Commercial real estate in Montreal

Good afternoon Quebec mortgage and real estate world. This week, I had an informal chat over coffee with Ron Wiebe from Ron Wiebe Realities. Ron's real estate agency specializes in commercial real estate and commercial leasing. As many of you know, commercial is an area that I am always interested in. Often, I feel I juggle residential and commercial real estate as many of clients own both types of property.

Ron and I launched into our chat by talking about new and seasoned commercial properties owners. I am always interested in servicing both types of clients especially folks that have a decent portfolio of residential properties and are looking to dive into commercial or their business needs them to expand to a commercial property. Ron shared with me that most people starting out a new business will typically lease some space before buying. Once the business becomes stabilized then you may be interested in finding a mortgage with similar payments as your lease. Ron says that "your first commercial building is the trick." He suggests that you plan 6-12 months in advance of buying. The most common mistakes is that people undervalue property and most do not realize that you may need 25-40% down payment on a commercial building. The type of building and revenue versus expenses will typically dictate amount of down payment required. Each bank and lender is slightly different.

Ron's main theme to keep in mind whether new or a veteran to commercial real estate is to "be pragmatic" and listen to your commercial real estate broker. If you trust your broker then listen to their advice and you may need to adjust your expectations. I agree with Ron that times change, meaning property values change as do lending rules. What you paid for years ago by square footage has changed. It is most likely inevitable. Having said that, Ron suggests that commercial market value will always be there. If permitting you should will always be looking to invest or operate your company somewhere you can call your own.

For more questions or comments about commercial financing feel free to contact me. Also, if you think of someone that might need my services please help make that introduction and let's start that conversation.

Harder to get a mortgage in 2015?

I wanted to wish everyone a happy 2015. I've been a bad boy as I need to get more consistent again with this blog. I must give credit to one client in particular that called me last week and mentioned that he reads my blog often. I was very touched by that comment. So this blog entry is dedicated to him. Thanks for the kick in the butt.

Okay now for the crux of this blog, is it harder to qualify for a mortgage in 2015? I am not trying to be evasive but I would say it depends:

1. If you are looking for a residential mortgage : it is not harder to qualify for a mortgage as the rules are generally the same. I would say that banks and virtual lenders are clamping down on poor credit and forcing self employed people to declare more money. The Federal Government is still closely monitoring the banks in this respect. We still have some wiggle room but this trend is forcing the  average consumer to "play more by the rules." I refer to this as common sense mortgage financing.

I find usually where the wheel fall off the wagon is due to personal issues such as divorce, illness, a death etc. I am optimistic for 2015. My two cents is stay proactive with your properties, credit, taxes, investments. Also, if a problem arises then deal with it immediately through a mortgage broker. Often times proper problem diagnosis, planning and execution is what is necessary. You need a power team consisting of the right: mortgage broker, financial planner, insurance broker, real estate broker, and accountant.

2. If you are looking for a commercial mortgage: I would say that commercial financing is more intricate. Each building is different and more and more banks are particular as to the type of properties they would like in their financing portfolio. Not everyone has a AAAA tenant from a large known franchise or brand. My two cents is just be sure you are approaching the right lender with your property or speak to a mortgage broker with commercial experience.

Also, often what slows financing or kills the deal with a lender is bad mortgage planning. Know your properties and know what your accountant enters into your T1 Generals. I worked on one commercial refinance where there were major dicrepencies on the rent roll and expenses. I try to pinpoint those issues before submitting to a lender but that is not always possible. For commercial mortgages, I am also very optimistic for 2015. I would say I have more commercial banks and lenders to work with than residential and these banks are hungry for business.

Commercial and multi-unit lending

Alright, now we start to venture into the world ofcommercial and multi-unit lending. Most banks don’t have the staff tospecialize in each hence often times they combine both types of lending even ifthey are completely different mortgage creatures. Simply put, commerciallending refers to a property whereby 100% or the majority of revenues, i.e.rents, derived are commercial tenants such a storefront, restaurant, and/oroffices. On the other hand, multi-unit typically refers to properties that are100% residential and consist of 5 doors and up. Some mixed residential-commercial properties are still consideredresidential multi-unit but depends on the bank. When in doubt ask, as amulti-unit residential rate is lower versus a commercial mortgage.  

If you are looking to acquire your first multi-unit propertythen there are a couple points to keep in mind. First, banks typically areinterested to see that the property can financially support itself from day onehence they will finance up to a certain portion and you as the buyer will beresponsible for the rest. For example, a multi-unit property by law requires aminimum of 15% down payment but if the bank or Canadian Mortgage and Housing Corporation (CMHC) feels the propertyis over-priced then you may be required to put additional down payment.  In a recent purchase, my client was asked toput an additional 10% down on the property he eagerly wanted. In his case, hehad the extra down payment as we anticipated it.

Second, when purchasing a multi-unit or even commercialproperty for that matter such financing can take more time to receive financingthan a residential home. It’s a good idea to request at least 30 days forfinancing. Keep in mind that the bank needs time to review your information,review information about the subject property, you will need time for your owninspection, as well as the CMHC (in most cases) will need to perform theirevaluation. 

Finally, if your thinking of refinancing your commercial ormulti-unit property now is a great time as the banks are hungry for business. 

If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.