Today, We dive into a bunch of areas. I hope that you can follow along and walk away with at least a new idea or two.

Building a Rental Portfolio, and have other people pay off your mortgage

The idea is to add a new house, apartment, or rental to your portfolio every couple of years.

Many people feel that the bank won’t give them money to buy a “second home”, but using this strategy works much better with the banks. 

Getting a mortgage for a rental property is more difficult than getting a mortgage on your primary residence. So, if you buy a new place hoping to rent it out, it gets a little trickier.

But, if you buy a house, live in it for a couple of years and then buy a new house to live in and rent out your old house, then you have the bank giving you a mortgage on your primary residence. On your primary residence you can also get away with putting 5% down, where it isn’t usually possible to get a mortgage on a second property with only the 5% down.

I am going to make another video on ways to get the best mortgage rates and what the banks want in more detail, but often you will need a higher deposit and the bank will be strict on buying a second property for just renting out.  

Points to consider. When you get a mortgage with less than 20% down you sign an affidavit saying that you will live in the home for a period of time, so check that out and make sure you are living in the house for long enough before you plan to move to a new primary residence.

But after that, if you have at least the 5% cash for a second home that you can move into then this is how this moving and acquiring properties can work. 

The advantage of this plan is that when you rent out your original home you get rent that you can use as income. You also essentially have someone else paying your mortgage.

The downside of this investment plan is that you would become a landlord (or you need to find a company to manage it). I will try to get into more landlord type video in the future, bringing in specialists and giving my experience over the last 10+ years as a landlord. If this is a financial path you wish to take you will also need to learn the ins and outs of bring a landlord.

Buying and selling during the correct times in the market cycle is important but building a portfolio of rental properties can be a lower risk option compared to most investments. 

Using Line of Credits to lower Bank Penalties 

Save $3,000 or $4,000 Easy

We get into porting and assuming mortgages in another video, but if you are in the position where you are going to need to break your mortgage and want to reduce the fees, most mortgages have a prepayment option to allow for you to pay down 15% or 20% of the mortgage. Generally, the penalty is based on the amount owing, so using a line of credit or Home Equity line of credit to bring down the amount owing can greatly reduce the fees.

Once you sell the home you just use that money to pay off the amount you borrowed from the line of credit.

You only do this if you are going to sell your home and refinance as you want to use the money from the sale to pay off that amount borrowed from your line of credit. 

Co-Buying

When I think of Co-Buying, I automatically think of the young generation.  Maybe it has been explained to me that co-signing is basically now co-buying in that the co-signer is no longer just a name on file that could help the bank in the case that you don’t pay, a co-signer is now tied with their credit and shares the risk, basically making them a co-buyer.

I have heard many people say that the new generations will never be able to afford their first home. I disagree. Maybe I have more faith in them.  I think that any young person with some financial knowledge can do small investments, save up and be able to handle the down payment needed.  Especially if they get past the temptation of spending and lock saving into things like an FHSA (see our blog on FHSA here).

Maybe there are relatives that would be interested in investing if you are going to care for the place and cover the expenses sharing the house with their trusted friends.  Thinking outside of the box can help you a lot.

Co-buying is also attractive for people who want to go big.  If you hear of people that own 1000 units, they likely have worked together with other people to have such a portfolio. 

It is important to watch who you go into business with, but many people who dream of business never do anything.  Co-buying and partnering with knowledgeable people can change your life. It can also make great relationships, motivate you by being around likeminded people and if you have the chance to Co-buy and you trust the other people/person it may be well worth it.

For businesspeople co-buying may also be of interest if your company has money but you realize that the bank isn’t as nice with small to medium companies.  If you have friends or family that can easily get the bank’s attention, then deals that wouldn’t have happened could become a reality. 

HELOC – Home Equity Line of Credit (see our other video on HELOCs here) 

For investors having a Home Equity Line of Credit can be extremely helpful.

You don’t pay until you use it, but it is ready whenever you need it. 

Maybe in my life the market has not been completely predictable, but more so now, it seems that the market can be completely unpredictable.  If there was to be a big crash, having money for investments will be a huge advantage.

If you are using line of credit for down payments, you may also be looking at alternative lending (see our other video on Alternative Lending). 

