18 Jul

REMODELING YOUR HOME THIS SUMMER?

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Posted by: MANJIT SINGH BHONDHI

With most of the summer still ahead, it seems like the best time for rest and relaxation. Or… it could mean the perfect opportunity to make those changes around the house that they have been waiting to do since the Spring!

A renovation or remodel on your home could mean excellent returns on your investment. We’ve all seen the TV shows, like Fixer Upper or Love It or List It on HGTV, that demonstrate just how far a fresh coat of paint and decluttering can go to help raise the value of your home when trying to sell it. Sometimes a renovation budget can be as easy as a can of paint but there are other times that you need to add an extra bathroom or bedroom which cost substantially more.

Whatever the reason for your renovation, the question remains: how do everyday people get the money for these fixer-upper projects?

CASH OR CREDIT

For renovations under $5,000, you could probably pay cash or with your credit card. Saving up for these smaller renovation projects can prove very lucrative over the long term, especially if you want to make your everyday living experience a little more comfortable and/or are trying to increase your property value. As we’ve seen on the home renovation shows, the money that is invested in the renovations is likely going to see returns when selling a home.

For projects over $5,000, the projects are more elaborate and may or may not see the types of returns the smaller upgrades can. (Here’s an article with examples of renos that add value, and those that don’t.) However, they mean a lot for your living conditions. When considering these larger projects, there are a number of ways you could find the means to pay for them.

PERSONAL LOANS

The banks will likely suggest a Personal Line of Credit for these types of projects, however, you could also apply for a personal loan from the bank. The personal loan usually has a lower interest and can be paid off through regular payments in a few years. The line of credit may be better suited for ongoing or long-term projects, where you can access funds as you need them, and pay interest only on the amount used.

SECURED LINE OF CREDIT & HOME EQUITY LOANS

A secured line of credit is another option for bigger renovation projects. To secure one, you will likely need a credit score at or above 700 and have a good history of repaying debts in a timely fashion. They offer the advantages of regular lines of credit and loans, plus they often come with preferred interest rates. Since they will likely be secured by your home’s equity, they will require some set-up costs, such as legal fees.

For seniors looking to make adjustments to their home, they can apply for SHARP, the Seniors Home Adaptation and Repair Program. It provides low-interest home equity loans to help seniors with the necessary repairs, adaptations and renovations to their homes, up to a maximum loan of $40,000. In order to qualify, seniors need to have an annual total income of $75,000 (or less) and a minimum of 25% home equity in their primary residence.

MORTGAGE REFINANCING

Refinancing your mortgage may offer some advantages when looking to complete larger-scale renovations to your home. With mortgage interest rates still relatively low, much lower than those on a credit card or loan, refinancing may be an advantageous option. When refinancing, you will likely receive a lower mortgage rate that reduces the overall cost of the loan, ultimately resulting in savings. Refinancing at a lower rate could allow a homeowner to “cash out” with enough funds for the planned home repairs – without an increase in mortgage payments. The additional funds for the renovation are added to the total mortgage and spread out over a longer period of time.

RENOVATING A NEW HOME PURCHASE

If your planned renovations are for a new home you’re thinking about buying, you can also add that cost to your mortgage. If the price of the home (or condo) is $250,000, you can add the $10,000 (for example) renovation budget and secure the mortgage for $260,000, with the same amortization rate. This results in a lower interest rate, compared to a credit card or loan, and allows you to spread repayment over a longer period of time.

GRANTS & REBATES

In good Canadian fashion, the federal, provincial and municipal governments along with local utilities offer grants and rebates for energy-saving renovations. For example, CMHC Green Home offers a premium refund of up to 25%. You may be eligible if you buy, build or renovate for energy efficiency using CMHC-insured financing. Below is a list of other available financial options to help with your environmentally friendly home improvements.

CMHC Green Home premium refund
Environmental incentives (Alberta)
ENERGY STAR® rebates and incentives
Energy Efficiency Alberta (Home Improvement Rebates)

REMEMBER!

Whenever you decide to embark on a renovation project, remember to set money aside for any unexpected costs that may come up. By having this buffer, you are able to adjust your plans without renegotiating your finances or having to reapply for new funds.

Also, every homeowner’s financial needs are unique, so it’s best to meet a qualified professional to explore your options. For help with finding some financial options for your next renovation project, contact a Dominion Lending Centres mortgage professional near you.

