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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 Centres in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions.
Len 00:18
Welcome back. My guest this morning is once again Cheryl Wilkes. Cheryl Wilkes has a strong history in dealing with rentals not only as an owner but to the point where mortgage brokers all over Alberta send her their real estate files, especially when there's over like a dozen or so rentals in the portfolios. Right? So, let's maybe talk about where your passion for rentals comes from. Because as long as I've known you, you've had one on the go at least.
Cheryl 00:47
Yeah, I think it was just sort of one of those things where, you know, you read a book and I can say that the like sort of an initial, I don't even want to call it an education. But you know, you're very impressionable in your early 20s. And I read, good old, Rich Dad Poor Dad that everybody's probably heard of, at this point, good old Kiyosaki. And it just sort of stirred that, hey, maybe there's something else out there outside of pension plans and things like that when it comes to retirement and investments and growing your wealth. I was lucky enough for quite a while as we chatted about actually on the last one that I worked a corporate job for a very long time, which helps you qualify for some of this stuff. I also moved quite a bit. So, every time I moved, I didn't really want to be a renter, even when it was like cities, right, like Fort McMurray and Calgary and Edmonton, Leduc, like a whole bunch of places. So, it was always figuring out, okay, where does the downpayment come from, and all this stuff, but I've always really liked real estate. To get a tangible you get like a, something, you know what I mean? I didn't understand stocks. I didn't understand any of that stuff. But I did know enough to know that there's very likely not a good old, the government's going to save you and your pension plan is going to kick in later in life for me. So, it was sort of like well, figure yourself out, get good at something, understand something and then sort of some of my rentals just sort of became default rentals because it didn't make sense selling them maybe when I moved out. A lot of them kind of were like that, just bought a good property, right?
Len 02:20
Those would be the Fort McMurray ones perhaps?
Cheryl 02:24
Yeah, they probably… now let's be Connors honest. I mean, they're the bane of my existence at this point. Let's be honest about it. But, you know what I can tell you I know people up that own property up there that like they've had just horrendous luck and horrendous tenants and all kinds of things. Have I had some speed bumps we'll call them? Sure. Fires and floods, like everybody else. I was affected by both but they're still standing and tenants are lovely in both places that I've still got up there. And, you know, landlording is just, it's one of those things that you either are okay with it, or it's an absolute hard stop no. And it doesn't take much to realize what side of that fence you're on. I don't think.
Len 03:05
No, I'd have to agree. I think I had four at one point in my life and the hardest thing to do because they weren't in my backyard they were in Fort Saskatchewan. They were in the other side of town. Taking the time and effort to watch over them, I guess, if you want to say is very demanding. There's no question and/or finding someone good to take care of them for you. Seems to be not the easiest thing to do either.
Cheryl 03:32
That was definitely my battle with Fort McMurray. I tried a couple of different property management companies. And everybody fell short, to be honest. But I mean, the hard part was, I mean, a lot of them were also in the industry doing other things that when the market was good, they made more money doing it, so it kind of just went to the wayside. That's unfortunate, but it is the way in the industry, right? Like, you know, to find a good property manager, they're out there and there's lots of them but I just sort of realized that I'm okay with doing the drive and I'm okay with communicating with them. And I've had pretty good luck and I've also got a pretty good lineup of sort of what I'm going to call support team up there now in Fort Mac. I've got an appliance guy, I've got a handyman, I've got a realtor who's a really good friend of mine who's helped me out a couple of times over the years with just you know, I pay one of his agents a couple of bucks to open a door and do his showing for me type of thing. You know what I mean? Like, it does take, it takes a village sometimes, right? Like…
Len 04:30
And you know, having those backup people, I guess if you want to call it. The support people that can go in and somebody is willing to go in and fix a doorknob or do something like that is crucial. I had one where I was paying the guy that and he never went into the house evidently because when I finally kicked the tenant out, the power had been and gas had been shut off for almost three months.
Cheryl 04:55
Oh, so lovely.
Len 04:57
Tells me pretty pretty close that he'd never gone inside the house/the place, or he only went and day life, I guess maybe I don't know. But, ya know, that's definitely a part of the challenge of being a landlord, I guess, right?
Cheryl 05:10
Yeah, we just like I said, you just pick and choose where your investments go, in my opinion, right? Rentals just happened to be up my alley, I understood them, you know, now in the industry, so it makes it even easier to understand them and just sort of know all the quirks but you definitely learn as you go, there's tripping points, and there's things that you're like, Oh, this is gonna be great. And then you realize it's not, right? It's like any investment there is risk and reward.
Len 05:36
Right, exactly. Stock market is like that too its risk and reward. A lot of risk usually. Right? And there's nothing that you can do to stop something from going sideways in stocks, that's for sure. So you see a lot of portfolios. I've always thought the condos were maybe not the best investment only because of the condo fees are out of your control as well. But in the portfolios, do you see usually a good mix of condo and single family? Or what do you see?
