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Mortgage Solutions for the every day Canadian mortgage consumer. Are you thinking about becoming a mortgage broker learn first hand what you should look for in a brokerage and what you need to be successful.
Len 00:02
Welcome. My name is Len lane, and I am the founder and president of brokers for life Inc, and we are Dominion Lending Centers in Western Canada. The topic of our podcast will be about what we consider to be real life Mortgage Solutions. Welcome back. This is episode four of talking about lenders. Today we're going to talk about something that you probably hear about in the industry or in the news and unfortunately, but it also gets kind of mixed up with what MIC are, what syndicated is, and what private individual lending is by itself. So my guest today is Dan K. Akowuah, Amansad Financial, former member of the Brokers for Life team and long time friend now, 7, 8 or 8, years, I don't know what it is, but Dan, welcome to the studio.
Dan 00:54
Thank you. Thanks for having me here. Excited to get some conversations going.
Len 00:59
Exactly. So let's start with that definition. I know everybody gets kind of confused about what true private lending is. Maybe give us your definition of it. And how did you get started doing that?
Dan 01:13
Well, I would say private lending, from my perspective, is when you have an individual or individual who owns like a corporation of some sort, and they're lending money and acting like the bank to somebody who needs money but can meet the bank requirements or an alternate type requirements, right? So it's basically people helping people in a different fashion.
Len 01:32
So they can be corporations?
Dan 01:35
Yeah, they can be corporations,right? But especially with the new FINTRAC rules, you have to make sure that everybody that is part of that corporation is vetted, right? So, it's very important that when you're dealing with individuals who are corporations, you also, in addition to getting their ID and verification, you want to verify the corporation and make sure that they're legitimate and so forth.
Len 01:57
Right, and percentage of ownership is that important within that?
Dan 02:02
Exactly. Yeah, exactly. You know, ideally, 50% right? It is like the threshold. You don't want a minority, minority shareholder making decisions.
Len 02:14
Spending the company’s money, right? So, yeah. So how did you get started in that you've been doing it now? What? It's almost 10 years.
Dave 02:21
Um, actually, it's been since 2012. Yeah, so it's been quite a while. So prior to being in the mortgage business, I worked at in the automotive and RV, so I did a lot of retail type lending, right? Then, in 2007 when the economy kind of went kaputs, right? My income dropped substantially. And I said, You know what, I can't rely on being an employee. So, you know, I started doing some investigating, because I have a finance background. I kind of landed on the, in the arena of mortgage brokering. And for the first couple of years, I just did the traditional mortgages and the Alt-tier mortgages, but I found that to be too similar to what I was doing for 10 plus years in the RV business. And then I happened to come across a foreclosure type file with the bankruptcy all involved. And I kind of navigated through that, but it really opened my eyes to a different type of lending, right? And then from there on, I started basically doing a lot of research, a lot of homework, speaking, I did lots of meetings with um, Gay Andrews, who used to be with Caplink, and she coached me a lot. And I'm forever grateful for that. And it's kind of built up over time and built up a good network of trusted investors. And that's been my, you know, my niche, ever since.
Len 03:46
Yeah, and quite successful at it. We know from personal experience that that your due diligence on paperwork and and everything is is probably above above some of the actual lenders that we work with themselves, not the point finger, but it's uh… so private lending, as I said at the beginning, private lending, syndication, MIC, always kind of get lumped into the same thing. But how does this differ from a mortgage investment corporation or a MIC?
Dan 04:19
Well, the biggest difference is, with the mortgage investment corporation is you have, like, a management team that's managing a pool of money, right? So when they're lending the money, the MIC is the one that is actually registered on title. And as an investor to a MIC, you have basically a percentage of ownership, per se, not ownership, but you have a percentage of the profits, right? And you're paying for management expense costs, right? So in the event that a MIC does go belly up, right? As an investor in a MIC, you're actually the last one to probably get paid, right? You know? So from a private lending standpoint, when you're when you're lending your own money. Either your name goes on title, right, or it'll be a Trust Company, right? So I do a lot of stuff with Olympia Trust, right? So they're, they hold their trust for an investor goes on title, right, or it’d be the corporation. So in the event anything goes sideways, you're, you get your first to get paid, in essence, right? And obviously there's legal fees and stuff that could, that, could that come into play, right? But there's, there's less risk from that standpoint. However, there's also more risk, right? Because you're the only investor, right? So it's not spread out, right? So you kind of have to weigh out what's important to you as an investor, right? And that's one of the things that whenever I'm dealing with new investors, and when they complete KYCs, you know, I have to determine the risk assessment to see if they're even a viable lending partner.