17 Jul

RISING INTEREST RATES AND THE IMPACT ON REAL ESTATE VALUES

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Posted by: MANJIT SINGH BHONDHI

Rising Interest Rates and the Impact on Real Estate Values. Is there an immediate association? In a post entitled Interest Rates and Property Values. What’s the Connection?, I recommended that there was. An illustration was given which proposed that home loan banks would be specifically affected by an ascent in rates, as their endorsing parameters, most outstandingly obligation benefit scope necessities, are straightforwardly affected. A powerlessness for a purchaser to anchor the required financing sum, in a domain of expanding loan costs will, I contend, affect their readiness to offer as high a price tag. Ostensibly a lower obligation level will require a more prominent measure of value. This specifically decreases a financial specialists money on-money return. The unavoidable outcome will be a softening of qualities, since purchasers will need to offer less.

Are there Other Factors?

The above noted method of reasoning, for building up the connection between loan fees and qualities, does anyway overlook different variables which may affect showcase opinion.

An ongoing report by Manulife Asset Management raises some fascinating perceptions. In their March 2018 report entitled Canadian Commercial Real Estate Outlook, Manulife’s investigation watched that in certainty there was no predictable connection between land esteems and financing costs. One of their essential discoveries was that in spite of the fact that loan fees have been ascending since November 2016, to a great extent because of financial development and higher inflationary weight, capitalization rates really declined. Why? Well separated from the assumptions of an individual purchaser and loan specialist, which is the thing that I referenced in my before post, Canadian speculators appreciated enhancing land basics. Yields supposedly was appealing in contrast with different speculations, and there was an ascent in outside venture. All added to a help for business land essentials and steady or improved qualities.

Capitalization Rate Refresher

You may review that capitalization rates are contained an ostensible “hazard free” rate (regularly connected with a Government of Canada benchmark security yield), in addition to a hazard premium credited to a particular property compose or resource. On the off chance that, as it shows up, general capitalization rates have declined, might it be able to be that the “hazard free” rate is falling too? I will urge you to investigate the Manulife report and reach your own particular decisions. From a moneylender’s viewpoint, I don’t question that rising rates have a course on what a purchaser will pay for a property. I presume land appraisers will be similar. The Manulife think about does anyway alert us that there are large scale factors having an effect on everything also, and a solid economy is steady of longer term strength, and to be sure development, in the Canadian Commercial land advertise.

16 Jul

WHAT ARE “RATE HOLDS”?

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Posted by: MANJIT SINGH BHONDHI

Have you at any point known about the term rate hold? In the event that you have ever worked with a home loan representative, odds are, you have!

Rate holds are something that the lion’s share of loan specialists offer to potential customers obtaining another home who require a home loan. Rate holds are for the most part not given out for individuals renegotiating their home loan or hoping to exchange it starting with one bank then onto the next.

120 days is the longest rate hold accessible with moneylenders. When you have made an application with a home loan agent, they can submit it to an accessible moneylender offering rate hangs on a financing cost you need to exploit all without a property appended.

This rate hold does not confer you to working with a bank, does not confer you to working with the home loan intermediary who submitted it, and does not hurt your odds of getting an endorsement not far off (accepting you and your home loan specialist have not presented different rate holds and plan to utilize a third or fourth moneylender).

For instance, the very beginning you present your application to a bank for a settled loan fee of 3.24% for a long time, and on day 60 that financing cost moves to 3.54%, as long as your home loan shut in the following 60 days, you are secured and can keep your 3.24% rate. On the off chance that rates go down, not up, you can likewise exploit the lower financing cost.

Once the 120 days terminates, there is nothing preventing you from presenting another rate hold, it will simply be liable to current financing costs the day of accommodation. On the off chance that you have any inquiries, contact a Dominion Lending Centers Mortgage Professional who can help.

13 Jul

POLOZ OPENS THE DOOR FOR MORE RATE HIKES

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Posted by: MANJIT SINGH BHONDHI

OPINION: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

As expected, the Bank of Canada hiked its key overnight rate this morning by 25 basis points to 1.5%. What wasn’t expected was the hawkish tone of the press release which brushed aside the threat of greater protectionism, instead emphasizing the need for higher interest rates to keep inflation near its target. In today’s Monetary Policy Report (MPR), the Bank maintained its forecast for growth of the global economy. The U.S. economy, however, has proven stronger than expected, “reinforcing market expectations of higher policy rates and pushing up the U.S. dollar. Meanwhile, oil prices have risen. Yet, the Canadian dollar is lower, reflecting broad-based U.S. dollar strength and concerns about trade actions.”

