Hotel and Guesthouse – Criteria For Loan Approval!

You may want to set up a hotel and are looking out for funds to start of or expand your old one. Commercial finance for your guest house will offer you funds to buy a property, build a hotel, get your appliances and a vehicle for your business. Banks may reject loans for small business owners but there is a solace in the form of commercial brokers who will help you out if you have a small business set up.

Commercial lenders will consider your credit scores, asset value, business plan on the basis of which your loan amount will be approved. If your credit score is low, they will not deny you the loan but the size of the loan may be smaller. Your loan rates may also be set high as they have to take risks in lending loans to a poor credit holder. If possible, you may choose to repair your credit scores by closing those accounts which have smaller pending amount. This will reflect a positive credit score on your report.

Your asset will be the next best determinant of your loan rate. If your asset value is higher it will definitely attract better rates. A creditor needs some assurance that in case you don’t repay the loan on time, he will have some asset which will provide him guarantee of repayment.

Business plan is also considered before approving funds for you. It shows a creditor how good a candidate you are, do you have workable and lucrative plans. If a creditor is assured of this, he will be sure that you will repay your loan on time and your business will do well. There is no risk involved in lending funds to you.

Keep Criminals And Opportunity From Meeting In Your Life

The theory of crime opportunity suggests that criminals make rational choices and choose targets that offer a high reward with little effort or risk. According to this theory the commitment of a crime depends on two distinct factors:

1. the presence of at least one motivated offender who is ready, willing and seeking to engage in a crime.

2. an environment which makes the commitment of the crime possible, in other words, opportunity.

While we cannot control the plans and motivation of an offender, we can take steps to control our environment and minimize the availability of opportunity. Choices in our lifestyle may create or curtail the opportunity for crime.

OPPORTUNITIES IN THE HOME

Most burglars will check out or watch a property that they intend to rob before doing so. This may occur over a period of time – a few days, weeks, or even months as they study the habits of your coming and going. Or it may take just a few minutes as they observe things like an overflowing mailbox or a pile of newspapers in your driveway. The key is that they will look for a location which presents an easy opportunity to enter and exit with your possessions without being observed, including things that will provide them concealment, such as overgrown shrubbery.

There are several simple actions you can take to make it more difficult and minimize the opportunity a burglar has to enter your home and steal your possessions. These include:

  • Installing motion detector lights and alarms.
  • Trimming the shrubbery around your home.
  • Making sure to stop mail and newspaper delivery during extended times away from your home.
  • And above all, lock your doors and windows using secure locks.

OPPORTUNITIES IN YOUR VEHICLE

Theft of vehicles and property left in vehicles is a profitable ‘business’ for criminals. Many people leave valuable items in their cars on a regular basis. Items such as laptops, purses and jewelry are commonly stolen from cars. We like to believe that the inside of our vehicle creates a safety zone, but this is often the furthest thing from the truth.

  • Park in well lit areas as close to the entrance as possible.
  • Always lock your doors, even if you are stepping away from the vehicle for only a minute.
  • Lock them when you get in the vehicle as well.
  • Never keep your car running if you are not in it.
  • Do not keep valuables in plain view.
  • Keep as little personal information in your vehicle as possible. If they steal your car with your keys inside and there is something that has your address on it – they now know where you live and have a means to get in.

OPPORTUNITIES FOR PERSONAL ATTACKS

Criminals look for easy opportunity when stalking a victim for personal attack as well. They may be looking to mug someone and steal their possessions, or they may be targeting someone to rape or murder. The reason women and the elderly are the primary targets of such attacks is because they are perceived as easy prey. While it is true that both groups generally lack brute strength, neither is doomed to be victims.

There are many things men or women, young or old can do to avoid being perceived as weak and an easy target:

  • First rule is to always be aware of your surroundings.
  • Make eye contact if you think someone is stalking you, even if that means turning around to face them.
  • If your gut tells you something is wrong, listen and get away from that situation as quickly as possible.
  • Don’t be so concerned about being polite that you allow a stranger to invade your space.
  • Walk with purpose. Remember all those times your mother reminded you not to slouch? It turns out there is a reason for that. Your posture speaks volumes to others. Don’t let it say you are easy to overcome.
  • Always carry and be ready to use a personal self defense weapon.

