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Cracking the 4 Door Rule

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Guest | 18 Mar 2013, 10:42 PM Agree 0

“That rule has been in place with our bank for several months now,” said a Western mortgage associate with one of Canada’s largest players, speaking on condition of anonymity. “But there are factors that also help such as the individual equity the borrower has in each of the properties and the relationship that they have with their bank, so it’s not impossible to get financing on a fifth property.”
Investors from one end of the country to the next have railed against a four door rule essentially forcing lenders to turn down mortgage applicants with financing on four other existing properties. The move, largely brought into force over the last year has limited residential acquisition for many industry players while encouraging many others to seek out financing from alternative lenders and vendors.
Still others are turning to joint-venture agreements as a way around the rule, while many are becoming incorporated entities and taking their mortgage applications to the commercial division of a bank. The move comes with the higher costs, complain investors.
But those different options haven’t curbed investor ire over the four door rule and the Bankers Association.
“The only ‘rule’ banks and lenders should focus on is the quality of the security and client,” says Miles Godlonton, an investor and real estate broker. “I’ve been investing for 25 years and I have excellent relationships, but that hasn’t allowed me to get a mortgage with one of the major lenders. I don’t buy that they’re willing to bend the rules.”
He and others argue the mom-and-pop investor is most affected by the policy, with their retirement income put in jeopardy.
“Forcing investors to buy through professional corporations submits us to more onerous steps to go through,” says Godlonton. “It forces us to pay higher rates both in interest rates and service charges, feeding the bank’s bottom line.”
  • Jason Henneberry, Founder | 21 Mar 2013, 06:36 PM Agree 0
    There are National Lenders that have policies in place to allow financing up to 16 doors held in a personal name.

    Working with a professional Mortgage Broker who understands these policies can often be helpful.

    We have helped a lot of investors break through the proverbial "glass ceiling" this year. The trick is to optimize/structure the portfolio so that it suits lender underwriting guidelines.

    Also, we can often obtain these mortgages at fully discounted residential rates, with no premiums for large portfolios.
  • Emmett Kelly | 22 Mar 2013, 03:21 AM Agree 0
    I agree with Jason. I wish a lender would step up and hold mortgages for serious real estate investors. Rather than cap people at 4 or 6 properties. There is no correlation out there between a cash flow positive investment property and foreclosure or a bad risk.
  • Brenda Howatt | 22 Mar 2013, 04:30 AM Agree 0
    Definitely agree with the equity notations.

    Those investors who have not over leveraged,
    have hedged funds,
    proper leases in place,
    and excellent credit

    are the ones most likely to have few problems obtaining additional income properties
    with excellent low rate mortgages.
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