Len 05:51
So the difference being that you don't pool money, it’s just an individual that you that you represent in this case?
Dan 05:58
Yeah. So like on the private mortgages that I do, I always represent the private individual, so I'm looking out for their best interest, right? You know? And I do know that borrowers know right from the get go. If you go to our company website, it actually states that as well, right? And in all the documentation that goes to a borrower, right? So if a borrower comes to me and they are looking for a traditional mortgage, or, based on my assessment, I feel that a private mortgage not needed, right? I'll direct them elsewhere, right? Because private mortgages are only meant to be used as needed, not because, hey, there's a heartbeat on this deal, so I'm going to do the deal.
Len 06:39
Yeah, and that's the has to be the ethical side of that. Right to, we've always talked about that, that it's like, and they, they should be one step in the process of getting you out to to be and to private. And that was conversation just had with Home Trust as well. It's like, you're they might be the middle step in in something where, you know private lending, and private individuals, you know, using their money that should be a last case, worst case scenario, right? And then to move the client out through the different steps to hopefully, to a regular lender at some point they're in their time, right? So.
Dan 07:15
In the the private lending space, because it makes, it’s gotten so competitive with some of these B lenders, right? Most of the individuals I work with, price very similar to the MICs. So in some cases, it may be competitive with a B lender. So you may get some borrowers who are like, hey, you know what? It might be a point higher or a point and a half higher, but I don't want to go through all these steps to get a non private mortgage, right? So sometimes you have borrowers who just want to get it done as quickly as possible, because they're worried about the time crunch involved.
Len 07:47
Right, so I guess that kind of jumps ahead to another question that we had was, how did high interest rates affect your lender pool?
Dan 07:56
Um, not, not much, actually, like, surprisingly, like a lot of them, the investors that I work with are like private lending is not the only thing that they do, right? So they have other sources of income, right? So I never want to work with a private lender where 100% of the resources is invested in private markets, right? Like maybe 50% 25% ideally, right? But for the most part, I would say most of the investors were pretty active and looking to get money out on a regular basis, right?
Len 08:31
Yeah, well, and that's good. That's interesting, because when you think you could get 9% maybe in some places in the world, for you for interest on your money, but that that's not the type of mentality that lender has or that client has for you, right? That they want to be in real estate and they want to be in real estate because it's on the private side, right?
Dan 08:51
Yeah, well, that's what they say, is that whenever you're investing, invest in what you know, right? So some of these investors know a lot about real estate, and that's where their comfort lies, right? And so they're comfortable with private lending. Some of them have had bad experiences with MICs where they lost money, so now they won't even invest in a mix, right? And others have been landlords where they've had the worst tenants ever. And they're like, I never want to own a property, but I will definitely lend on a property that makes sense.
Len 09:19
Yeah. Like, You mean, like the one where I had in Fort Saskatchewan, where the guy didn't pay for gas or power for three months and had it shut off? One of those scenarios, yeah, I don't know why, it took us that long to figure that out. But finally, ATCO, said, Hey, it’s getting cold, so, yeah, no, and that's, you know, it's obviously you're licensed in five provinces. What? What kind of difference are you seeing in the due diligence for each province? I know there's quite a shift in the last 18 months to two years where some parts of eastern Canada were more like the wild west than… of course, we've always been pretty regulated in Alberta as far as who we have to represent, right? So did you see a big shift there?
Dan 10:07
I haven't seen a huge shift. The one shift I have seen is especially with the new rules that happened in Ontario. That was something that I think a lot of brokers were not excited about, right? And from my standpoint, I was like, yeah, regulate it more. Like to me, like, you know, I'm all about the more rules to protect the better, right? And to me to do an extra course to ensure that everybody who's in that space knows what they're doing and they're not just, like, trying to try to try to get a deal. Like, sure. Like, weed them out. Like, I'm totally okay with that.