I always think back to an event that happened when I was a teenager. I was dating a young man whose father was a diamond jeweler. One evening we went out on a date. We went to eat, went to the arcades and then to a movie. Before taking me home, he told me he had to run an errand for his dad. We went into a building and entered an elevator. It was just the two of us inside as the doors of the elevator closed. He turned to me, reached in the front pocket of his jeans and pulled out a bag stuffed with diamonds! He told me there was about $5,000 worth of loose cut gem stones! I nearly fainted. I asked him if he wasn’t afraid to carry those valuables around all night. His response is something I have never forgotten. He shook his head and said “You have been by my side all night. You got closer to me than I would ever allow any one else to, and yet, you had no idea I had these in my pocket, right?”

I nodded my head, still in awe at what he had in his hand. He continued, “If you didn’t know I had all this, why would anyone else? I have learned not to act like I have anything special on me, and so no one ever guesses I do.”

The lesson I learned is that if you don’t look or act like a target, you aren’t likely to become one.

Remember, if criminals desired to work hard for what they want, they would have jobs. Instead they look for the opportunity to deprive others of their possessions, health or even life. Don’t make it easy for them. Don’t be a victim.

Not sure which personal self defense product is best for you? Visit Best Line Defense to view a comprehensive variety of products designed to meet your self defense and lifestyle needs.

How To Finance Multiple Investment Properties

Financing multiple properties

We have all heard phrases like; “Buy land, they are not making any more of it.” Own land, my son and you will never be poor.” “No man feels more of a man in the world if he has a bit of ground that he can call his own.”

These and many similar sayings are weaved into the character of every real estate investor inspiring each to go forth and nobly create a substantial portfolio of properties. Too over the top? OK, maybe you just want the income real estate can provide and realize that building a real estate portfolio can help you reach your financial goals.

As a real estate investor, I have seen firsthand the effects the new mortgage qualification rules set down by the banks are having on both the individual home buyer as well as the investor. Many lenders have further tightened their own guidelines, in turn making it extremely difficult for many investors to successfully grow their portfolios. (Many lenders have eliminated their rental property “products” while others have closed their doors altogether)

So what are the current financing options, what lenders are available and how do we “present” ourselves to potential lenders to get favorable results in order to buy our first rental property or add to our portfolios?

First, let’s address the lender presentation. When we can present ourselves (and our portfolios) professionally, we stand a better chance of getting more mortgage approvals. Many real estate investors do not have a proper “financing binder” and consequently have a tougher time with financing. You want to show any potential lender that you know how to run a legit real estate business.

A professional financing binder should include the following:

1. A copy of a recent credit bureau. You must know your credit score and you “standing” with your creditors before the lender does. Almost 50% of people who have not seen their credit bureau discover errors. These errors are usually from poor reporting on credit cards, loans or car lease accounts. In many cases the client has completed and fully paid an account (perhaps years prior) but the account has not been documented as a closed account. These issues are easily repaired by contacting the credit bureaus as well as the creditor. In the meantime that “open account” can be adversely affecting your credit score.

Go to Equifax or Transunion to “pull” your bureau. These companies provide your credit score at low cost (or free) and provide an historic outline with your creditors. There is no negative impact on your credit score if you pull your bureau 2 or 3 times a year (which I personally recommend).

Speaking of credit, it is wise when mortgage qualifying to reduce or better yet, eliminate credit card, line of credit and other debts. High credit card balances, leases, loans or credit lines can impede the qualifying process, as these debts are part of your overall debt service calculations.

2. Your last 2 years of Tax Returns). If you have existing income properties, make sure your accountant is properly reporting your rental income and expenses in the “Statement of Business Activities” section of the return. This gives a lender a realistic view of your business and indicates the income, expenses and write offs you are taking.

3. Your last 2 years of Notice of Assessments. (NOAs) It indicates whether there are still taxes owing to CRA and provides your (net) taxable income amount, which appears on line 150, both which are key to any lender.

Regarding your line 150… The result of a higher line 150 means we pay more tax, but it is better in terms of receiving more mortgage approvals, so this is clearly a double edged sword situation.

4. If you are self-employed, include a business registration or business license as a sole proprietor or Articles of Incorporation if a Provincial or federally incorporated company. If you T4 yourself from your company, include your recent T4s.

5. For salaried individuals, include your most recent paystubs and a Letter of Employment which includes your length of time with the company, your position and your annual salary.

6. Include statements for any non- real estate investments such as registered funds, stocks, mutual funds or insurance policies.