Canada’s economy continues to operate close to full capacity. “Household spending is being dampened by higher interest rates and tighter mortgage lending guidelines.” The ratio of household debt to disposable income is edging down as household credit growth continues to slow.

Consumer spending growth has been slowing since mid-2017, led by a pullback in interest-sensitive components such as vehicle purchases, furniture, appliances and dwelling maintenance. With the slowdown in housing purchases, housing-related spending has also slowed.

The sensitivity of consumption and housing to interest rates is estimated to be larger than in past cycles, given the elevated ratio of household debt to disposable income. The impact of higher interest rates likely differs across categories of borrowers, with highly indebted households the most affected.

The Bank said that “Recent data suggest housing markets are beginning to stabilize following a weak start to 2018.” The July MPR report estimates that housing will contribute a mere 0.1 percentage points to growth this year, with no contribution in 2019 and a slightly negative impact in 2020 (see Table below). The MPR elaborated that residential investment is slowing, reflecting the effects of higher interest rates and tighter mortgage rules. Resale activity contracted when the revised measures went into effect but is anticipated to improve over the next few quarters. Data on resale activity and housing starts suggest that the housing market is beginning to stabilize. The growth of new construction spending is expected to slow over the projection horizon. The new mortgage measures may cause households to purchase less-expensive residences because typical homebuyers are now more constrained in how much they can borrow.

Meanwhile, exports are buoyed by strong global demand and higher commodity prices. “Business investment is growing in response to solid demand growth and capacity pressures, although trade tensions are weighing on investment in some sectors. Overall, the Bank still expects average growth of close to 2% over 2018-2020.” This is somewhat above the Bank’s estimate of noninflationary growth at full capacity, the so-called ‘potential’ growth rate.

Inflation remains near 2%, consistent with an economy close to capacity. The Bank estimates that underlying wage growth is running at about 2.3%, slower than would be expected at full employment. The actual growth rate in wages has recently been boosted by increases in the minimum wage rate in some provinces.

These economic projections take into account the estimated impact of tariffs on steel and aluminium recently imposed by the U.S., as well as the countermeasures enacted by Canada. “Although there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest.”

The Bank wrapped up its press release with the following statement: “Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data. In particular, the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.”

Bottom Line: This rate hike signals that the Bank of Canada is determined to bring its benchmark overnight rate back to more normal levels and that the economy is strong enough to withstand further rate increases. The Bank believes that stronger-than-expected business investment, higher oil prices and a weaker Canadian dollar offset the adverse effect of greater trade uncertainty. Exports have surprised on the upside because of strong global demand.

The mix of growth in Canada has shifted from housing and consumption to exports and business investment–the desired result of the many tightening moves introduced by the government, the central bank and the regulators to slow the rise in household debt. The Bank believes that this shift in the composition of growth will result in a more sustainable expansion.

Markets expect the Bank to gradually hike the benchmark rate until it reaches 2% or 2-1/4% by the end of 2019–implying another 2 or 3 rate hikes by the end of next year. Governor Poloz said today at the press conference that the Bank’s assessment of the neutral rate for the benchmark is 2-1/2% to 3%, but it is uncertain how quickly we will get there.

The Governing Council of the Bank is scheduled to meet again on September 5. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on October 24, 2018.

9 Jul

IT’S ALL ABOUT THE PROPERTY

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Posted by: MANJIT SINGH BHONDHI

With the majority of the lead changes forced by the federal and provincal governments around contract financing and land it might be more hard to get to financing. Be that as it may, don’t think about it literally – in some cases it’s not you it’s the property.

At the point when loan specialists guarantee your application for endorsement they take a gander at you as a borrower however they additionally assess the property.

Here are a few things to consider before you buy.

The kind of property — house, condominium, duplex, legacy, and so on.

1. Particularly for condominium properties the moneylender (and guarantor if required) will take a gander at the age of the building, the historical backdrop of support or need there of and the area for attractiveness. A few banks will restrain their presentation with a most extreme number of units in a building or abstain from loaning on structures after a particular age for the property.

2. Properties with in excess of 4 units in them, for example, a 5-plex will be viewed as business land and the loan specialist will assess on that premise.