Len 10:46
Yeah, yeah, that's a good word to weed them out, because there was so many scenarios that happened and recent, as recently as last year, this year, actually, where, you know, there were some big groups that were doing some interesting things. While it's considered private lending, they were the promissory note thing in Ontario. I still can't get my head wrapped around who would, who would accept that? You know, here's 60 grand without any security. But I promised. I promised. Like to cross my fingers kids in school, I promise, you know, and for them to lose, like the numbers in the three hundreds of millions of dollars, right? So it's crazy that that would be allowed to happen. So, properties, anything that you well, a) the ones you prefer, obviously, are single family homes, I'm taking it. Is there a loan to value cap for you and location?
Dan 11:42
Well, obviously, I like to align myself with a MIC-mentality, even though I'm not a MIC, right, obviously, but single family homes, like duplexes, triplexes, preferred owned and occupied, rental properties. Some of our investors are totally okay with that. I'm not totally okay with rentals all the time, because obviously, it's easy to walk away from a rental, but it's hard to walk away from an owned and occupied home that you live in, right? So many times when a rental is considered, you know, we'll try do like an inter alia, like a blank mortgage, where we'll tie it to a primary residence, right? So there's more at stake, right? Land. I have done some land deals with some investors, right, depending on location and if the loan to value is like under 50% right? But just like what we've been doing a lot lately is when land is involved, ideally you want to tie that to a primary residence, right? So there's more at stake. As for commercial, don't do too much. We might do like, like, we're working on a six plex right now, right? So smaller commercial stuff, like I'm comfortable with, right? But when it gets anything bigger, we have a lot. We don't have as many investors who like the really big commercial stuff, right? So it's not an area that I like to dip into, because the investors have to be comfortable, and that's part of the KYC too, right? So when we send them a KYC, they have to mark off the types of properties that they're comfortable landing on, right? So the pool for larger commercial is a lot smaller than the single family, the duplexes, like we'll do condos on occasion, on stratas, right? But I'm not a big fan of it, to be honest, right? You know, because you've heard about condo mismanagement, right? And that's always a scary thing, yeah, but loan to values generally, when it's in je urban is 75% or less, right? But I prefer to do 70 right, because it leaves room for a future refinance with a different private lender in the event that they're that their exit doesn't work out.
Len 13:57
Right? So fees and that need to be considered on the way out as well, if, if, if it doesn't work out. Location, have you pretty much stuck to the big cities or… ?
Dan 14:09
Big cities and direct surrounding areas is primary, right? But rural communities will be considered if it's within a reasonable distance, right, or if the loan to value is like, under 60%.
Len 14:22
Yeah, and that 65 and 60 number comes up pretty, pretty common, right? With with looking at investors, I had one that was south of Camrose, Alberta, which was probably 20 miles out of town. And, yeah, somebody had given them almost an 80% loan to value on a private loan, like, I don't know who's going to help you with that.
Dan 14:45
Well, sometimes it comes down to the individual investors, right? So you have some investors that might live in that area, and they know that area very well, right? So for one investor, they might be like, well, I don't know that area very well, but the loan, the value is good, so I'll do it at 60, but you have another investor who lives in that same neighborhood or very close to like, hey, you know what if things go sideways, and I have to take over the property. It's within managing distance, so I might be willing to go to 75.
Len 15:16
So when you talk, touched on courses and stuff a little while ago, that I think we're going to start to see that right across Canada and Ontario had it started. There are some changes coming here in Alberta, we think probably, probably in the next six to 18 months. Things take time with the government. So, and that's been one of the ones that has been brought up. How much difference do you think having that level two or that private lending course is really going to make for for a lot of the people we still, I'm sure I still see agent ones talking talking about private lending as well, when they're not supposed to.
Dan 15:57
It's so hard to, I guess, like, oversee, to know who's doing what, because, like, I do get the occasional referral from Ontario, and then the first thing I do whenever I get a referrals, I'll look up the the agent, look up what their licence level is, and so forth. And not because it's going to determine whether I'm going to work with them, because I actually don't take referrals if I don't know the broker individually, right? But just to, just to know what this individual is up to, you know, if you get an A level once trying to refer you a deal, it's like, what are you doing? You know, number one, that should be probably going to your principal broker, right? And your principal broker should be reviewing it to determine what to do next.
Len 16:39
Yeah, and I think that's the oversight of it is always the question, right? And you're not, not unlike yourself, I don't take anything that it's not a referral from an existing client or an existing client sending me somebody, right? So it's, it's the nice part about being at this for so long, right? We can be a little pickier and choosier about who we actually want to deal with. Where do you see private lending going in the next four or five years? Things are picking up in Alberta. Is there going to be? Need an extra level of caution, because prices are going to go up. But you and I have been here long enough to know that they don't always stay up in Alberta.
