How to purchase your next property?

Question

Hello everyone

I currently own 4 rental properties and I’m at a bit of a stand still. I’ve used my LOC and need the traditional 20% down to purchase in Ontario Canada. I’m curious about alternative/creative strategies to purchase my next property. The first thing that comes to mind is a brrrr. However I’m wondering if I should refinance a property or two to get lower the LOC. I’ve purchased 4 all in 2019.

Any insight to progressing to the next step would be great. Thanks.

Greg

Roy N. · Answer

@Greg Gangle

Section 85 in the Canadian Tax code is a rollover which will allow you to transfer a property held in your own name into a company, which is owned by you, without an immediate taxable event.  Section 1031 in the U.S.A. is considerably different and allows you to exchange (upgrade) assets.

I would also disagree that having four residential mortgages in your own name precludes you from seeking additional ones from conventional lenders.  I have held as many as eight before (with the big banks) - all negotiated directly.   Once you get beyond 5, some lenders will take a pass (which lenders varies from time to time according to the needs of their portfolios and their appetite for risk).  It also becomes more difficult with each subsequent mortgage.   History aside, I would expect lenders to be rather risk adverse and more than hesitant to lend to folks who are substantially leveraged in the present environment.

Nick Rutkowski · Answer

@Greg Gangle

Have you thought about going bigger and 1031 exchanging your properties for an apartment complex? That could free up some equity, defer your taxes and help grow your portfolio.

Huong Luu · Answer

As @Hai Loc mentioned 1031 doesn't exist in Canada. The closest thing we have here is Section 85. Talk to your accountant this. However, I don't think that will help you in this case.

Since you are at 4 properties, you will not be able to go through the normal channels for a mortgage. You can consider a private 2nd on those properties with space to get to 85% LTV. Run your numbers though to ensure you can pay the interest and fees associated with privates.

Another option if your networth is high enough, some banks (like CIBC, National, etc) have a "back" lending platform.

I will bring your question up with the Cross Canada Panel on Tuesday and see if there is any more ideas.

Greg Gangle · Answer

@Logan Freeman thanks for the great info Logan. I’m not even sure what website I’m Canada shows foreclosures. The brrrr strategy seems to work best but is difficult at times in Ontario.

Logan Freeman · Answer

@Greg Gangle

Several financing strategies you might consider are:

>seller financing: especially in this current economic downturn, as many distressed property owners are finding themselves unable to maintain their properties or payments. You can use a tool like driving for dollars to identify your ideal properties and reach out to the owners. Try to find sellers with no mortgage

>hard and private money lenders ... OPM (Other people's money). You can look to network with these types of lenders on BP as well. a good article explaining the function and utilities of each is: https://www.biggerpockets.com/blog/hard-money-private-money-difference

>Search for foreclosures on the BP site under the "find deals" tab. Just a few of the many approaches you can take to finance that next property. Good luck!

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Hai Loc · Answer

1031 is not applicable in Canada

Its pretty much upgrading your assets not having to pay capital gains..

Nick Rutkowski · Answer

@Greg Gangle

To go into details about taxes in Canada you’d might want to ask your CPA. But essentially you can exchange “like properties” and defer your taxes on the transaction. There is a time limit when you can exchange properties and you’ll need an intermediary. This is only with commercial real estate. What I’m unsure of in Canada is if they count 5 separate houses commercial or residential. I’m also assuming you have 5 units, if you don’t then this strategy won’t work for your situation.

Greg Gangle · Answer

@Nick Rutkowski hi Nick. Thanks for the reply. Could you go into a little more detail? 1031 exchanging, I’m not sure what that means. I’d like to get bigger. I’m in Ontario so I’m not sure if that means something different. Thanks.

Greg Gangle · Answer

@Theresa Harris You’re absolutely right. The market has gone up but I havent done anything to significantly increase the value.

Theresa Harris · Answer

As you just bought the properties, I doubt there is much equity in them to allow you to refinance and pull the money out.  Did you do anything to them that would increase their value?

How to purchase your next property?

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