property such that it now appraised for much more than when you acquired it.    You would like to tap this additional equity to purchase another property, but the penalty to break your present financing is too dear.  You might then approach a different lender (conventional or private) to borrow money.   As collateral, you pledge the additional equity in your improved property - another mortgage.   This lender will register their note/mortgage on title as a lien against the property, but their claim is junior to the existing financing.  If the property were sold, this lender would be second in line to get paid.  Consequently, they are referred to as being in second position.

A greatly simplified example, but hopefully it illustrates the concept.