Where To Find The Money To Get Real Estate Deals Done

Welcome to the Canadian Real Estate Investor, where host Daniel Fosh and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Hey everyone, it's Nick. Before we get into another great episode of the podcast, I just want to remind everyone we have our unpacking multiplexes event coming up in Edmonton on June 11th where we're going to be discussing financing, design, planning and construction. We've already got an amazing list of speakers and expecting another room full of amazing people. Tickets are in the show and I was getting them before the gum will see you there. All right, there's a question that I've heard more times than any other one in Canadian Real Estate Investing Dan. This is DMs, this is in person at our events. It's not what market I should buy in, it's not what kind of property, it's not wins the right time, even the question that I get and I'm sure you get the most is where do I find the money to invest in real estate? And here's what's interesting. When you actually sit down and map out every way capital flows into Canadian Real Estate deals, the answer to where's the money turns out to be everywhere. It's your existing equity. It's in private lending pools. It's in your network. It's the bank of mom and dad. With sellers who'd rather become your lender, it's inside registered accounts pooled in crowd funding platforms. It's available through government programs. Most investors have never heard of. It can be structured out of deals that look undueable from one angle and perfectly doable from another angle. Yeah, I love that. So guess what today we're drawn at a map for everybody. 14 distinct capital sources with honest pros and cons of every single one of them because not any one of them is perfect, but they can be perfect for different situations. So it's important to understand and how to stack them. And some of these tools are incredible in the right situation and genuinely damaging if used in the wrong situation. So our job is to make sure that all the options by the end of this episode, so you can make the right call for your next deal. This is kind of like a reference episode. Bookmark doesn't come back to it the next time you are looking to make a purchase or potentially a refi or if you want to even lend money out or something like that. So Dan, start me off with the first one. Tell me about what we're really going to be talking about the kind of what this whole structure is really called. Yeah, I think we've used this term before. I think we've defined it a few times in the in like our what do we call those like glossary episodes or whatever, which are like just terms that you need to know, right? Like totally. But before any individual source capital source makes sense and like you'll hear sources and uses a lot in real estate deals, just accounting terms and sources like where are you getting the capital from uses what are you spending it on? That's like, it's that simple. But before any source makes sense, you need this mental model called the capital stack. And this is how very serious real estate developer investor, you know, people think about deal financing and it will make everything else in the episode that we're doing today. Click. Okay. So the capital stack is basically just in a way of visualizing the money in a deal. Okay. Order it by who gets paid first if something goes wrong. And at the very bottom, the foundation is the first mortgage. That is the most secure position. That's the first claim on the property if it were to default, right? Worc case scenario because of that security, the first mortgage charge is usually the least. This is your cheapest capital. And above the first mortgage, you might have a second mortgage, right? This is what you'll hear about like private lending or a vendor take back or mezz debt, mezzanine, which is by the way, I think we've always made the joke that like real estate professionals like real estate industry like has to define things in real estate to real estate specifically. Mezzanine is like a part of a building. So, you know, debts in second position, typically less secure, typically a higher cost as a result. They are taking out the lender, taking them on risk. They expect a better return. Above that, you would have your equity layer. There's no guaranteed return, no guaranteed repayment, but maximum upside. Equity would absorb losses first and then capture appreciation last. Okay, so every deal is basically a question of how you are going to layer that stack. Now, some deals are super simple, right? Then they literally just have a first mortgage. Sometimes when you get bigger and better as a real estate investor, you've got portfolio. You're doing some construction development. This is where you start to actually see that stack appear. So look, you're not limited to the bank for your mortgage. You're not limited to your own savings for your equity. The stack can be filled from many different angles and places and people and entities, which is exactly what this episode is all about. So now that you kind of have the framework, let's move on to the first one. Talk to me about the conventional mortgage, the A-lenders, the B-lenders, the credit unions. So yeah, that's like the lowest partner capital stack. It's like the foundation for most Canadian investors to use another real estate term. I see. Thank you for making it something I can understand. So conventional financing, basically A-lenders, like your big banks, B-lenders, like home trust and equitable bank, and then credit unions. These are the cheapest and most accessible capital for people who qualify. So let's start with what's actually changed recently because there have been some meaningful shifts in the way that these mortgages work. Yeah, look back in 2024, the federal government expanded their insured mortgage rules. Most time buyers can now get 30 year amortizations on insured debt up from the previous 25-year limit. And the insured mortgage cap was actually raised to $2 million up from one million, critically properties with up to four units now qualified for this. We'll talk about five units and more later on in the episode. But a first time home buyer now can purchase a fourplex with very little money down and a longer amortized mortgage than they could before. It's a significant policy change that has genuinely opened the door for people that want to do. What I still think is one of the better ways to get into real estate then, the kind of the house hacking investment strategy. And this stress test is still very much in play under OSFee's B-20 guideline, which still exists. We thought it was going to go away. I was wrong on that call. I apologize. You qualify the higher of your contract rate plus 2%, or 5.25%. That's designed to ensure that you would survive a rate increase. And that probably was very helpful in not