Creative Financing Solutions
This post is written by Trusted Partner, Keith Uthe – Mortgage Alliance Enrich Mortgage Group. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.
With recent changes to mortgage policies, it can often feel to investors like they are trying to fit a square peg into a round hole. Many investors try to go it alone as they believe their bank will offer the best rate, terms and solutions without knowing what else is available. This may be true some of the time, however, what happens when traditional lending doesn’t fit the bill? This is where a seasoned investment property focused Mortgage Broker can get creative and look at different strategies and options available through multiple lenders. You may be missing out by not using this expert advice, as we’ve gathered wide-ranging solutions. From peer-to-peer lending to government incentive programs, here are seven innovative financing resources to help clients reach their real estate goals.
- Restructure Vehicle and Recreation Debt
- Leverage Lease-to-Own Agreements
- Utilize Peer-to-Peer Lending
- Offer Seller Financing Options
- Explore Real Estate Crowdfunding
- Consider Microfinance Opportunities
- Tap Into Government Incentive Programs
Restructure Vehicle and Recreation Debt
Often, when people are purely enjoying and living life to the fullest, they run into the ‘Loan and Credit Card Trap,’ which creeps up on them. Then, when they need a mortgage, the reality of those credit cards and RV, boat, motorbike, truck, and car loans show up, limiting their home-buying or refinancing ability. When we see this, we often engage with our vehicle and recreation loan partners to restructure these debts. The restructure allows us to:
- Decrease the loan payments,
- Consolidate credit cards, lines of credit, and or CRA debts
- Access equity in an RV, boat, motorbike, or vehicle, to use as a down payment.
These financing solutions have saved clients from several hundred to over $1,000 per month on their payments, improving the mortgage amount they qualify for or providing them with access to several thousand dollars towards their down payment to buy the home they want.
Leverage Lease/Rent-to-Own Agreements
This can be a great creative solution where a buyer has a strong income, however, lacks the necessary down payment and/or has some credit challenges that prevent them from qualifying for a traditional mortgage.
Under a lease-to-own agreement, the buyer leases the property from the seller for a set period, typically 1–3 years, with a combination of a set lease payment and a down payment which goes towards a future down payment. The sale price of the home is locked in at the start of the lease, giving the buyer time to save the down payment funds through the agreement and improve their credit. It is critical that the Lease-to-own agreement is registered on title immediately after signing to allow the buyer the maximum lender options for their future financing.
Lease-to-own can provide several benefits to both the buyer and seller. For the buyer it allows them to move into their desired home right away while working on building their down payment and credit. The fixed sale price protects them from potential market increases, and they are contributing a portion towards their down payment for the property purchase every month.
For the seller, the lease-to-own agreement provides a reliable long-term tenant and a set sale price. It also allows them to generate rental income from the property while the lease was in effect. It can also save the seller on mortgage payout penalties or the potential of large capital gains taxes. As well the maintenance responsibilities being at the expense of the buyer.
Of course, lease-to-own agreements do come with risks and considerations for both parties. It is crucial that the terms are clearly defined, including the lease length, rental rate, purchase price, and maintenance responsibilities. The buyers need to be diligent in their efforts to improve their credit during the lease term to ensure a successful transition to ownership. If considering a lease-to-own as either a buyer or seller working with a lawyer, credit repair specialist and a mortgage broker familiar with the strategy is very important.
Utilize Peer-to-Peer Lending
If you intend to use any kind of peer-to-peer lending you need to at a minimum engage a lawyer to review the agreement whether you are the borrower or the lender. As a mortgage broker I have also assisted both borrowers and lenders with their peer-to-peer lending. Peer-to-peer lending platforms may offer a more personalized lending experience, often operating online, which can streamline the process for connecting borrowers with lenders. Unlike traditional banks, these platforms enable individuals to receive loans funded by investors who are willing to support loans that might not fit the typical banking criteria. This option is fitting for clients who may not have a perfect credit history, need a unique or short-term lending solution and possess the means to repay the loan.
The terms can sometimes be more flexible than those of traditional financial institutions, however, the borrower should expect to pay a rate premium. For clients seeking alternative financing, exploring peer-to-peer lending could present a viable solution.
Seller Financing Options
Seller financing emerges as a potent alternative for clients with unique circumstances, whether selling or purchasing property. Instead of securing a loan from a bank, the buyer enters into an agreement with the seller, who finances the purchase, often with more flexible terms. This enables buyers who might struggle with traditional loan approval to make a purchase, and it can be quicker than conventional financing as there are no bank approvals to await.
Seller financing can also offer tax benefits to the seller. Potential buyers and sellers should consult with a lawyer, accountant and other real estate professionals to understand how seller financing could work for them.
Explore Real Estate Crowdfunding
Crowdfunding for real estate investments can be a great entry point for clients who do not have the large capital typically required to invest in property or do not want direct ownership responsibilities. Through crowdfunding, small investors pool their resources to fund real estate projects, which allows them to enter the market without needing substantial funds upfront. This method also spreads the risk among a group of investors, making it a potentially attractive option for clients with unique financial circumstances. Real Estate Investment Trusts (REIT’s) are an example of how we see this currently, however, there are requirements and limitations to investing in a REIT that restrict some investors so we are seeing other unique non-REIT options in the market now.
Real estate crowdfunding platforms have a variety of projects to choose from, suiting different investment strategies. Those interested in exploring this avenue should consider starting their journey into real estate crowdfunding today by researching different platforms.
Consider Microfinance Opportunities
Microfinance institutions specialize in providing financial services to entrepreneurs and individuals lacking access to traditional banking. They offer loans, savings, insurance, and other financial products geared toward clients with limited means or unusual financial backgrounds. The loans are generally smaller than what banks offer, making them suitable for starting a small business or funding a personal project. The loans typically come with a premium on the interest rate so consider these as a short-term solution.
Microfinance can be a catalyst for economic development, especially for clients who are typically underserved by conventional financial institutions. Business with large accounts receivables, inventory, debit transactions or needs for new equipment are some of the most common users of these loans. If this sounds like a fit, reaching out to me could pave the way to fulfilling your business growth and financial goals.
Tap Into Government Incentive Programs
Investigating government incentive programs can provide clients with unique circumstances access to special financing solutions that are not widely advertised. These programs can be available at the federal, provincial and/or municipal level and might offer loans, grants, or tax incentives that are designed to promote certain activities like first-time homeownership, development, business startups, or green energy investments. Often, these programs have unique qualifying criteria and are aimed at fostering economic development. I have used many different grants and rebates over the years in my own properties. They can be instrumental for clients who meet the specific program requirements. To tap into these resources, search for government incentive programs that align with your goals and needs.
We need to keep and open mind and realize that ‘Everything we believe to be true is true until it isn’t’ and this is often the case with investors. What someone was able to do a year ago, a month ago may have changed now due to policy changes. The rate your friend, family or neighbour received a week or month ago may not fit your situation, plan or goals or the rate market may have changed. I pride myself in understanding what is happening in the broader world of finance and sharing that with my clients.
Email: keith@enrichmortgage.ca
Book A Discovery Call: https://calendly.com/keithuthemortgages
All Access
