There can be a lot of moving parts in investment deals. Recently I had clients purchasing a new primary residence while converting their current home to a rental with a legal suite and upper unit. The lower unit on the current home was rented below market value. Tenants had been there for almost a year with the lease about to expire paying $1300 a month. So we did a market rents appraisal to show the greater value and this put the property into a cash positive position vs a liability. The appraisal showed the unit was able to rent for $1600 a month and the upper unit for $2800 making the total home rentable for $4400 a month. Helping them to qualify for the new primary residence with ease, while keeping their current residence and converting it to a rental property.
When it comes to investment property financing, the lender is concerned about debt servicing, credit score, down payment source and risk. Whereas clients are more concerned about rate and cash-flow. As a broker, I need to find the balance between ensuring the client is a good fit for the lender, and the client making choices that fit with their goals and creating a financial life by design rather than by accident. Recently to bring these pieces together, we needed to refinance the client's vehicle and RV to gain access to additional capital for the down payment, which also actually lowered the monthly payments, helping with debt servicing. Since the property being purchased was a 4 plex that needed some improvements, we then had to balance the conventional and insurable lending options to see the impact on debt servicing and include $85K of improvements into the mortgage. The rental offset used by most lenders differs between conventional and insurable mortgages, and the rates are also quite different, along with the allowed amortization. To make this work for the client and stay in the realm of A lending we did the following: 1. Refinance the vehicle and RV to access capital for down payment and lower the payments (sometimes we just need to lower the payments and not access capital) 2. The client wanted purchase plus improvements so the $95K of improvements increased the purchase price used by the lender which is why we needed more down payment 3. The A lender conventional mortgage options would not allow the amount of improvements needed 4. The higher mortgage amount, higher rental property conventional interest rates also impacted debt servicing along with lower rental offsets on conventional mortgages we could not use an A lender conventional mortgage 5. We changed to an insurable mortgage which still has the 20% down payment, however, lower rates. Eventhough the insurable mortgage has a maximum 25 year AM and a mortgage insurance premium the lower rate and higher rental offset made the difference in keeping the client with A lending along with the vehcile/RV debt restructure.