There can also be some tax benefits as you can generally write off the interest from the Home Equity Line of Credit as well. 

Having that money there just in case, is also an amazing way of reducing stress.  Even if you don’t use it, if you have several properties or investments there is a high chance you will have a sudden big expense sometime, or there is a crash, etc.  Peace of mind is a good thing.

When you get your next mortgage, ask your bank about attaching a HELOC to the mortgage so that as your mortgage is paid off, a HELOC amount grows, and you have access to these funds.

Please visit the following page to get Phil's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html

Porting & Assuming a Mortgage - How NOT to pay mortgage penalties!

Waiting for your current mortgage to end so that you can buy a new home?

Don't want to pay the bank's mortgage cancellation policy for cancelling early?

This video gives some options which will not only help you avoid such bank fees but also give you advantages if you currently have a mortgage and want to sell your home or buy a new home.

The first option you have is:

PORTING a mortgage

Porting is where you take your current mortgage (when you sell your home) and port/transfer that mortgage to your new home.

This is especially beneficial if you currently have a great interest rate.

See the video above on some of the related questions on porting, but the main question peopole ask about porting is what happens when you need more money to buy your new property than you have left on your mortgage.

Phil mentions that your bank (or mortgage broker) will be able to work with your situation a little better but normally this is possible and not an issue to get an amount above your current mortgage amount.

ASSUMING a mortgage

Assuming a mortgage is used when you are not looking to buy another property and don't need to port.

This would happen in the case you are selling a rental property or a property where you aren't planning on buying right after.

Having a new/another buyer who wants to buy your property assume your mortgage is a great way idea in this case.

The Buyer who is buying your property will be happy if that allows them to pay a lower interest rate. It also allows for more buyers to qualify as the numbers are better (and the bank is able to give out more) in the case the interest rate is lowered, which helps to qualify more buyers.

This means that offering to have a buyer assume their mortgage will be a benefit in the case the original mortgage's interest rate is lower.  

If it is not, then it will not necessarily be a benefit to the buyer but depending on the market this may be a requirement that a seller can expect the buyer to accept.

Please visit the following page to get Phil's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html

Title Transfers

First quickly, what is a title?

What is a Property Title?

A title is essentially a piece of paper that is assigned to the owner of a property in the province of Alberta. Also, properties across Canada all have titles attached to them.

The title indicates:

- The registered owners; their names and contact address

- Encumbrances against the title (like a mortgage), utility right of way (so that the owners can get things like electricity to their home)

- In Alberta the titles are held by the Land Titles office.  The Northern areas are handled by the land titles office in Edmonton, while the Southern areas of Alberta are handled by the Land Titles office in Calgary.

Edmonton Land Titles Registrations: lto@gov.ab.ca

John E. Brownlee Building (Land Titles Office North)
Mezzanine Level
10365 97 Street NW
Edmonton, Alberta  T5J 5C5

Calgary Land Titles Registrations: ltos@gov.ab.ca

Land Titles Office South
710 4th Avenue SW
Calgary, Alberta  T2P 0K3

When is a title usually transferred?

The transfer of Land title happens when the home is sold. Usually the lawyer will do this and the new title will have the names of the new owner on it.

Also, when the generation above us, like our grandparents, aunts/uncles want to do Estate Planning and give a gift to the next generation or their children. They will also consider transferring the title.

How long does it take?

Covid was crazy and it will depend on the market. At the moment the website says "You can expect a 10 to 12 business day turnaround time for registration of land title survey documents."

How do you know when your document should be ready?

I learned that if you go to https://alta.registries.gov.ab.ca/spinii/logon.aspx

In the top right hand corner it shows the documents that they are processing, so if you know the date that you submitted the application you should have a good idea if it being processed or if the date is past then your application is probably finished processing.

How can you check?

There is a fee, but on https://alta.registries.gov.ab.ca/spinii/logon.aspx

You can pull property titles if you know the information for the property.

Can you transfer the title without a lawyer?

Yes,  for sure. For Alberta, you can find out more information here:

https://www.alberta.ca/change-land-title-ownership

That said, the challenge that a lot of people have is that this is the only transfer of land that they may fill out in their lifetime. The document itself is created, generally speaking, by the land transfers act, and is effected by about 3 or 4 other pieces of legislation so without training and background and understanding these things, you can fill out the forms and hope it is done correctly.