getting our economy crushed in the last a little bit when rates did increase. But it does create a qualification ceiling that active investors hit fairly quickly. Yeah. So look, also we also added back in 2025 with the loan to income cap limiting the share of new uninsured mortgages at federally regulated lenders that can exceed 4.5 times the borrower's annual income. Even high earners now have a bit more of a ceiling on how much their portfolio debt with an A lender can can service. And that's where the B lender and the credit union channel become important really fast in the capital stack. Yeah. We really like credit unions, by the way. We have worked with a lot of them, Vancey Disponsor or Vancouver multiplex event. We have some involved in our Edmonton Toronto and Montreal upcoming multiplex events. Make sure you check the link in the show notes or just real estate.ca/events if you want to attend any of those. And on the credit union side, I mean, this is a lot of things that we can do. This is genuinely underused and it's interesting like they actually have the lowest delinquency rates of lenders. Credit unions are provincially regulated and most provinces are not subject to Osfie's stress test. They hold mortgages on their own balance sheet giving them more flexibility on self-appoint income, rental property portfolios and non-standard situations. Their relationship based borrower can they know can get, you know, they have trust, local trust, they have local underwriting like we've worked with a lot in like a cross Ontario and they know like Northern or like some of the more rural markets where I mean, look, you get like a big bank, I won't name any of them, but like they way they underwrite these deals is just like silly, right? They're using desktop appraisals and then they're like, wow, we don't think the value is on. But then you get a credit union, they know a local realtor or local appraiser, they send them over, they get the value bang on and they're confident in the value of the deal. They know the liquidity and they know how the market works. If you find a mortgage broker or one of these credit unions directly, but mortgage brokers with established credit union relationships, you know, do that before you assume that you need to go to a private loan, right? So totally. I think the coolest thing about the credit unions is like, like, like, showed them a business plan, you know, they they they respond really well that kind of stuff. They have a bit more of that like, know your client, that KYC type of attitude then, then again, I'm one of, you know, some of the larger, much larger institution. Dan, talk to me about some of the pros using, you know, the conventional A, B and and we'll call them C, right? Credit unions A. Yeah. Well, I think you're seeing it be your private, but yeah. Yeah, but I just mean, you know, I don't know. All day. A, all day. Yeah. And then B. Like usually you're going to use an A, you're going to get the lowest interest rates available, especially at A Lenders. You get typically long amortization periods. You know, you not not long, but like you can get access to some of the 30 year programs. I think is it 40 year on CMH? She's standard now. Is that what it is? You can get it. Yeah. Yeah. So 40 on CMH, she standard 50 on CMH, the MLS, I select. I think the 40 on CMH, she standards actually having a pretty solid impact that like people aren't, aren't realizing like, you know, now you can do acquisition deals with almost as good of a M as you were getting on M, on MLI before. So we'll cover this a little bit later in the episode. These long amms obviously reduce your monthly carrying costs. You pay a ton more interest over the life of the mortgage. So it's really just a debt play, but it exists. The 24 rules for some buyers can now get a 30 year M, two million shared limit or one, say 1.5, and shared limit, and 5% down on properties up to four units. That's the, was the stuff that was proposed in the multiplex financing thing. What we found was nobody was using that. I started to hear a couple of Lenders doing deals, but you're talking like dozens of deals across the country, not like hundreds or thousands, like you're seeing with MLA, but we're As of the time of recording this episode, and I don't know if this is more of an evergreen episode, so I don't know when it's gonna get released, but the government is in their review period for that proposal to actually bring MLI into the three and four unit category for non-owner occupied. So I'm interested to see how that plays out. But some of these rule changes could lend more favorably to situations like this. Then you get your credit unions again, more relationship-based, more portfolio flexibility, and then your B-lenders, I would say, more flexible on self-employed income. I think that that's one of the big ones. Yeah, more flexible on credit profile and investment property income treatment as well. What are the cons? - Yeah, look, I mean, they're not horrible, obviously, but they don't work for everybody, right? These lenders don't work for everybody. The stress test obviously puts a bit of a qualification ceiling 'cause you're adding points to whatever you're purchasing, but you should be doing that anyways. The A-lender limits portfolio growth. You're usually not gonna get more than in a lot of cases for properties with, I have seen some exceptions, but in most cases, you'll get cut off after a couple of properties through these and limits the high ratio or high income investors. If you're self-employed or something like that, it's harder to prove, buying through a corporation can be a bit more difficult. Slower-ish to close in some cases, right? Like you're at the mercy of the banks under writing department. So it could be anywhere from two to four to six weeks, which can in some cases kill the competitiveness of a deal. And then of course, this is a big one. The property's gotta meet conventional, very conventional criteria, right? These are the least risky deals out there, no distress or very little distress or non-conforming properties complicated deals. They often don't land at these things. So the next one is, let's talk about, and again, this episode is about where to find money to do real estate deals. Well, it could be a little closer than you think. Your equity, your HELOC refinancing the Burr method. If you already own a property here in Canada, you might have deployable capital sitting in it that you might not realize the two main things look for your home actually, land a credit or a cash refinances. This ties together super popular kind of older strategies that we still see where I still know a couple of people killing it with this stuff, Dan, which is hilarious. It is much more for the professionals nowadays than it is for the average investor. But the Burr method, right? The buy, renovate rent