All Forum Posts by: Roy N.

A "vendor carry" can be beneficial to both parties:

To the Buyer:

Having a vendor carry a portion of the financing (say 10-15%) may enable you to make a slightly smaller down payment (i.e. 15-20% versus 25-30%+) on a commercial property.  It may also assist the building in qualifying for a CMHC program if that is an objective of yours.

If the vendor has a proven track record operating the property, a vendor carry may give the primary lender a greater sense of security.

 To the Vendor:

Carrying a portion of the financing (over a period of 3 - 5 years) can be used by the Vendor as a means to defer capital gains on the sale of the property;

Being a lender for a portion - or even all - of the property financing can be used by the Vendor as a means to earn additional income from a property s/he no longer wishes to operate;

Offering to carry a portion of the financing can help sell a property that is otherwise a little difficult to move in the market.

A vendor carry works just alike any other financing on a property.   If the vendor is carrying the entire financing, the purchaser would offer a mortgage on the property and the vendor would register it against the title of the property in first position (i.e. as the primary lender).  

If the vendor is carrying a smaller portion of the financing - say 10%, enabling the purchaser to make a downpayment of 15% rather than 25% - then the purchaser would offer a second mortgage to secure this financing and it would be registered on title junior to the financing of the primary lender (i.e. in second position).

@Daniel Lozowy

The mechanics of Closing a real estate transaction will be the same regardless of whether the property was listed with a real estate agent or the transaction private.

There will be steps prior to Close that will differ:  

• In a private transaction you will need to provide (or have your counsel provide) and Agreement of Purchase and Sale; 
• There will not be a real estate agent to hand-hold you through the steps (negotiating, diligence, etc).  IMHO most residential real estate agents are of little help in these matters.  If you are purchasing commercial property, then an experienced commercial agent/broker typically will be of value to you.
• The transaction will not be covered by a real estate agents insurance.  Once again, in IMHO, this is of little value but does underscore the importance of thorough diligence on your part.

Where you have indicated you are dealing with a 6-12 unit building, the transaction and financing will be viewed as commercial - if the building is 6-units, then some lenders (i.e RBC) may underwrite it as residential.  It is worth doing your homework in this area before you get the clock ticking on your diligence window after an offer has been made.   Commercial financing has more up-front costs to the borrower and you will generally require a larger downpayment ... however, in a private transaction you stand a chance of persuading the Vendor to carry a portion (10% or more) of the financing (as a second position) which can make the primary lender more comfortable with the deal.

I would suggest you find an experienced local investor to either advise or join you on this deal to ensure you do not miss anything during diligence.

Once you get to the Close, the two attorney's (yours and the Vendor's) will handle the transaction.

@Jaime Le Francois

You are not going to find the same nature of lists in Canada.   Mortgage delinquency and default rates in Canada are historically much lower than in the U.S.A. (<1%).  In addition, privacy laws prohibit trade in such information without the explicit consent of the individuals who would be on the lists.

You can refer to the Royal Gazette in your province, along with local newspaper listings for mortgage sale/foreclosures and tax sale properties.

Talk to TD and see if they might like to finance the property they are selling and, perhaps, your house as well.

Devon:

Welcome to BP.  It's been a while since I've been to your quaint little town, but have always enjoyed my time there.

Has the bank actually taken possession of that house, or is it a mortgage sale?   Typically a house in that condition (uninhabitable) cannot be financed, however there's a chance the bank from which you are purchasing the house may be persuaded to finance it.   I bought a bank-owned house in a similar mess (sewer backup) several years ago and was able to persuade the bank selling the house (CIBC) to finance it.

If you can wrangle financing (from the Vendor or elsewhere), then you would need only put-up $7,700 to purchase the house.  You may still want access to the equity in your current home to finance the renovation of the new house.   Once renovations are complete, you should be able to refinance the new house and settle your LoC.

@Colton Potter

Was this a cash purchase, or is the house presently financed?   If the LoC/financing through the lender from whom the house was purchased?

There is no statutory period you must wait after purchase before (re)financing the property.  Individual lenders will have guidelines on how soon they will refinance a property that was financed at the time of purchase.

In situations like yours, we typically wait until all the make-ready renovations are completed before (re)financing the property.  However, occasionally there is sufficient baked-in equity in an acquisition that we have refinance sooner (as short as 30-days).

If the home is inhabitable, it should make no difference to the appraisal whether there is presently a tenant or not ... sometimes it is easier for an appraiser when the property is empty.    Conversely, it may make a difference to your refinancing of the property.  Banks love to see annual leases - and include an assignment of rents covenant in their financing agreement.

 But do so with your eyes wide open and with the understanding that RIEN wants to sell you things.

Shawn:

If you are renting by the room, lenders will be disposed to see it as a rooming house (whether it is zoned as such or not) - particularly if the appraiser finds distinct evidence (i.e. locks on all bedrooms). 

Is the property a single house or is it segregated into two separate units (or easily segregated).

@Dawn Brenengen

Canadian currency is in dollars as well ... just CAD vs USD ;-)

@Richard Poitras

The tools and resources on BP at U.S.A. centric.  That said, you could use some of the on-line calculators to provide a rough idea on a property, suitable for triage purposes.  However financing, regulation and taxation are sufficiently different that the present tools cannot provide you an accurate modelling of Canadian properties.

I'm wondering how far east of TO one gets in 30 minutes these days ... Bowmanville, Port Hope ... or are they considered to be part of "Toronto" now?

In New Brunswick, Fredericton is the most expensive city at the moment ... both vacancies and inventory are low; making prices high.  You can still find acceptable deals depending upon your intended use of the property and how unloved of a property you are willing to purchase ... but they are further and further apart.  Fredericton is a University and government City with a small, but vibrant technology sector; making for a relatively stable local economy.

Saint John has many available properties which look like deals to those unfamiliar with the City.   Some of them are good deals (despite a strong increase in prices in the past couple of years), but there are many which are simply cheap.  Boots on the ground with a good knowledge of the City is essential.   Saint John has the most cyclical local economy of the three cities.

Moncton has a little bit of everything: established insurance companies; retail supply hubs; universté, vibrant biotech and IT sectors, some government, etc.  IMHO of the three cities, it has the best long-term prospects.   Moncton is a bit more sprawling than Saint John or Fredericton and you will want to spend time getting to know the various neighbourhoods before you start shopping.