3. Legacy homes (enrolled or assigned) require a more nitty gritty survey and exceptional thought for financing.

4. Leasehold and center properties additionally have particular necessities for the most extreme advance to esteem so more initial installment might be required. More documentation will be required and financing costs will differ.

The area of the property—banks dependably think about their hazard in each market.

1. On the off chance that as far as possible the potential resale esteem for the working in case of default by the borrower they may not loan on that property. A few moneylenders will decrease the credit sum for a building situated out of real market zones or add a premium to the financing cost.

2. For properties with water get to just or with no entrance to city utilities (water, warmth, light and sewer) more points of interest are required to survey the loan specialist chance. Protection scope, water testing, occasional access and state of the property will be solid contemplations.

The utilization for the property—individual or venture, recreational, past exercises.

1. In the event that the proprietor possessed house has a suite then rental pay might be considered.

2. In the event that the house is bought for venture then rental pay is considered and the financing cost for rental as opposed to proprietor possessed is doled out. In these cases the rental pay can expand the resale estimation of the property. In any case, the evaluation of the property will be audited to guarantee the state of the property and if any redesigns were finished to include esteem.

3. There are loaning alternatives for a past develop operation that accompany higher financing costs and expenses

4. On account of an apartment suite the property may have a business part in the building (shops underneath) or admissible space in the unit for business (live/work assignment). In these cases a few banks might not have a craving for financing. Sometimes the moneylender may permit with endorsement by the safety net provider (CMHC, and so on).

5. Buying a second home for recreational utilize will require a survey on the off chance that it is regular or year-round access.

6. In the event that the property requires remodels the degree and cost to estimation of the property will be considered.

It is essential before you begin taking a gander at any property to chat with a Dominion Lending Centers contract merchant. This enables you to examine the particular prerequisites for any variety in the kind of property you might need to buy and permit plentiful time for a full financing survey before subject expulsion on a buy.

For instance:

In the event that you move from a standard townhouse to a rent hold property your initial installment sum will probably change.

On the off chance that you need to move to a little rustic town or to a little island you may need to pay a higher rate or have not so much choices but rather more documentation required on the property.

On the off chance that you purchase a home in one territory however might be exchanged to another region, a few loan specialists, for example, credit associations are commonly based so you can’t port the home loan.

In the event that the condominium you wish to purchase has no censure report, a low possibility subsidize or huge uncommon tolls pending, these will all be a warning for the bank and ought to be a solid thought for you as a purchaser. A more exhaustive audit will be required.

Continuously counsel an accomplished free home loan representative as your confided in guide for the majority of your financing needs. You will welcome the distinction in the level of aptitude to enable you to settle on an educated choice.

3 Jul

IS YOUR LINE OF CREDIT KILLING YOUR MORTGAGE APPLICATION?

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Posted by: MANJIT SINGH BHONDHI

Some of the last round of changes from the government regarding qualifying for a mortgage were that if you have a balance on your unsecured line of credit, then to qualify for mortgage the lenders require that we use a 3% payment of the balance of the line of credit.

Simple math is,  if you owe $10,000 we have to use $300 as your monthly payment regardless of what the bank requires as a minimum. Given that the banks hand out lines of credit on a regular basis it is not uncommon for us to see $50,000 lines of credit with balances in the $40,000 range. That amount then means we have to use $1,200 a month as a payment even though the bank may require considerably less.

So what if it is a secured line of credit? Again we have clients telling us that they don’t have a mortgage only to realize they do have a Home Equity Line of Credit (HELOC). A home equity line of credit by all definition is a loan secured by property, the actual definition of a mortgage.

Again, it’s something the bank will require little more than interest payment on because it is secured. The calculation here can also upset the calculation for your next mortgage, as what is required by many lenders is to take the balance of the HELOC. Let’s say the balance is $200,000 and you convert it to a mortgage at the bench mark rate, which today is 5.34% with a 25-year amortization. That without any fees today is equal to $1202.22 per month, so what in the client’s mind may be a $400 or $500 dollar interest payment for the purpose of qualifying will be almost three times higher.

This one change to supposedly safe guard the Canadian consumer has lately been the thing we have seen stop more mortgages than just about anything else. If you have any question, contact a Dominion Lending Centres mortgage professional for answers.