refinance, repeat. Yeah, even MLA is, many cases, the Burr thing, people are pulling out what you have. So a HELOC is a revolving line of credit secured against your property's equity variable rate, prime plus a spread, typically, with the bank Canada at 2 and a quarter percent. A HELOC money used to be relatively cheap compared to private alternatives, but under B20, the maximum standalone HELOC equity or HELOC is 65% of the property value, combined with a mortgage, the ceiling is 80%. Yeah, and if you use correctly, and if you're trying to execute that Burr model, that turns a HELOC into recycling capital, which is exactly what it should be used for. And if you're doing it well, that's actually how it should play. Are you by a distress property, you renovate it, you then rent it out, you've created value, you refinance it at the higher appraised value. Typically, you're getting 75% to 80% loan to value on that investment property. If you use those refinance proceeds, the money that you pulled out of that property that you created equity in, to repay whatever bridge or HELOC or short term capital and the renovation costs, and then you just repeat it in the next deal, right? When it works, it works really well, but unfortunately today is day and age it to a lot harder to actually execute, but look, if done correctly, that same capital can be used to recycle and have multiple acquisitions, instead of just sitting in one asset kind of locked up. - Done well, the Burr is genuinely powerful. Done poorly when the renovation doesn't deliver the expected force appreciation or the refi appraises below expectations, it would lock capital in the deal instead of releasing it. So the numbers have to be modeled conservatively. You have to have multiple exits, every assumption, the buy price, renovation costs, post-renovation value, achievable rents, all of these things need a buffer, they need to be stress tested, you can do that on realist.ca, we have a full Burr calculator on every single deal, by the way, 150,000 listings across Canada, updated live, constantly, go check it out. And because like acquisition, the acquisition skill is the best, the deal flow in acquisition is probably the highest leverage skill that you can have as an investor. Do you make the most money on buying deals while realist.ca will help you do that, go do it. The deals that go wrong on Burr are almost always the ones where the investor was too optimistic on at least one of those inputs. - 100% man, and like it's not even just you, you've got to remember there's other players in this game, like your conventional lender, which you are likely tied to pulling out from your mortgage here, most conventional lenders want you to have held the property for at least six to 12 months before that cow shut refi happening. So, you know, some specific Burr lenders, like people that, like lenders that love this type of product, they can waive this, especially if you have a bit more of that relationship with them, but they're definitely in the minority. So, really important here to know your lenders policy before you build a deal around a fast refinance. So, let me hit the pros with this one, Dan, take it over with the cons, you're gonna get cheap equity capital if you own the property, okay? Born against an asset you already own and hold can be very, very good thing. He lockers revolving, you only pay, you just when you draw, you repay with recall finding each time. The Burr also, when done correctly, is awesome, enables the same capital to fund multiple acquisitions. That's probably the most capital efficient equity strategy available again, if done correctly. And just on he logs, use for investment purposes, generally tax deductible and, you know, have decent rates there. So, there are definitely some pros to pulling equity and recycling that equity and stuff you already own. That's a good way to find money, but it's not all good, is it, Dan? - Yeah, they require existing property ownership. So, it's not typically available the first time of esters. He lock rate is variable, which makes you vulnerable to rising rates, increasing carrying costs and compressing deal margins. On the Burr side, it's purely executed Burr traps capital rather than releasing it. Renovation and appraisal risk is real. Renovation risk is crazy real. Like, so easy for projects to take, you need to know how to quote renos if you're gonna do these things well. And I don't have that skill personally. Like, you know, I think I, I think I doubled my budget on a home renovation that I did recently. So, on investment properties, it's a little easier, obviously, but like, I'm an acquisition guy. I can buy well. I can't project manage well. So, conventional refi seasoning periods, six to 12 months can delay capital recycling. It can also expose you to market risk. Like, you know, if you started the deal in 2021, and now all of a sudden end of 2022, you're trying to refi out at rates that are triple what you're, you know, went in at to the subit of an issue. Yeah. And then using your primary residency lock for investment carries personal financial risk. There's also benefits to it, like the Smith maneuver, which we've talked about a couple of times before, but I guess we'll talk a little bit here about like private lenders and mix as well. So, private lending and Canada operates in parallel to the conventional system. It's the same collateral, but different underwriting, very different economics. The most important institutional vehicle in this space is the mortgage investment corporation or MIC. Yeah, and look, mixer mixer, a cool entity. They basically pool capital from investors and deploy it as registered mortgages on Canadian real estate. And they pass the interest income back through their investors without corporate tax. So, there's a bit of a flow through structure here that makes them really tax-efficient investment vehicles. Between 2024 and 2025, MIC investment yields, I have basically done pretty well. They've been between seven to over 9% for the people that have invested them. And for borrowers, MIC return rates run 8 to 15% plus origination fees that they can range between 1% and 3% as well. So, not cheap, but could be a really great vehicle for certain types of projects. And you need to understand what private lending is for, because using it wrong is expensive and very risky. Private money is most cases bridge money. If for closing deals faster than a bank can move for properties that don't qualify conventionally at their current condition or rents, and you're either going to improve the NOI or improve the building, for development financing where institutional lenders cap out and you're going to go behind an A or B. And situations where certainty of the close matters a lot more than the rate. Again, if in real estate, your primary way of making money or the easiest or best way of making money