Micro unit financing made easy

by Neil Sharma on 16 Dec 2020

Securing financing from A institutions for micro condos—categorized as anything below about 500 sq ft—has always been thorny, and with the COVID-19 pandemic taking a bite out of many downtown condo markets, it’s certain to remain so. However, it can still be done.

The big banks are chary about financing these units because they're rarely end user-occupied, and nearly always purchased as income properties.

“They’re typically investor units or short-term rentals, essentially serving as hotel substitutes, and there are issues around financing,” said Toronto-based Simeon Papailias, co-founder and managing partner of REC Canada. “The bank always mitigates risk on a default scenario, and it’s not a very marketable property. They look at the heavier risk they take by lending on a micro-unit as opposed to a regular unit.

“There are special programs the five major banks rotate between themselves, depending on what the banks’ goals are for the year. CIBC can do it one year, then TD could the next. There are special programs made for this, and it’s something a prudent investor should know.” 

Alternatively, the B channel is a much less knotty way to secure micro condo financing, although the rate will be higher.

 “I had private financing with Home Trust, at the time, on a 380 sq ft micro-unit investment property in Yorkville back in 2011, when those units just started becoming more common in the marketplace,” continued Papailias. “Today, around 30% of most condo buildings are under 500 square feet, and the reason has everything to do with affordability.”

Locale is another variable, says Dustan Woodhouse, president of Mortgage Architects. A micro-unit in a building near a university or college, for example, is far more likely to receive funding than a similar-sized condo situated around fewer amenities.

Securing financing for a resale micro-unit is a little easier, he added.

“Pull title on the property,” said Woodhouse. “Pull title on that unit and pull title on four more units in the building and see who the lender is on the title. Then you’ll know who to call."

The pandemic has left downtown condo markets reeling, but as any savvy investor knows, that’s when opportunity comes knocking.

“Prices on micro condos are dropping the furthest and the fastest over any other type of properties. On the one end of the spectrum, detached houses are rocketing upward, and at the other end of the spectrum you have micro condos dropping in price.”



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