8 Nov

4 COMMON FINANCIAL MISTAKES EVERY SMALL BUSINESS OWNER SHOULD AVOID

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Posted by: MANJIT SINGH BHONDHI

Every entrepreneur and business owner will make a few financial mistakes during their journey. Those who aren’t savvy in accounting often overlook the need to brush up on their financial IQ. Truth is, these little financial errors can lead to some serious cash flow problems if you aren’t careful. Here are four financial mistakes you can easily avoid so you can protect your bottom line.

Late payments
Nobody is fond of paying bills. We tend to put them off until the last minute for short-lived peace of mind. This applies to all business owners when it comes to both your account payables and receivables.
When billing your clients, it’s common to give them an extended window of time to make payments so you can foster more sales. While your clients may appreciate the flexibility this can seriously cripple your cash flow. I generally suggest giving your clients no longer than 14 days to pay an invoice. If you’re providing quality goods and services they should have no problem paying you within this time window.
When it comes to paying your own bills, it’s important to follow the same principles above. This is especially the case if you’re operating off borrowed money. Paying an invoice late may result in a few unhappy emails, but when it comes to paying off your debts you need to always be on time. Even one missed payment can severely harm your credit score.
The best way to stay on top of these is to use an online payments solution that offers online invoicing and accounting features. This way all of your bills are organized and can be accessed anywhere at anytime.

Forgetting to have an emergency fund
Every successful entrepreneur will probably tell you that hindsight is 20/20 and foresight is … well you just never know what’s going to happen. Every business will have to pivot and there will always be unexpected hurdles. That being said, it’s absolutely imperative that you have your contingency plan, especially when it comes to finances. I recommend that every business owner has a three-month emergency fund at least.
You should start putting money away into your emergency fund as soon as the cash comes in. No matter the size of your business you should learn the art of bootstrapping and staying lean. The more money you put away, the more you’ll force yourself to get by with what you have. The majority of startups fail due to the lack of or misuse of capital. Having an emergency fund gives you a bit more runway when disaster strikes.

Failing to separate business funds from personal funds
This is one of the most common and dangerous pitfalls in small businesses. Small business owners often put their lives on the line for their business, literally. This is a big no-no. When starting a business it’s important to immediately separate your personal finances from your business finances. If you’re like any other entrepreneur it’s going to take more than one go to be successful. That being said, you definitely don’t want a failed business to tarnish your financial reputation.
Start by opening up a business bank account and apply for a business credit card to keep track of expenses. Make sure you’re only using your business credit card for business expenses and vice a versa. Failing to separate the two can also lead to complications around balancing accounts, filing taxes, measuring profits and even setting clear financial goals. Do yourself a favor and avoid mixing these expenses.

Spending too much time on non-cash-generating activities
It’s a given that you most likely won’t see an ROI on every activity you do when running a business. That being said, it’s important to distinguish which ones have the highest chance of eventually generating some cash flow. When it comes to time tracking and time management, it’s important to pay close attention to your productivity levels.
Everyone has 24 hours in a day, some decide to work smarter than others and that’s why they become successful. Know that time is your most valuable asset and treat it as such. Remember, it’s okay to say no or to turn down meetings that you know provide little to no value for your business. There’s no need to take or be present on every phone call either. Being able to identify what brings true and tangible value to your business is a key to success.
Try your best to follow the 80/20 rule. There are likely three to four activities in your business that generate the most cash. Once you identify these activities, create a habit of spending 80 percent of your time doing these tasks and save the rest of your time for other miscellaneous jobs. If you’re able to get really disciplined around this strategy, it will surely pay off.
It takes years of practice to improve your financial literacy. Although most lessons in finance are learned the hard way, it’s important to learn them nonetheless. Take note of these four common financial mistakes and do your best to avoid them. Contact Dominion Lending Centres Leasing if you have any questions.

JENNIFER OKKERSE

Dominion Lending Centres – Director of Operations, Leasing Division

7 Nov

FACT AND FICTION-OUR HOUSE MAGAZINE

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Posted by: MANJIT SINGH BHONDHI

This story appeared in the Fall issue of Our House Magazine

The restored Green Gables property in Prince Edward Island is a blend of Lucy Maud Montgomery’s real childhood home and the one of her fertile imagination. 