is buying well, agility, speed, closing is going to be a huge asset. And so, in a lot of cases, if you can buy a deal exceptionally well, you can offset the huge interest cost that you're absorbing on private money. But if you're using private money as permanent financing, so like your mortgage, your long term on a stabilized cash flow rental, the numbers don't work in 99% of cases. If they work, you got an awesome cash flowing deal, I suppose. But it'll be amazing if you get it to 4% rate rather than a 10% rate. So there has to be a clear credible exit to cheaper capital built into the deal from day one for this to make sense. Yeah, and look, your lenders are going to want to see that exit strategy as well. Okay, so, mix, find money with mix, find money with kind of more of that structured private capital. But there's also individual private lenders, Dan. And we've tapped some of these guys in the past. High net worth individuals, business owners, we basically deploy capital and they kind of operate on more relationship-based model. Right? They'll be friends with guys like you and I who have people that approach us looking for capital and we'll make that introduction. And the interesting thing here is they'll sometimes go where other privates and mix won't, right? They'll talk, they'll touch the really rural properties or complex title stuff, unusual deal structures, projects that are 50. 60% completed. If you're looking for someone like this, you can basically find them through again, people like myself, mortgage brokers, a good broker, we'll definitely have a few private people and guys like Dan that are investors that have access to these types of people as well. The alternative people that you're going to find in an investor network that lend money to people that have an understanding on how to actually use that capital. When you're hearing about US, you hear a lot about hard money. Hard money is a thing in Canada. It sits at the extreme end of private lending, the fastest, most expensive capital available. Hard money lenders operate almost purely on asset value or strategy with minimal income qualification. Interest rates can be 12 to 18%. Terms can be as short as 3 to 6 months. Genuinely, last resort bridge money or very clear to find path of why you're using it. For when the speed of the deal is everything in the deal's economics can absorb the cost. It exists in Canada but is definitely less prevalent than in the US market. I put a tool on realist.ca, by the way, for in the guide. If you go to realist, I think it's under insights and then guides for just like everything we're discussing in this episode shows like A, B and C lenders, the rate breakdown and then you can also plug in your own details. It's like a little survey, plug in your own details and it'll tell you kind of which you're going to end up with or which you should be going to as well as you can plug in deals and and see which which type of lender is most likely to work for that. So if I go to like kind of your private lending pros and cons, I'll do the pros and then you can do the cons. Speed is obviously the biggest one, right? Like they can close in days to weeks 48 to 72 hours for some of the lenders that we've worked with flexible underwriting, qualification based on it doesn't have to go past like a huge institutional credit committee and blah, blah, blah. It's like usually one or two guys who's looking at it and being like, yeah, we can do this deal. They, you know, they take on a lot more risk. They're, they're, they can be more flexible with their underwriting as a result. Qualification is in many cases based more on the deal and the asset, not your personal income alone, which you see more on the A side. Nonconforming properties are often accepted, but distressed, rural, you know, houses that are tear downs that you're going to develop or renovate. Unusual use cases that conventional won't touch from the investor side, make returns of like 79% secured against the Canadian real estate are compelling versus GICs. If you're like somebody who's investing in a mick and I know Nick, you've worked at mix before or with guys that are that are running mix before I've invested still invest in in a couple of different mix and mortgage funds. You know, I, I like it as a, I mean, a lot of my capital has been in that over the last little bit because I found it hard to find a seven to nine percent return with real estate exposure that, that isn't like a huge job for me because real estate's like really the good deals in the most recent market were more of job like jobs than than they historically had been. And the last piece like pro, the pros bridge financing is like perfectly suited to like bird development, you know, multiplex conversion strategy. I mean, we're using a lot of multiplex deals that we're seeing and doing. We're seeing like either, you know, all day be even private debt on the construction side and then you do a smh take out on the end. Exactly. Yeah. Exactly. And again, what are that? That is the capital stack in action. Okay. So I agree, Dan, those, there, there's a lot of pros to using these kind of funds, but there's also cons, right? They're expensive. We're talking eight to 15% interest rates. We're talking broker and lender fees that can get as high as two to three percent. If you don't have a good deal here, hard money, hard money can be even more expensive. But if you don't have a good deal here, the economics of taking this kind of debt without having a clear exit strategy can kill you, right? shorter terms anywhere from a few months to a few years, but that creates kind of constant refinance or exit strategy pressure from from day one. Also, look, not all mix or private lenders of hard money are created equal. You need to be working with someone or an entity that has good underwriting standards, good management quality and liquidity. In a lot of cases, we've seen these things go sour renewals at these are not guaranteed. The deal starts under perform or the economics of things that you can't control like the entire economy. It starts to change. People might want their money back and you kind of have to give it to them. And there's a lot less regulatory protection around borrowers than there is in conventional lending. So, I would recommend and I see a lot of people as they kind of grow as real estate investors or developers have to use this type of strategy a lot more and more, but proceed with caution. Okay, let's keep it going here Dan. We're working away upper down the capital stack. Everyone will look at it. This is kind of the middle layer here. Of course, this is mezzanine financing. This is one of the most important capital tools, but much more for developers kind of in more of the commercial real estate sector in Canada. It's not as well understood by the residential investors because you probably don't have to, it probably doesn't come, you don't come across it until you get to start doing the bigger deal. So, Dan, let's demystify it for everybody. Mezzanine debt sits between the first mortgage and equity in the capital stack. The senior lender gets paid first. The mezzanine lender gets paid second. Equity absorbs losses last, but because the mezzanine lender is in a less secure position than the senior lender, they typically charge higher rate. Typically, 10 to 18% in Canada right now. I don't know. Are you seeing anything cheaper on the mezzanine? Is that like roughly? Yeah, I mean, nothing cheaper. 