Can you get help from the clerks at the Land Transfer office?

Yes, they will let you know if something is off in the paperwork, but they may not hold your hand if you need them to walk through each part with you.

Normally you pay the fee, and the clerks expect just to receive the document. I know in Edmonton, with Covid there was actually no one at the office that you could speak to and just a drop off slot for dropping off completed applications.

Do you Trust the people transferring the title to you?

When transferring the title, with a real estate transaction, the lawyer only transfers or has the name of the owner of the title changed after the funds are confirmed.

If you are transferring it and there is money involved then do you pay first and hope it is transferred well, or does the transfer happen and expect that the money is paid correctly.  To look at just the title change without a lawyer being involved, you would really need to trust the other party.

Things to watch out for if you want to do it yourself

Personally, I have done it myself. It was a transfer between family before I was a real estate agent. Because it was between family there was full trust there.

There were a few things that could have gone better.

You still need a lawyer/notary as you need to sign the document in front of them.  Their fee would be less, but they would still charge for the meeting for you both to sign the documents.  In our case the lawyer should have crossed out one line in the document because we were signing virtually. The clerks sent the document back to me (the applicants address) but I didn't check my mail in time before the date it needed to be corrected by so it was a bit of a stress wondering if the application was then cancelled and if I would need to redo the whole thing. Luckily, I was able to speak to the clerks and they helped me make the correction and accepted the document even though it was late.

There was a line of credit that was registered against the home. This was before I was a real estate agent, so now I would know better and would have checked the title but my father was sure he didn't have a mortgage so there was nothing against the home. I guess when they gave the Line of credit it was under a general credit offered by the bank and under that general credit was the line of credit, so when my father thought he had cancelled the Line of Credit it was not completely cancelled. Also, the bank didn't care to remove it from the title.

So, I had to fight with the bank to get them to figure out what the problem was. On top of that they wanted me to get a lawyer to remove the encumbrance from the title and when they finally did remove it, they told me that it would take up to three months.

On top of that, parking is paid near the Land titles office so having to go there, each time I needed to pay for parking. The first time I needed to find where the actual office was in the very large building. Plus, they have another form that you need to fill out there and submit together (like a cover letter) and I didn't think to bring a pen with me, so I needed to go and ask someone in the building to borrow a pen. Small things that added to the hassle.

Would I do my own title transfer again?

I am not sure. Since I basically understand it now, it would be a lot easier and less stressful than when I did it last time. I guess it depends on how busy I am at the time and how quickly I need it done

Please visit the following page to get Mark's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html

Asbestos

The first thing that I was surprised to learn is that Asbestos has been around for centuries.  If you google it, you can learn things like how it was used for fire-proof material, like magical clothes that allowed people to go through fire.

It was used for insulating buildings and homes against cold weather, noise and for fireproofing since the late 1800s.

Manufacturing of it for Canadian use was banned in Canada in 1979, but they allowed the remaining stock to be sold and used, so it could be found in homes and buildings that were built up to the mid 1980s.

What is Asbestos good for?

The properties of asbestos are actually amazing. It is really a great building material which strong, long-lasting, and fire-resistant. Even when I took my asbestos course, my instructor said that she has asbestos in the cement siding of her house, and she would never think of replacing it.

Where was asbestos used?

Asbestos was used widely for roofing, pipe coverings (usually the insulation) and textiles like flooring (like the smaller square glue on tiles), ceiling (like the popcorn ceilings), and in products like drywall mud. It worked well and it was possible to mix the fibres into many products.

Why is Asbestos dangerous?

In 1987, asbestos was declared to be a human carcinogen by the World Health Organization. Finally in 2018, the Government of Canada banned all asbestos and asbestos-containing products.

It has to do with the fibres in the asbestos. Think of it like little, microscopic needles that stick in your lungs and do not heal/come out. Breathing it in can damage your lung tissue. Over time this may cause lung disease, including asbestosis, lung cancer and mesothelioma.

What is the worst type of Asbestos?

The word friable comes up. In simple terms it means how easily if can be released into the air. So the insulation type would be on the higher side of easily being released into the air and having a higher change of breathing it in.