Stepping into the house at 8521 Cavendish Road in Cavendish, P.E.I., is like walking back a couple of centuries and into the imagination of Lucy Maud Montgomery. While the famed Canadian author wrote Anne of Green Gables more than 100 years ago at the turn of the 20th Century, her beloved masterpiece lives on in real life at a heritage site in the rural Maritime town.

The folks who look after the Green Gables, officially known as the L.M. Montgomery’s Cavendish National Historic Site, want visitors to feel like they’re a part of the novel.

“When they arrive and they step into the barnyard or the house, or when they look at Anne’s room on the second floor, they really feel like they’ve stepped into that story,” says Ocel Dauphinais-Matheson, the visitor experience manager for Parks Canada National Historic Sites for Prince Edward Island. The idea was to recreate the location described by Montgomery in her novel, he explains, even though the actual site was originally a little different back in 1908.

While the Green Gables house and property were the inspiration for Anne of Green Gables, the author added elements that weren’t literally in front of her. For example, the original farmhouse, built back in 1831, actually never had a green roof. It does now. And Montgomery in fact grew up on a property next to the home with her grandmother. The Green Gables property belonged to David Jr. and Margaret Macneill, who were cousins of Montgomery’s grandfather. She came to know her cousins’ farm through her explorations of the surrounding woodlands and places she discovered and named, such as Lover’s Lane and the Haunted Wood.

“That’s why when she [Montgomery] wrote Anne of Green Gables, she used it really as the inspiration for the main setting in her book,” Dauphinais-Matheson told Our House magazine. “That’s the uniqueness of the site: it’s a real place and it really served as an inspiration. The way we present it is really true to the description she makes of the site in her novel.”

And people from all over the world have been coming to the province and site ever since the book was published. Last year, Green Gables welcomed 180,000 visitors between May and the end of October. At its peak in the summer, the property can expect up to 3,000 daily.

Dauphinais-Matheson suggested there are generally two types of people who visit the site: ones who don’t know much about the book but know its historical importance, and those for whom the site is a real pilgrimage. And to understand just how far reaching Montgomery’s novel has traveled, hundreds of thousands of people from abroad have come to the site, including from Japan, France, Australia and the U.S.

However, to keep a home approaching 200 years old in tip-top shape takes a lot of work and hands. There are two people responsible for cleaning the home and the 3,000 or so artifacts therein from top to bottom every day. There is an entire maintenance team responsible for the physical upkeep of the property, which includes any repairs that are authentic to the time period.

“It’s a big job. There are thousands of artifacts in the house. Lots of people come through, so we have a team of people who look after the upkeep and longer-term maintenance of the artifacts and the house itself,” Dauphinais-Matheson says.

But the effort is necessary to maintain such an important Canadian historical site, according to people with Parks Canada. Dauphinais-Matheson suggests Green Gables is important to protect because the site represents the inspiration and imagination the author had in creating one of the most well-read novels of all time.

JEREMY DEUTSCH

Lead Writer

3 Nov

THE CAPITAL STACK. WHAT YOU NEED TO KNOW

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Posted by: MANJIT SINGH BHONDHI

Financing is key to successful real estate investing. You’ve aligned your financing with your real estate investment strategy, and are comfortable that you can execute your plan. As a result, you may have a conventional mortgage, and secondary debt as well. The term Capital Stack is used to describe the various levels or layers of financing that go into purchasing or improving a real estate project.

Why is this an important concept to understand? A successful real estate program on a specific development will result in all participants getting paid. Not all financing sources however, have the same priority. Understanding the Capital Stack insures that you understand the relative risk associated with each level of financing participation. And ultimately, whether the proposed real estate investment plan will yield the intended rate of return.

What you Need to Know

There are typically 4 levels of capital, however there is really no limit, in theory, to how many layers or classes of financing a capital stack may contain. 

The important concepts to keep in mind are that:

Risk increases as you move higher in the capital stack

Each source of capital has seniority over the capital source above it, in the capital stack

Each source of capital is subordinate to the capital source below it, in the capital stack

Since risk increases as you move higher in the capital stack, it follows that returns generally do as well, with the Junior, or Mezzanine lender typically earning a higher rate of return than the Senior debt holder.

What are the Implications?

The important concept here is that in the event of the sale or refinancing of the property, the capital stack participants at the bottom get compensated first, and once fully paid, and to the extent that there are excess funds, subsequent participants (i.e. up the capital stack) will be compensated as well.