18 is a bit high, but yeah, nothing cheaper than that. Yeah, I mean, construction mezz would be sort of on the higher end of that range. Yeah, totally. And look, this is why this is really more of that kind of development-focused deal, right? In a construction project, the senior lender typically caps their exposure anywhere from 50 to 65% of the total project cost. So without that mezz debt, that developer has to bring 30 to 40 to over 40% with mezzanine debt filling the gap between that senior loan and what the developer can bring. That equity can often drop 15 to 20%. So, some projects, much less of your own capital risk, which is what developers are looking to do, right? Everyone's trying to de-risk and you do that by bringing in more debt. It doesn't really make sense unless it's done correctly. I think the easiest way to think about this is like, if you're a developer, especially, like you're in the business of creating real estate. And so any other business like a retailer or like a manufacturer, like they use debt to finance, inventory or inputs, you know, they borrow money to buy a piece of metal that they manufacture into something else. You're doing the same thing here, right? And the businesses that are doing that in other types of industries are comfortable doing so because they know that, hey, I'm buying this metal and it's part of the cost of me buying the metal that I'll later recoup by selling the thing that I'm building. Real estate development is the very much the same thing, but it's very different than being a long-term owner versus like a long-term owner or investor where you just have a capital relationship with real estate development and like creation of real estate is a job. It's much more a job or a business and you use comparable types of debt that you would in a business. So in Canada, Mes debt usually comes in as registered as like a second mortgage on the property, the most common structure. Some that Mes lenders will take equity positions in the projects, entity instead of a mortgage, which has different legal and tax implications. Most active Mes lenders in Canada would be like Marshall's there, Atrium, Trez, Domain Funding and a bunch of various private debt funds that specialize in construction and commercial real estate. So who is this for? Developers and commercial investors are, I would say, would be the biggest ones where senior mortgage leaves a gap too large to fill with equity alone. It's not a tool for residential investors. It's pretty rare. I would say the deal complexity, deal sizing complexity are, you really need to be there and it needs to warrant this type of capital. We're afraid anyone moving in as a bonus. You've got Mes debt on like a triplex, then you've done some of your problems. Yeah. Yeah. And for people who are in the development space, I mean like understanding Mes debt is not optional. It is almost always used. Maybe less so now because the credit environment is a little bit tougher and you have things like CMHC and MLA select. So you can usually get, if you have a CLI in hand, I mean, you would know this better than me, but I think if you have a CLI in hand for MLA takeout, you can usually get a normal construction lender to get you to the takeout. For sure, I mean, it depends on borrower and project specifics, but like this is, I've definitely seen less Mes debt and probably it's common with condo takeouts. A lot of it's termination, probably a product of the environment that we're in, where we're not seeing enough of those projects that we really use this stuff like we did a couple of years ago, Dan, you and I were looking at placing this stuff all the time, let's say three years ago. So I'm going to run through the pros and cons on on mes financing. I'll do the pros you do the cons. So reduces your equity requirement, we be the biggest one from 35 to 40% down to 15 to 20% down. Obviously, would choose your return as a result because you're putting less equity into the deal, which means greater, less cash to generate a return on higher cash on cash return. Typically, there's a risk associated with that higher risk higher return. It allows completion of larger projects that pure equity couldn't support. There's an active market for this in Canada, I would say. Less so now, I think as we mentioned, like condo termination has kind of made it go away a little bit, but that's just the demand side. There's still a lot of people supplying this type of capital and it can be structured as a second mortgage or equity participation depending on deal structure. Okay, so look, lots of good use cases, but just like with every piece of financing product on here, there are some cons. Main one would be it can get really expensive, right? We're talking minimum double digit rate between let's say 10 to 18%, the construction mes side is usually around that. 14, 15, 16 percent. Subordinate position for mes lenders means that they've got pretty aggressive rights or something goes wrong. It can obviously will significantly increase the financing and legal complexities and cost of a project like this. It also, the similar to C-MHC, which we'll get to, they want a sponsor with experience. So this is again, why it's not really suitable for res people because this is something that requires, it's used on bigger projects and they're going to want to see the borrower's resume essentially like, have you done this before? Am I going to get my money back? So that's mes debt. Let's keep this party going here, Dan. Next one is partner capital. Now we've done full episodes on this. So that's why it's only a little section here, but couldn't leave it out. This is joint venture, GPLP. The joint venture piece are the capital stack where I think it kind of changes the trajectories a bit for Canadian real estate investors. It's also the one that's most likely to create lasting problems if casually entered. I cannot tell you how many times we've had to refinance a property because a partner, you know, not you and I specifically, Dan, but I mean, as a broker in my experience, hey, we need to refinance this and pull $250 grand out, $5 grand out of $1 million out because I've got a partner that wants out, right? Yeah. Scary stuff. Super common, very strangely common. How often? I mean, it's