Dan 17:22
Yeah, like, I think a lot of people Alberta are hopeful that they see some, something kind of like the Vancouver, Southern Ontario people, right? I like, you know, like, I think there's a little bit of that hope, right? Because people want to see the values go up. People want to be able to access their equity, get rid of properties and so forth. But I do think values will go up. But I think as a private lender, you have to be very cautious in moving your loan to value ratios. When you see values go up very quickly, you know, like, you know, I think you have to take that with a grain of salt. Like, you know, you need to see the value stabilize for an extended period of time before you do that shift of limited value that's consistent with the current values, right?
Len 18:13
We've had those corrections in Alberta before. I've seen it my own properties, right? 98 built a house for $185,000 sold it increase crossing on the east side of the city for about $450,000, 5 years later, maybe, right, but, but still there today, kind of maybe bump bumped up and down a little bit. Anything with a double test garage, you can pretty much right now be bet that it's gonna be at least 450 and above, right? You know. So it's, it's that happens, yeah, it's a matter of if, will it stick, right? So, so that's, that's a caution. And, you know, in the past, we've seen the MICs have, have to revalue books because they had all that stuff in in it, and at high prices—there's my wife trying to sneak in. It's a caution, I guess, for investors as well, that you have to be on top of what the loan to value is for things to begin with, right?
Dan 19:12
So yeah, exactly. And I think it's really important from an investor standpoint, is only lend on property that you wouldn't mind owning if things go, right? So if there's a property you'd never want to own. Don't lend on it.
Len 19:26
Yeah, exactly. You couldn't see yourself living there in the future. Yeah, anything else you would add to that? There's a, you know, you're the expert in this field. As far as I'm concerned. The province of Saskatchewan, I believe, uses some of your actual paperwork to for their files now as well. So that's quite a compliment. Any any big changes you think that will happen? Or What? What? Where do you think this is going?
Dan 19:54
Well, the one thing I'm expecting is for there to be more courses, right? I'm hoping there's more courses, but at the. Same time. I'm hoping some of the courses that you've done in the past could carry over, so you don't have to do the course again, because the private mortgage course, even though I've been doing it for a while, was like, long, right? And I thought about challenging it, just to do it. But like, you know what? Maybe, maybe this stuff that I think I know, that that I don't know, right? So, like, I like to have the mindset that there's always something that you think you know that you don't know. So beware of that, right.
Len 20:29
Right, yeah, and that was, that's a good point, because I know, out of those courses, every time I take one, and I've taken every one that MBI BC has, I'm run out of courses for BC after seven years, that it's like. But every time I go in and do another one, there is something else that that you know, you learn something else, right? So,
Dan 20:48
Yeah, like, I think constant tweaking is important. Like, my mentality towards my lenders with private lending is I work very hard so they don't have to work hard, right, right? So you're always trying to make adjustments just to make flow easier, make conversation easier. Like, even with the application that I use now, I think I'm on version 38 right? Because I'm always like updating it, saying, hey, you know what? Maybe if I add this, this will shed light on this. Like, even with the FINTRAC, for example, with the new changes, adding questions relating to past criminal history and so forth. Yeah, you ask it during the process, but if you could kind of incorporate that right at the beginning and get as much to the surface as possible, then it'll eliminate a lot of unnecessary work, right?
Len 21:36
Yeah, and that, that's exactly asking the questions up front, and that's really what you know. A lot of the stuff that we saw on AML that they are questions that we ask or or sometimes we assume, I guess maybe we did, and we have seen a few different ones over the years. But that's going to be another step. And of course, because your individual, private lending, you know, it's obviously more important, where did, where did the money come from? Sort of thing, I'm sure is top of mind all the time. So, yeah, excellent. Well, I know you're a busy guy, so I'll let you get back to work today. Appreciate you taking some time with us this morning. This, this podcast will be, like I said, probably item number five. I'll let you get on with your day, because your phone's a buzzing. So hey, talk to you soon.
Dan 22:23
Okay, thanks a lot. Appreciate it.
Len 22:25
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey. And remember, you can always find our associates at www.brokersforlife.ca/associates. Have a great day.