If a real estate development plan is strategically implemented, and the business plan is properly executed, all participants will be paid. The relative position in the capital stack will however reflect risk, and the potential for compensation will be commensurate. If there are losses upon a property sale or refinancing, losses are incurred from the top down.

There is no right and wrong position in the capital stack. Savvy real estate investors may either participate as financiers, or receive the benefit of various levels of capital in their own projects. Understanding the concept of the Capital Stack allows for a better understanding of risk, and the ability to generate higher real estate investment returns. If you have any questions contact a Dominion Lending Centres mortgage specialist near you.

ALLAN JENSEN

Dominion Lending Centres – Accredited Mortgage Professional

1 Nov

THE 30-SECOND COMMUTE-OUR HOUSE MAGAZINE

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Posted by: MANJIT SINGH BHONDHI

This story appeared in the Fall issue of Our House Magazine

How a B.C. woman transformed her home into a skin-care spa.

From an early age, Leah LaVanway struggled to get her acne under control. As a gymnast and horseback rider, her athletic pursuits made it difficult to keep her skin healthy and clean. It was those personal struggles that also led her into the medical skin-care industry.
“It was always my mission to learn more about skin and try to figure out why my skin was breaking out,” she tells Our House magazine.
LaVanway graduated as a Certified Medical Esthetician and sought to start her own business in B.C.’s Lower Mainland. But life got in the way, at least for a few years. Just as she was getting her spa business up and running, her boyfriend, William, a trainer of racehorses, was injured in a car accident and couldn’t work for a couple of years. She put her business on hold to help with the equestrian work that her boyfriend—now her husband—couldn’t do.
But once he got back to work, LaVanway wanted to get back to helping people.
She set up her spa business in a few retail locations around the Lower Mainland, but none seemed to be the right fit. The storefronts didn’t offer the privacy that she felt her clients wanted. They were also telling her if she ever set up at home, they’d come to her there.
She did just that, moving her spa into her home. Since 2012, LaVanway, 32, has been operating Essence of L Medi Spa & Laser Clinic out of her White Rock, B.C., home, and hasn’t looked back. “People love it. They come in and they feel comfortable. Especially since a lot of my treatments are for acne… a key reason to keep it here was the privacy,” she said.
LaVanway also noted some pretty big advantages to having a home-based business, including offering a flexibility in her schedule.
But the spa isn’t some little office space. She’s transformed nearly her entire home to give it a true spa feel. Walking through the front door, you wouldn’t know it was a residence too.
A grand entrance leads into the studio space on the house’s main floor. The studio is completely separate from the living space. And since there are no children in the home, there are no toys or other items strewn about.
Over the years LaVanway has changed the entire front entrance, adding parking, a waiting area and an outdoor fire table. The first piece of advice she would give anyone looking to start a home business is to make sure it’s as separate from the living area as possible. If you have clients coming to the house, she recommends spending a little extra money. “Just so when they come in [to your home], you’re proud to show your home and to welcome them,” she says.
There isn’t a better time to start a home-based business, LaVanway believes, and the statistics back her up. According to the Business Development Bank of Canada (BDC), there are 1.1 million small businesses in the country. Another 2.7 million people are self-employed.
“In my opinion, this is one of the best times to have a business at home because it’s so flexible, interest rates are great, and our lives are getting busier… It can change and build how you planned to have your dream life to supplement your income by having something else at home. It’s definitely the time to do it,” LaVanway says.
Before committing to starting a business in your home, check with your municipality regarding rules and bylaws governing such businesses. While very few cities and towns ban home businesses outright any more, they may not permit signage or customer visits, for example. Condominium and townhouse dwellers will need to confirm what their building’s regulations will allow too.

Financing a Home with a Business
Starting a home-based business like Leah LaVanway’s can be an appealing way to make a living, but there are a few things you need to consider if you’re about to take out a mortgage on the property.
Nancy Ingram, a DLC mortgage specialist in Guelph, Ont., notes that lenders will be looking at the sustainability of the business and whether the borrower can repay the mortgage. Lenders will also be looking at the history of the business for things like regular deposits. If it’s brand new, lenders will be considering whether the business venture is viable.
“They would really look at the whole scenario to make sure they’re protecting themselves and their investors’ money to ensure they [borrower] can pay it back,” Ingram says. Contact a Dominion Lending Centres mortgage specialist near you if you have any further questions.

JEREMY DEUTSCH

Lead Writer