probably a sign of the times, like how much the markets and rough spot and people probably need to get some cash out and whatever. But, you know, let's just go through like kind of classic JB structure. One partner brings the deal flow and operational expense. The other brings capital, both benefit from the outcome. The most common residential split is 50/50 in commercial deals and institutional transactions. Return structures are more common. So the money partner earns a fixed rate, say 8%. So this would be kind of like similar to your mes position. They almost function like a lender. They get a, you call it coupon, like clipping coupons on their capital before any profits split kicks in. This gives the money partner downside protection without the legal obligations of alone. Yes. Let's talk about the legal structure for JVs, but we're going to do this broadly here because we're not lawyers, Dan. So limited partnerships, that's the LP. That's the most common vehicle it can for anything beyond the kind of business. On a simple two party residential deal, the general partner manages the limited partners contribute capital with the limited liability to their investment. So think about this. There's the money partner and the active partner, right? This is, most of you who have listening, who have done the real estate deal, probably are doing some kind of quasi have run into some kind of form that is a reflection of this, right? Simple arrangements. There's co-ownership or JV partnership agreement. This legal documentation needs to answer a couple things, decision making authority. That's a big one. What happens when partners disagree? Dan, how many times we say this? Good contracts, make good friends, make good partners. Exit mechanisms. How are we getting out of this? This is why people end up getting into fights and why unnecessary refuys for partner payouts are a huge pain in the ass. Has stuff like bio triggers and distribution timing, right? Like, hey, we just made money. I need the money. You know, don't go into someone, don't go into a deal if someone desperately needs the money. You know, consult the real estate lawyer before the capital is deployed, not after and have this stuff all figured out. Did you want to jump over to VTPs? I think we were going to try and save a bit of time here to come. We talk about, I know we talk a lot about VTPs on the show. We love doing VTP deals and I built a tool, of course. But I've always been looking for VTP deals. Like, almost always. I love doing VTP deals. A lot of it's because we've built a big enough portfolio that you start to get clamped down on by the lending environment a little bit. For the type of stuff that we're doing, not going to MLA, etc. And I literally have a map of every property in the country that says VTP on it and you can buy property, you can search by properties across Canada. I'll pull it up on the screen here, actually, for, I guess I don't even know if this will make it into YouTube. It's just sick, man. I love it. And so any deal that is mentioned, vendor take back, financing, cross-cada is available on this map. So go check it out on realist.ca if you click on find deals and go to distress deals as Power of Sailor 4 closure and VTP find your own. I guess VTP aren't really distressed. Anyway, tell me about what a VTP is. Yeah, look, I mean, if you've been the long-term listener, you've heard us to talk about this before. But here's a little refresher. Vender take back mortgage is where the seller, so the person selling the house, the person who's got the house listed, agrees to hold a portion of the purchase price as a registered second mortgage on the property. Okay, so they become a lender. They are part of the capital stack. This is a way for not, for not you to necessarily get money to do a real estate deal, but for you to have to put less money into it. Okay, so the buyer gets a first mortgage from a conventional lender and the seller holds it this second, typically it could be anywhere from usually at least 10%, but damn, we've seen up 50% in some cases. And that is adding negotiated rates. You're not dealing with a bank or a credit institution or anything like that. You are dealing with a person on the other end, the seller of the property, so you can negotiate that rate. Now typically the rate will be competitive to market rates, but I've also seen and heard of some crazy good VTP rates. There's been interest only stuff. There's been stuff in the two and three percent. So it really depends on how good of a new sheet you are in this, when you're trying to get a VTP done. The seller gets a benefit as well. So that's like why sometimes they can be sharper on the rates. The seller's incentive is potential tax deferral and capital gains by spreading the receipt of the proceeds of the sale over multiple years. You know, getting better than GIC return on the amount held and in a slow market, more buyers can qualify which supports the asking price. I mean, VTPs bailed out the market during the 1990s when lenders were constricting him. And you're seeing this right now as well. We're in a period of credit contraction. VTPs are making a comeback right now. Motivated sellers in slower markets are increasingly willing to hold paper to get deals closed. Yeah, totally. A hard rule to remember VTPs. They're not like they're not loved by or even some cases permitted by likes of CMHC, Sagan or O'Canagerity. These are the mortgage insurers in the country. Obviously uninsured only VTP must be fully disclosed as well to the first mortgage lender. Yeah, no. Siles usually with. No, I mean, yeah, don't do that. Things get really sketchy. They're hiding a VTP from your first lender is mortgage fraud. So this is financial advice. Now, there next would be agreements for sale. This is a bit of a different structure. Less common but worth knowing. In agreement for sale, the buyer takes possession and makes payments to the seller, but the seller retains legal title until the buyer pays out and agreed price. Very common in the US, not very common in Canada. Although I think it is possible here, but it's used historically in slower markets with motivated sellers who are carrying a mortgage. They'd prefer not to discharge until they receive full payment. Yeah, look, I mean, these are significantly more complicated in Canada. If you're going to try to operate one of these, make sure that you have a very good real estate agent and lawyer working with you or that you have done a ton of research. Another one that we can kind of breeze past here, Dan, has been made very famous by real estate influence or pace. Morby is the subject to transactions. Do you want to give me a real high level on these and then we can kind of talk about the pros and cons? Yeah, I don't like structure gets a lot of attention in the real estate, US real estate circles in Canada. It's complicated by