Phil's Phascinating Rephlections » Political

New CMHC Rules for Real Estate Investors – Good or Bad

Phil — Fri, 23 Apr 2010 19:10:39 +0000

How have the recent changes to Canadian mortgage lending affected single family real estate investors? The recent changes The Honourable James Flaherty, Minister of Finance, made were specifically directed to “reckless speculators”. But the new rules have impacted all the single family home real estate investors in a negative way and possibly increased the risks to banks, the very thing he is trying to avoid.

Three things have happened with the new rules. They have:

chased some potential real estate investors away
made it more expensive to become a real estate investor
made it more risky for people to become real estate investors.

Real estate is a way many people choose to build assets and increase their cash flow. Let’s face it the stock market is not for the unsophisticated investor and mutual funds make the mutual fund managers rich, not the investor. There are not a lot of options out there.

We are fortunate to live in Canada. Our banking system is sound and survived the recent global melt-down very well. The circumstances that occurred in the US did not happen here because of our rules and regulations. Banks in the US had loans that were 100% backed by the government so they could lend money to anyone with a pulse at no risk to the bank themselves. In Canada that was not possible as we already had the 5% down minimum from the CMHC.

Real estate speculators didn’t cause the crash. It wasn’t even Wall Street as much as people want to believe that. It was the US Central Bank and the US Government that caused the global melt-down by removing free-market conditions and keeping interest rates too low.

So why does a small real estate investor in Canada have to pay for bad US economic policy? Mr Flaherty even stated that there was no clear evidence of a real estate bubble in Canada yet he still introduced rules to increase the cost of real estate investing.

I was looking at a recent property and I was declined the CMHC mortgage. They identified that I had two risky rental properties (one at 5% down and one at 20% down, I was trying for 5% on this one) and under the new rules I would be unable to qualify for 5% although a couple of weeks earlier I had and the new rules had yet to come in effect yet.

I now have three options:

Come up with 15% more for a total of 20% down, bypassing the CMHC, increasing my financial commitment and lowering my ROI
Come up with 10% more and find a joint venture partner to come up with the other 10% for the down payment, bypassing the CMHC, increasing my financial commitment and lowering my ROI. This also increases the cost as I now have to spend money on lawyers’ fees to come up with the proper partnership agreement as well as this has increased my risk since I am no longer 100% in control of the property. I also have the added risk of the actual partnership.
Or just pass on the deal

I actually found a partner but as we worked through the deal too many questions arose so we decided to pass on the deal. Now, the rent-to-own tenant lost a beautiful house and the current owners still holds the property.

I think the Canadian banks and mortgage lenders were doing a good job of their due diligence lending money to single-family home real estate investors already. The new rules just increase the risk and cost to real estate investors. It might even increase the risk to banks as they may lax their due diligence and wind up with more bad loans just because someone has been able to come up with 20%.

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What in store for Canada? Email to Mr. Ignatieff (cc: John Cummins)

Phil — Sun, 25 Jan 2009 01:17:50 +0000

Mr. Ignatieff

First let me extend my congratulations to you on your recent appointment to Leader of the Liberal Party. I’ll be honest, without the support of a leadership convention, it doesn’t seem to be to democratic to me but congratulations, anyway. I am not affiliated with any specific party and have included Mr. Cummins since he is my elected representative.

I am writing to you because of a recent comment you made. It has me concerned as to the direction Canada may take in the coming days and months. The comment was related to a coalition the included the Bloc. I believe you stated the Bloc are Canadians. While that may technically be true but I don’t think that’s what they feel in their heart.

My understanding of the Bloc’s platform is to establish a sovereign Quebec. That sounds to me like they are Quebecer’s first and are focused on Quebec interests alone, not Canada’s. The Bloc are not a national party and really shouldn’t be allowed to even participate in National election debates but that’s a different issue.

I am okay with coalition governments. I have always felt that the elected officials should all work together for the common interest of Canadians. We have an opposition party that immediately puts our elected officials at odds against each other. I think a coalition government with the Bloc means that we would 50 individuals holding Canada hostage always wanting to know what in it for Quebec rather than the greater good for Canada.

Oh and saying the Conservatives tried to do the same thing doesn’t mean it’s right. They were wrong then as well. At no time should separatists have a controlling part in the Canadian government.

Please consider what’s best for Canada as you move forward into the upcoming Parliamentary session. We face enough challenges as Canadians. We are fortunate the governments we have had in the past (Liberal and Conservative) have put us in a position that we have not felt the wrath of the recession as bad as other countries. Continue to work on strengthening Canada.

Thanks for your time.

Phil Hoskins, a proud Canadian
Delta, BC
Delta-Richmond East

Shame on the Opposition Parties

Phil — Mon, 01 Dec 2008 04:00:42 +0000

Mr. Dion, Mr. Layton and M. Duceppe … shame on you.

I did not realize that the Canadian taxpayer support each part at $1.75 per vote. What is even more upsetting is your sense of entitlement to this money. To be frank, if your political cause (party) cannot raise money and be supported at the grass roots level then it does not have the right to siphon Canadian taxpayer dollars. We do not get a better democracy because of this and it must end. Kudo’s to you Mr. Harper to end this type of taxpayer abuse.

What I find even more offensive is that (my) Canadian tax dollars are being directed to a party that sole purpose is the breakup of Canada. I am proud that we live in a country that allows the freedom of speech and thought but I do not appreciate that the Bloc get taxpayer dollars. It tough enough that they get time on national debates when they are not a national party … but that’s another topic.

You have all been elected by the people of Canada. Unfortunately our parliamentary system is an adversarial type system BUT you need to somehow figure out how to govern this country TOGETHER. We can ill-afford the cost of another election at these time … however, if you do bring the current government down, I am sure the Canadian voters would send a Conservative majority back to Ottawa punishing the selfish