So, I want to buy an older home in Edmonton, what should I know?

Older homes are sold all the time.It is going to depend on what you want to do with the home.  If you are looking to demolish the home and build an eight-plex (a common business now in Edmonton), then know that you may have a very large asbestos removal cost.
A very large part of the population lives in homes that have asbestos in them. It will only really become an issue if you have plans of removing walls or changing the structure of the place that would involve taking things out of the place.

How much does it cost to remove asbestos?

It is really doing to depend on how much is there and what needs to be done to it.  Edmonton and most cities now require that the home is free of asbestos when it is demolished.  If you end plan is to demolish it, then lets assume that this requirement is not going away.

To have it tested the cost can be between a couple thousand and up to around $5000 depending on the size of the building. For this they will take samples through the place and then get lab reports on the samples which will show you if it is asbestos or not. 

For the removal, it can range from around $15,000 for a small job to over $100,000+ for a larger job.  Abatement companies may very well take advantage of the scary nature of the removal, but for their cost it will depend on if they can bag it without doing a full abatement system setup for the building. 

Can I believe the results of an asbestos inspection?

The inspection itself is just gathering samples and then having them tested in a lab. I haven't heard of fake lab results so I would say just ask for the actual lab result sheets if you suspect someone is taking you for a ride.

After the inspection though, you may want to get a couple estimates on the abatement/removal.

If I am going to live in the home and want to put in new floors, kitchen and painting is it a concern? 

Think "disturbing the material".  For insulation in an attic the method mostly used is a vacuum truck which would vacuum it out.  For flooring, common practice now is to put another layer on top of the existing one. For carpet you would remove it and not put double carpet or something else on top, but carpet generally would not have asbestos in it. The underlay (the foam looking layer under) may have some, but the chances are lower.

For areas like the kitchen, if you are removing and putting in new wood cabinets or a new countertop, it is generally not considered a concern.

Three areas of most concern for asbestos

Attic insulation aside (most people don't visit their attic), the three most concerning areas are flooring, ceiling, and insulation around pipes in the furnace area.

For flooring and ceiling, (again unless you plan to demolish) if you wish to renovate it is usually best to just put another layer on top and not remove it.

I want to sell my older home in Edmonton, what should I know?

Again, older homes are sold all the time.  Currently in Edmonton (and elsewhere) there is big money in infills and densification (think adding more population to an area).  It is going to depend on the area, area and what the best use of the house would be. Speak to your realtor, but of the best use would be for a buyer to demolish you home and the value is the lot, then knowing what it would cost for the asbestos removal may really help to sell it faster or to know when it comes to the negotiations.

The markets go up and down but in a seller's market an older home with asbestos or not, will sell quickly if it is priced correctly.  If your home isn't at the point of its best value to be demolished, you more than likely don't have to worry about asbestos and just sell it like usual.

Special thanks to Josh Born from Canadian Residential Inspection services here in Edmonton. If you are interested in hiring Josh, Please visit the following page to get Josh's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html

What is Title insurance?  What is an RPR? Why do I need a real property report? 

Today we dive into the topic and discuss these terms and reasons why title insurance may be offered instead of an RPR, how this can benefit a seller and what it means to a buyer.

What is a Real Property Report and why is it necessary?

If I am a buyer looking to buy a property, Ideally, I will want to see an up-to-date Real Property Report with compliance (I will answer what compliance means below) as it will help me to know what I am buying.

It is a diagram of the lot/real estate and all fixed structures on that lot, as well as showing the measurements of the house, shed, deck, and all developments on the property.  

The Real Property Report shows what is built on a lot, which can help to let me know if there are any problems with a neighbour's development like a fence, shed or driveway going onto my property.

The buyer is going to want to walk the property (or they can have someone else do this) and make sure that everything you see is on the real property report correctly.

What does a “RPR with compliance" mean?

As the RPR shows what is added to the property, with compliance means that the city has stamped it to say that it complies/is valid. It also shows what has been added to the property.  If the city finds that there is a deck, for example, that was built without permits then it will let you know and the buyer would generally expect the seller to handle this situation before the buyer buys, or the buyer may decide to buy with that knowledge but want a lower price, etc.

