Cash Flow
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What you need to know about Cash Flow
This is where you own outright or as a part of a joint venture agreement, actual real estate that provides income and, after expenses, generates monthly positive cash flow. You are on title, qualify for the mortgage financing and act as the landlord. The goal is to have a monthly income while increasing the equity in the property. Specific acquisition strategies might include:
Rental Properties – Single Family to Four-Plexes
Commercial
Industrial
Rent to Own
Multi-Family Buildings
For more details on each of these specific
strategies and how Claire can help, contact us.
The Risks?
As with any investment strategy, there is risk and it is possible to lose money in real estate, albeit reasonably low. Real estate has shown to appreciate steadily over the long term and has done so steadily for the past 25 years. This trend lowers your risk of losing money on a purchase.
However, doing your due diligence before an actual purchase is key. There are certain factors you must take into account when choosing a property, including the desirability of location and stability of the market in that area, as well as many others.
Creating a win-win and minimizing risk between all parties is necessary for success. This includes yourself, the lender, the seller and of course the potential tenants.
My expertise is available to advise you to help alleviate these risks and ensure your real estate portfolio is meeting your desired goals. – Claire Drage
The lender’s focus, whether it is a major bank or joint venture partner, is going to be assessing the overall risk of lending you their funds.
There are a number of risks that are taken into account with every deal as you can see in this chart. The terms of the loan will depend on the overall perceived risk from the lender’s standpoint.
The Rewards
Diversification is fundamental to any investment portfolio whether you are interested in mutual funds, TFSA’s, stocks, bonds, RESP’s or RRSP’s. Diversifying helps balance risk and provides a level of confidence that your investments are still going to be there when you are ready to liquidate them. At this point, have you considered acquiring additional real estate to your portfolio to create further diversification?
Purchasing real estate has a unique opportunity to use a relatively small amount of capital (your down payment) to create an attractive Return on Investment (ROI). This return is generated from a combination of:
Monthly income known as Cash Flow
The monthly income generated by taking the rent collected from tenants and deducting all expenses, including financing costs. To ensure that there is positive cash flow, it is important to align your financing to ensure positive cash flow exists. This might refer to a longer amortization, as much as 35 to 40 years in some cases to reduce the monthly mortgage payments, but in turn increase the cash flow.
Property value increase known as Capital Appreciation
The equity that is built in the property by way of appreciation of value over time as well as with each mortgage payment pay down.
It is important to understand, with each acquisition in your portfolio, what your primary goal is, cash flow, capital appreciation, or both!
As your financing expert, your Windrose Group Mortgage Professional ensures your financing options align with this primary goal.
Our current marketplace has a high demand for real estate investors due to an abundance of potential tenants in many areas. Mortgage interest rates are still low, which means it’s a great time for potential investors to take the plunge. Here’s another way to look at it, real estate investing is a great option for those who struggle with saving money, as it can act as a forced savings account. As you pay down the principal on a mortgage, you’re reducing debt and building equity. When deciding to sell the property, the money you receive back from the sale is considered your “forced savings”.
Ready to learn more? Contact The Windrose Group team today.
Lender Financing Options
Residential financing refers to the purchase of regular residential homes with no commercial component from a single-family home, to duplexes, triplexes and four plexes. In some circumstances a five and six plex can be financed using residential guidelines but there are only a few lenders that do that, so we tend to place them under commercial guidelines as detailed below.
You might be purchasing these types of properties with the following investment strategies in mind:
Buy, Rent and Hold Single Family Properties up to a four to six-flex
Sandwich Lease Options with Investors
Buy, Renovate, Flip
Buy for Rent to Own (short term hold)
Buy, Renovate, Refinance and Hold
Wholesale and/or Assign Deals
Joint Venture Partners
Almost all lenders, with the exception of a private, joint venture or hard money lenders, review two key areas:
First you the borrower: Is there sufficient income to pay your own existing financial obligations (mortgage, credit card balances, car payments etc.) good credit and income to qualify. Is it a corporation or personal? Do you have liquid assets and net worth?
Second, Rental Property: Does the property have positive cash flow? (Rental income less mortgage, taxes and expenses result in excess cash).
Is the property marketable? The lenders are always thinking about what will happen when you default, and they are left holding and/or selling the property. Most lenders do NOT want to own property, they are in the business of loaning money, not property acquisition or management.
Above is an illustration, in order of preference of the financing options available for residential properties. Every financing option above will have a different focus on underwriting your file and deciding to provide you with the funds that you require.
They are also going to have different options such as rate, fees, terms, flexibility on documentation, size of portfolio etc. Our goal is to strategically select the right lender in order of acquisition that aligns with your portfolio growth plans. We will now walk through each lender and your ability to qualify with each.
Strategic Lender Placement
Knowing which type of financing you qualify for now and in what order, before you are under contract with a property is key. We work to develop a strategy that allows you to maximize all types of lenders.
Ready to get started with Investing in Real Estate?
The Windrose Group team can help!
Contact The Windrose Group
Have a question? Interesting in learning more about rates and opportunities?
Phone
(289) 800 - 9620