“I ask clients: ‘Why would you want to sell this place if it cash flows, because if you sell this where are you going to go?’” said Richard Morrison, an agent with Re/Max City Realty in Vancouver. “It’s definitely a concern if you want to replace it with something else through financing. If you have one that is cash flowing keep it.”
That caution comes on the heels of last month’s move by several lenders to ditch their rental programs in response to the CMHC decision to limit their access to mortgage insurance. Government’s adoption of more stringent mortgage rules – raising the minimum down payment for investors to 20 per cent and decreasing the maximum loan-to-value for refinances – has also contributed to the challenges facing small investors.
As a group they most often rely in financing to fund new acquisitions, along with the rental programs that allow them to leverage the power of relatively small portfolios.
“We’re into a scenario where not only do lenders charge more for investment properties, they have caps on how many investment properties a client can own or they just cut off investment properties all together,” said Vancouver mortgage broker Jessi Johnson, of the Verico Jessi Johnson Mortgage Team. “You’re getting turned down consistently by lenders who would have normally done these transactions before or there are circumstances where you simply can’t get them done and you have to go commercial.”
That often means higher rates that small investors simply can’t afford.
It’s a chief reason why Morrison is suggesting they may want to hold onto cash-flowing properties, despite business plans formulated before the shifts in the lending landscape.
The changes in the market aren’t going to hurt the speculators but the small investors,” he said, pointing to their acquisition plans. “But it may be a double-edged sword if the coming mortgage rule changes increase demand for rental units from homebuyers who find themselves unable to qualify.”