Marc mentions that currently it costs $140 for the city to review and stamp the RPR to then make it an RPR with compliance.

Building development code and bylaws are also looked at by the city. For example, if the shed was built too close to the neighbour's property, or the deck is too big, then the city will notify you of that as well.

What happens if there are issues with the Real Property Report?

In some cases, the whole deck or shed should be taken down. In other cases, the city might give a variance, meaning that they will accept that it is slightly off what it should be.

Problems can happen for the seller because let's say that the buyer loved the deck and now, they don't want to buy the property, or let's say there is a tight timeline, and the buyer will now not have a place to live because of the issue and the time it will take to resolve.

There are many scenarios related to this that could pause the purchasing process.

If the city is going to give a variance approved, how long does this take?

It may take a few months (or possibly shorter if you are lucky) to get it permitted with the variance allowance.

Why is an RPR important to the Seller?

It is important that the property is saleable.  When a Seller says that the property is being sold "As-Is" for example, that usually makes the buyers nervous. In return the listing price should be a good one, and often the buyers will want to submit lower offers as they see this as higher risk.

What does it cost to get a Real Property Report done?

Between $550 and $800

Can a old Real Property Report be used?

Yes. The date of the Real Property Report is not important. If nothing on it is outdated and it shows the existing developments on the property, it is still valid and can be stamped/verified with the city.

If the Real Property Report shows a utility right of way on it, is that a problem?

No, that just means that the utility (water, gas, electricity) has that right of way access and it cannot be blocked.  I assume almost all people would want that service to their home and having that right of way on the RPR is completely normal.

What is Title insurance? Why would a Seller pay for Title Insurance instead of offering the buyer a Real Property Report with compliance?

Title Insurance is insurance that the seller may offer to pay which insures the buyer in the case that the buyer has a problem with something related to what the Real Property Report would cover, surprises, and also covers for the rare case that there is Title fraud.

Reasons I have found seller's wanting to offer title insurance instead could be:

• They don't want to pay the higher cost. Title insurance usually costs a few hundred which is less than what an RPR costs.

• They don't have the time to wait for the RPR. Often it can take two to three weeks to get one completed. Sometimes it can be quicker if necessary or also could be longer. 

• The property is too far out of the city, and they cannot find a surveying company to come out.

• Another reason is because the seller knows that there is something wrong with the property and they hope that the title insurance would wash their hands of it. If they mention a related issue to their Real estate agent, it would be the Real estate agents duty to let them know that they should disclose the issue.

If the seller knows something is wrong and they offer title insurance are they then safe?

The answer is usually no, but it depends on what the issue is. The title insurance does not cover changes, for example missing permits for a shed or deck, that are known.  Like almost all insurance coverage, it only covers unknown issues.

If however the Seller explains the situation to the insurance company and they include it and cover it, then it would then be covered.  That would really be case-by-case on what the insurance would agree to cover.

Real estate agents should make sure their seller understands that it is important to disclose known related issues.  When in doubt, it is better to disclose and explain issues to the buyer before any offer is accepted or it could become a legal battle! 

What does Title Insurance cover?

Title insurance policies do not cover things like damage or fire, etc. They would cover losses that would come up for defects in the title, that would show on a Real Property Report. It would cover the cost to the owner (buyer) to make that property comply with the existing bylaws.  For example, in the case of a deck that is oversized, one option would be to request a variance from the city. They may not accept decks like that one as a rule but in the circumstance, they may allow it. Or the owner would need to correct the deck (in this case) and make it comply. If there were costs, then the title insurance would cover those costs.

Title insurance also covers the rare case of title fraud.  Like if a fraudster makes fake id and sells your home fraudulently, then the title insurance would cover the correction of the title as well. 

Please visit the following page to get Mark's details (Be sure to tell him that you found him through Derek's video)  https://dkeet.ca/guest-speakers.html

If you are looking to buy a property in Edmonton, Sherwood Park, or need advice on the current market contact Derek!

Derek is licensed for residential, commercial, and rural real estate, plus has many years of personal and business experience to be able to understand your needs.