7. Include the latest mortgage statements from all the properties you own including your principal residence. These statements should include the current balance, interest rate, monthly payment and maturity date. It is also helpful for the lender to know the original purchase and original mortgage amount.

8. A current property tax statement or tax assessment is important to have for all properties.

9. If you hold any condo style properties, all up to date condo/strata documents such as minutes from the most recent Annual General Meeting (AGM), maintenance and engineering reports should be included.

10. A recent appraisal on your properties gives the lender an idea of the equity amount of your portfolio.

11. A net worth statement should give the lender a cross section of all income, assets, liabilities and expenses. Your assets may also include vehicles, precious metals as well as jewelry, furniture and art (providing it has real value… I’m not referring to your synthetic diamond earrings, Ikea couch or your black velvet Elvis painting… not that there’s anything wrong with these!)

12. Finally, you’ll need a section which outlines your properties. This should include pictures, all current leases, a list of repairs, a breakdown of chattels (if applicable) and a DCR or debt coverage ratio spreadsheet.

DCR is a calculation which equals a ratio that lenders consider (especially if you have multiple properties) for the purposes of understanding if your property or portfolio is “carrying” itself. Basically lenders want to see the ratio at 1.2% or higher (although some lenders only require 1.1%). What this means is the property is generating enough income to carry itself without the owner having to go into their own pocket to service the mortgage.

Once you have a well put together financing binder you increase your options as to the lenders you can go to and your chances for approval. That said, adding another mortgage to an already significant portfolio, even with a slick financing binder can still be challenging. It is entirely possible to exhaust the traditional ‘A’ lender’s risk tolerance, forcing investors to utilize alternative lending sources.

Most alternative lenders are less concerned with your personal financial situation and more concerned with their equity position in the property, often resulting in lower LTVs. You should be prepared for slightly higher rates, possible fees and shorter loan terms… usually 1 year. They are also concerned with the marketability of the property should they have to foreclose, so “geography” and current market activity are major factors in the approval process.

Loan of this nature can be accessed through mortgage brokers who have relationships with “Alt A” or “B” lenders, private individuals/estates and Mortgage Investment Corporations (MICs). Let’s break these lending sources down for clarity.

An “Alt A” or “B” lender can be owned or a subsidiary company of an “A” lender (although as of this writing, many of the A lenders have closed these divisions). Other alternative sources are trust companies and credit unions. Many of these institutions have both A and B lending divisions. Because many of these lenders are regionally based, they are often more favorable to purchases in smaller communities where many national “A” lenders are hesitant.

Private individuals or estates which are often represented by a lawyer can be excellent sources for financing. These sources often lend their own money or pooled money from a few investors. They each have their own guidelines as to the loan amounts, types of properties and geographical areas they are comfortable with. Some of these sources advertise locally but are commonly known to well-connected mortgage brokers.

The other alternative source which I am quite familiar with is Mortgage Investment Corporations (MICs). These entities are relatively unknown to many mortgage brokers and investors alike depending on where in Canada you are located. MICs came on the lending scene in the 80s but have gained significant momentum as of late, making their presence known initially in single/multi-residential properties, with some MICs lending to development projects and commercial properties.

MICs are governed by the Income Tax Act (Section 130.1: Salient Rules) and must operate in a fashion which is similar to a bank. In a nutshell, MICs get their mortgage funds through a pooled source of investors; the MIC then carefully lends the money out on first and/or second mortgages. The investors/shareholders make a return on their investment and mitigate their risk by being invested into many mortgages. MICs may also own properties like single for multifamily homes, apartments, commercial buildings and even hotels. All of the net income is returned to the investor/shareholders often on a quarterly or annual basis. MICs can also use leverage similar to a bank. (For more info on MICs, refer to my article entitled “Optimizing MICs” in the March 2011 issue of this magazine)

As stated previously, many of the above institutions may only lend 65% or 75% loan to value which can often fall short of the required amount needed. This is where you can enlist a combination of lenders. Using an “A” lender or any other lender for a 1st mortgage and getting a 2nd with another lender at a higher LTV is possible. Some lenders will offer both a 1st and a 2nd with different rates.

Other financing challenges may stem from the property itself. Lenders have become increasingly more concerned with the property’s age, condition and usage. Lenders want to make sure your properties are well maintained and the units are safe.

Remember, lenders are always concerned about the implications of resale should they have to foreclose, so a well maintained and well located the property is easier to finance and to market… which is good for the investor as well.