the fact that most institutional mortgages contain due on sale clauses that technically allow the lender to call upon the loan upon a change of ownership. You'd have to re-underwrite the whole mortgage and the new buyer would have to re-assume the mortgage. It was buying a property while leaving the seller's existing mortgage in place with the buyer making payments on the seller's mortgage rather than paying it out. You will see it's not really called subject to here but more like a sumable mortgage is or whatever. A lot of guys were doing this when people were doing MLI early in COVID. People were early to the MLI trade. We marketed a couple of these. I don't know if they ended up selling, but there was a couple of vendors in Toronto that were looking at. They had really amazing terms on MLI, like two percent rates on a 10-year, three percent rates on a 10-year, and they would market the property with the loan because it was a marketing tool. You still see those here and there? Yeah, here and there for sure. Do you want to take me to the pros and cons here? Yeah, and again, just to be clear, we're not recommending you do any of these, especially the more the agreement for sale of subject to whatever. It's important to know all this stuff. Yeah, exactly. VTBs, and there's obviously some great pros. It reduces capital required for you to actually get into the property. For the seller, it feels part of that equity gap, the possible tax deferral on capital gains for the seller, which is a good part of your pitch when you're trying to get one of these placed. You can kind of align your incentives. No, you're dealing with another person. You can talk about rate, damatization, a balloon, payment, any prepayment. There's no standard template to a VTB, but if you do want one, reach it to the end because we put them together. They are actually making a bit of a comeback, Dan. I remember years ago, you would have had a very empty map without a very empty map on Reel.ca. Not the case now. There are more motivated sellers now willing to hold paper and get a deal done. Hit me with a few of the cons, though. The seller has to be in a position to hold the paper. They either need enough equity to be able to pay out the existing loan or they need to be in almost 100% equity position. Not all sellers can or will do this. They're not as permitted with other mortgages in the capital. stack with and shared mortgages especially. So like the applicability is not as good as most other mortgage products that we would have discussed here. First lender would have to consent to it and they can and will refuse it. And you know sometimes you end up with balloon payment similar to a private mortgage and I can create refy pressure in unknown future conditions. So I would like use these similar to privates and such that you have to have a very defined way of getting out of the VTB to make it make sense. The most common theme here man and especially for the next one as well right which you're going to start us off with see me see I'm going to select every one of these outside of like the most conventional a lender you need a good exit strategy. Yeah and you know we've talked about MLI a lot on this I think that it's you know it's always surprising me how few people know about this program like I think that there's a lot of people and it's like 88% of apartment starts are coming from the M.H.D. M.L.I. select right now but like I think it's become probably a little bit more mainstream recently credit to a lot of developers switching to that program but also like Toronto precon realtors pumping it up but C.M.H.E. M.L.I. select program the multi-unit mortgage loan insurance it's terms are genuinely like remarkable for good and bad but interesting interesting thing next so why don't you walk me through what it actually offers here. Yeah sure I mean I'll make this quick because we've done full episodes on this 95% loan to value and monetization periods up to 50 years interest rates that are the best in the market kind of C.M.H.E. based rate for multi-unit rental projects in Canada these are the best financing terms that you are going to have access to 5% equity on a rental building with 50 year amortization is an extraordinary amount of leverage at an extraordinary cost so they're you know Dan proceed with caution here right because you are going to you know tell me that they're they are they are dangerous and we've seen abuse in the system but there's a catch here right this isn't for every property M.L.I. requires a minimum of 5 rental units uses a point based system it rewards affordability commitments keeping rents below market rates it rewards accessibility features for residents with disabilities and energy efficiency which is kind of you know future proof in your building a little bit the more of those commitments you have the better your terms look because you've gotten more points that unlock these things. So for eligibility borrowers like it's not just the deal a borrower is need net net worth value at least 25% of the property value 10% of the property value in liquid assets and a minimum debt service coverage ratio of 1.1 so it's not like it's not without some underwriting standards but compared to conventional investment financing LTV amortization terms and I think that service coverage ratio as well are completely different universe. Yeah totally okay who is this for well developers small cap developers citizen developers investors anyone in a 5 plus unit rental space who are trying to build or acquire purpose built rental buildings particularly if your project can legitimately offer some of the affordability or or the accessibility or the energy efficiency stuff that I had mentioned if you want more information on this we've done a ton of content reach out to me I do this stuff literally every day Dan I'm going to start with the pros here and then I want you to tell me what the cause because see me she and I said does have a ton of both a pro for some people 95% loan to value and almost up there with loan to cost as well literally only 5% equity to build anywhere from a 5 to you know 250 plus unit building amortization up to 50 years that dramatically reduces your monthly debt service versus the 25 year conventional you get the best rate significantly cheaper than some of the other stuff the private so the conventional or the mess that we talked about it's available for new construction and existing acquisitions has to be 5 or more units and it's accessible to smaller investors than you have no any how many people that I've spoken to the last couple of years that and I'm sure with you as well that never thought they'd be part of a development project but now they are because they own the land or they you know they've pulled into some kind of a small group and now they are doing actual small cap development projects. You have the on the