Skycraper Dreams

Good news!  My mortgage application has been approved and I’m going to be able to tap into some of the home’s equity and pull out some extra cash.  This is incredibly good news, you see.  Both of my rental properties are currently up for sale and my projected ‘net income’ (before capital gains taxes) would be no more than $20,000.  With my new mortgage I’m able to access more than $25,000 in cash without any tax implications (until I sell).  On top of that, I’ll actually double the monthly profitability of the building, keep my assets, and the passive cash-flow.  Oh, and of course the head-aches, but this stuff doesn’t happen without some effort.

This dream scenario is possible because I bought the building with 100% financing three years ago.  That meant I traded a down-payment for an exorbitantly high interest rate of 7.35% with Xceed Mortgage.  This is a self-insured mortgage, meaning that CMHC didn’t provide the insurance for this high-ratio mortgage, Xceed did.  I still had to pay an insurance of sorts in the form of a ‘fee’ that roughly equaled what I would have paid CMHC.   This high ratio mortgage, on a 3 unit rental property, that was not owner-occupied would never have met

CMHC’s tight financing rules.  I was lucky to buy this when I did, because these kind of mortgages don’t exist today.

As you know, this is a great time to acquire debt.  Interest rates are as low as they’ll ever be with the Bank of Canada Prime rate at just 0.25%.  So my mortgage broker was able to secure a mortgage from Street Capital Financial that consists of:

• 90% financing based on a market value of $255,000
• 2.40% variable interest rate(Prime + 0.15%)
• 5 year term
• 35 years amortization

After I pay off my current mortgage, that leaves me with roughly $25,000 in cash and increases the profitability of the building from about $300/month to $715/month.  It’s a win-win scenario.

Now, I know many of you are probably cringing at the thought of amortizing your mortgage over 35 years.  I’m well aware of the fact that I pay down very little principal over the next 5 years.  But that’s OK with me.  Cash flow is key here and the interest on the mortgage is a tax deductible expense.  Also, I know I can expect my mortgage rate to march pretty consistently upward over the next few years as the economy improves.  This will affect my profitability, but I’m a believer in variable rate mortgages being cheaper in the long-run (more on that another time).

So, my plan is still in effect.  I want to ’sell up’ and get into bigger buildings, but I’m going to do it a little differently.  I’ll use the money from this new mortgage to spruce up my own house a little bit, put the rest aside, then re-finance my house and pool as much cash as I can so I can go shopping for a flip.  This way I can keep my rentals, continue to grow my equity, collect some monthly passive income, and do a flip.  We’ll see how it goes…

Steve Cash-flow, Financing, Rental Profit, Rental Property Financing, Interest Rate, mortgage, Mortgage Payment, Profit