If you are interested in buying or investing in Edmonton or the surrounding areas, click here to set up your own detailed search: https://dkeet.ca/map-search.html

Click here for more information on Derek Keet: https://dkeet.ca/about.html

Not using a bank for financing - Alternative Lending

At first, I thought alternative lending was only for desperate people, like people who the bank won’t give money to. It is also for that, but now I understand more why it can be a great tool used by other people as well.

Financing

Financing can be scary. When it comes to financing, I have been super critical of people who take out loans for things that generally do not go up in value. For example, it bugs me to see signs for low or no interest on jewelry, maybe even more than seeing car ads that don’t even tell you the actual price and just the financing.

Other than feeling that those companies know the average person has no self-control, or worst think we are stupid, I think that if someone cannot afford something, they shouldn’t buy it.

Real estate is different. Maybe it is because in my life, over time, the prices have continued to go up. Condo prices in Edmonton are an exception at the time of writing this, but real estate is known as an investment and financing is a tool.

For example, if you buy a million-dollar property with 5% down (humour me), and it doubles in value, that is 20x the 5% you put in. If you bought the property in cash, you would just double it.

20X your investment sounds better than just doubling it.

The other point is that most people would buy very little if it meant trying to save a million dollars before you could do anything. This just an example and I used numbers that would make sense. Please do not tell your mortgage broker that Derek said you can get a mortgage on a million-dollar property with $50,000 as that probably won’t work for higher priced homes.

Obviously, I am talking more about leverage here, and starting to get off the topic. The point is generally smart/rich people finance real estate. It isn’t because they are poor or cannot possibly buy it without a loan. So, understanding the options, especially if you are a business owner, is important.

Alternative Lending - How does it work?

I’ll get into why it is an option for business owners a little later.

The other day I had a buyer that couldn’t get conventional lending (the bank said no). So, what else could he do to make this investment and buy the property he wants? Questions start to pop up; What are the fees? Interest rate? Minimum down payment? How is this going to kill me, right?

Feesfor Alternative Lending

Generally, a 1% fee needs to be paid when you use an alternative lender.

Rates for Alternative Lending

Since the video above was made, the rates have already lowered so check with your mortgage broker as rates will change, but Phil mentions 0.4 or 0.5 difference on the rate side. This seems low to me, but also welcomed news. I assume this is best case scenario and will depend on the case.

I do know lenders that lend personally and currently make 10% interest so alternative lending can also get more expensive on the rate side but in the best cases it may just be a little higher.

How much down for Alternative Lending?

Phil mentions 35 to 40% down. The point is that if you have enough cash but simply don’t show enough income, and the property clearly shows its value then alternative lenders will probably be comfortable lending. I think this is connected to the rates as well. If you are putting a lower amount down then, you would be higher risk, so rate they would be willing to give may be higher.

Why Alternative Lending works for Business Owners

In many cases alternative lending for business owners makes sense.

As a business owner you try to pay yourself as low of a salary as you can to avoid paying taxes. I heard someone say, that business owners usually don’t have a problem with paying their share of taxes, but they just don’t want to give a tip.

They will often structure their businesses, so they pay themselves in other ways. Generally, the NOA for business owners (notice of assessment from the government) is not going to be high. The bank seems to give money to massive companies but when it comes to the average business owner, getting a bank loan with a NOA, that shows a small income, is difficult.

The banks want to see a high income on your NOA and often cannot see past that requirement. Alternative lenders are usually able to look at the situation more and understand that the business owner could be paying themselves much more but, understandably, want to avoid paying higher taxes.

So, what do you do? Do you raise your salary or income so that your NOA looks better and you look much better in the eyes of the traditional banks? Or, with alternative lending you may pay a higher interest rate, and higher fees, but how much more money will you be paying than if you paid taxes on extra salary, you paid yourself to look good for the banks?

Do the calculation and your situation. For example, if you are paying yourself $60,000 instead of $120,000 per year, you may be saving you $30,000 in taxes, while the fees and extra interest you may be a much lower amount. In the end it is about making money. If there is a hot lady (or guy) at the bank that you want to impress, then spend the money on making your income look better on paper, but I think you will find when you do the calculations that alternative lending can put more money in your pocket as a business owner. If you need to increase your income and pay the extra taxes to get a mortgage with an A lender, it may not be worth it.

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