coincide like I've talked with us a lot where it's just basically like a bond trade right like it's really you're paying a ton of interest and so you're like you have to accept that and understand that like you're doing this for a long term and you're paying a very steep cost for the privilege of owning real estate for a very long period of time. The affordability accessibility and energy commitments required to unlock best terms and they're not easy and they're meaningful operational constraints constraints and costs on the development side points based scoring system it makes it fun it's like a game but it adds complexity and not every project is going to hit the thresholds for enhanced terms net worth 25% of value liquidity 10% pretty significant personal financial threshold that is not the absolutely yolo tool that we that was when we first started talking about it on the show. C.M.H.C. underwriting timeline adds months to closing versus conventional private financing on the take out not as bad but on construction it usually it's to the point where people just won't even use it for construction so yeah literally. Okay another place where you can find money to get real estate deals done the public capital pool okay we're talking about not friends and family here we're talking about the government build Canada homes and government programs back to 10th of last year Prime Minister Karnie announced the build Canada homes 13 billion dollars in new federal agency dedicated to building and financing affordable housing at scale. This story isn't about future policy it's about a capital source that's actively operating and definitely worth exploring you know we've we'll see how this one turns out anything government I have a little bit of speculation on well I mean like usually the stuff ends up not being super available to the average listener of the show I would say like you know it's a it's a club and we're not in it not yet at least. The next like kind of would be like kind of close to home capital so like family lending you know bank mom and dad gifts network capital that doesn't really like get it discussed enough but money for people you know right like a lot of people would what when they're doing a raise for a deal and you see this even like with with startups will do like a friend and family around right family friends professional networks those are people you can usually raise to raise from for GP LP and partnerships like we talked about. 100% I would say this is probably one of the first places people look whether you're a real estate investor or a business owner but for real estate specific stuff right gifted down payments are huge for owner occupied purchases if you've got you know if you're living in that doing the house hacking thing easily except by lenders if you can prove that it's legit for investment properties conventional and is required down payments to come from the buyer's own sources so family capital investment context usually needs to be structured as like a J.V. or private loan or a co purchase something like that. Yeah and like co purchase is increasingly common in expensive Canadian markets parents on title with adult children we just covered this in the C.M.H.C. mortgage consumer survey episode two friends buying together maybe people buying our building a multiplex together we've we've had a couple of people come through the realist program where they're building like a two unit or three unit and each one's going to occupy a suite. There are C.R.A. implications and like tax and legal structures with this you need like legal documentation of ownership percentage what happens if one party wants to sell you know you'd come to play that all in your partnership agreement and how caring costs and decision-making are handled lawyer and accountant looking on these deals are absolutely not optional make sure you get good advice we're just giving you information it is not legal or financial advice and that you know we have disclaimers at the end of the show for a reason we just want to give you kind of like the the push off of the off of the shore and you can kind of sail the rest of the way and find a lawyer out there who's going to take it to the next level so yeah let's wrap it up here yeah I mean look that's that's pretty much it you know there's a couple other you know real estate indications there's a couple other more creative ways to find capital but that's pretty much it there's there's a lot of ways to get money to do deals that they're especially in here's the caveat if the deal is good okay if the deal's not good the capital is going to be harder to get we give you honest pros and cons the through line is pretty simple the investors who do more deals are not the ones with the most money they're the ones that no ways to find money and to structure it for each situation the knowledge is learnable go build the relationships understand the tools show prepared bring good deals to the table under right like crazy you know that's that's it yeah there's no single answer right there's only the right tool or the right combination of tools for each specific deal we we've built as many of these tools as we can on real estate see by the way I built like a while we're doing this episode a built a capital stack and ABC lender tool on this on the site for this episode so the key stats and the reference guide and in today's show and on realist.ca have all the numbers that we say it make sure that you really really understand this stuff as well as you can because these are really important tools to be successful in a very difficult market but a market that has a lot of opportunity anything else you want to leave a leave us with here well look that's the answer to the most common question we get where do I find the money to get real estate deals done it is all around you I think the question really should be how can I find a deal good enough that I it'll be easy for money for money to find me to get it done so that's where again going building the relationships being knowledgeable getting out to the events and all that kind of stuff makes sense as always thanks so much for listening we'll see you on the next one. The content of this podcast is for educational and informational purposes only it is not intended as financial legal or investment advice always consult a qualified professional for advice tailored to your unique circumstances the views expressed are those of the hosts and guess and do not. necessarily reflect the opinions of affiliated organizations. Daniel Fosh is a real estate broker license with Valerie Real Estate Inc website is Valerie.ca V-A-L-E-R-Y dot C-A and a member of the Canadian Real Estate Association the Ontario Real Estate Association and the Toronto Real Estate Board. Nick Hill is a mortgage agent and partner at Owl Mortgage License Number 10317 agent license M2-1004037.