Cheryl 06:07
I find it's a personal opinion. I have talked to people that you know, and I'm probably gonna get some messages or some folks might hate on this answer. It depends. It depends on where you live. It depends on what you're buying. It depends on what zone you're in, right? Like, I personally, it's funny actually, a lot of mine are condos. Granted, some of them are condos I lived in myself and loved. There in, I own in nice areas in southwest Edmonton, I have good quality tenants. Like, you know, I know people that buy condos close to the university, you know what kind of tenant you're getting. And maybe you only get a tenant for eight months a year, but you get a premium for it. And then some of those people are Airbnb’ing it type of thing if the condo allows for it, for example. So I find it's a catch-22. I agree condo fees can be the bomb in the middle of it, if they skyrocket if they go up because they are out of your control. But on the flip side, the maintenance level is different on a condo because a lot of it is under the condo board. So it's a catch-22. The prices are lower in condos normally, so people can get in, you know, like the point of entry is lower for that type of thing. I find it just depends on what type of tenant you want. Right? It's like, I know people that have bought apartments downtown and rented them out for astronomical amounts of money, but they furnish it and it's executive. And they have like executive rentals. They're renting to these people for three grand a month, four grand a month in Edmonton, which is like ridiculous on a condo. But it's like everything included, it's furnished to the nines, like I think it just depends on what your appetite is for what type of tenant and what type of rental you want.
Len 07:55
Right and that's a good point on the maintenance, right? The condo fee is basically your maintenance costs, sort of, you know, interior paint floor, that's about all you can change in them anyway. So, it's kind of look at it that way. I guess. I always see though when you get that $500 condo fee in the package. It's like it just kills everything else it seems sometimes.
Cheryl 08:17
Sometimes it does, for sure. And I mean, I've lived it right, like my townhouse in Fort McMurray. We all, I think most people heard about the house that blew up when they turned the gas lines back on again. I wasn't very far from that and I came home to foundation cracks in my townhouse that one of them was within a foot of my power box. So, it was ridiculous. It was insane. I was like how does this happen? I have no idea. But the condo board spent the, I don’t know, probably $30,000 on it and I got a whole new basement done. And all I had to do was help them source a contractor because obviously, at that point, post fires like nobody was in town and like, you know, something I did probably more than what some people do within the condo board realm of like getting things done. And I was able to sort of stay in contact with the contractor and get kind of updates. So, it's kind of nice, because I was a little more involved than maybe normally. But it was like, Okay, so now I don't have to mess around with getting my insurance company to look into this and deal with this. And you know what I mean? It probably would have fallen under insurance, but it was a bit of a weird situation, of course, right? So, condo board immediately foundation is their jam, whatever the source is on it. Got it done. I basically have probably the best foundation in the whole block now at this point because it was inside, outside you name they dug it all up and whatever. But it was just one less stress for me to have to worry about. Right? And that could have been super pricey out of pocket.
Len 09:42
Yeah, and getting household insurance to pay for that. I don't know that they would have even touched it, right?
Cheryl 09:50
No. I had one basement flood due to just bad drainage, and bad luck, and lots of rain. And it cost us $40,000. Because the insurance company was like sorry, sewer line, overland water, whatever wording was that they gave me.
Len 10:04
That's exactly the wording. It's called overland water. It's, you didn't grade your property correctly, and then flood your basement. That's not the insurances problem.
Cheryl 10:11
Now, that was the craziest part. We didn't even know it wasn't done properly. It was a contractor we hired and all the things you don't know about drainage. But we had water coming over the side of an eaves trough into a window well, and then it went up in the window well and straight in the window, in the basement.
Len 10:28
That will do it. So, had it been a condo that would have been the condo boards problem. I guess. Right?
Cheryl 10:33
Exactly, right? So, it's a catch-22. Right, in my opinion on, you take your risk, and you take your rewards where you can, as long as your condos are good like I've got one right now like listed for sale, just because I was like, it's time. The condo fees have been going up a little lately and it's a good condo, it's still in great shape. It's still you know, it's a good condo board and property management company. But it's kind of just like, Yeah, I'm at my threshold, I think it's time to go and move the money somewhere else.
Len 10:59
Exactly, right? Yeah. And that's, and you guys are doing that you're building several rentals, if I'm not mistaken, as well, right?
Cheryl 11:07
Yeah, well we're just getting, like the dry walling phase, on the infill where we can actually put it publicly up for sale, because people can safely tour it and all that kind of good stuff. But that's sort of the thought on liquidating a couple of rentals is sort of shifting it over to some of the infill construction stuff. And then the goal for us is to kind of, you know, build two, maybe three a year and probably keep one.
Cheryl 11:32
Yeah. Cool. Yeah, as I mentioned earlier, a lot of mortgage brokers who don't want to deal with rental portfolios send that business to you. So, how much of a difference, you know, for years, we just have the 50% offset with CMHC, of course, right? If you were doing something that's pretty much what you had to deal with, how much of a difference has using the mortgage calculators made to that part of the business?
Cheryl 11:59
Every person I talk to you that's like talking rentals, buying rentals, refinancing rentals, all this kind of stuff? Like I tell them I'm like it is a moving target. Rentals are an absolute moving target, everybody's got a slightly different way of doing things. Is it on your taxes? Yes, No? Could it be on your taxes? What do you have for paperwork? Where is it? What's like it, it's one of those things that like, every single person is the same, but different. It's a heck of a lot of paperwork. Some investors don't know what they're up against, when it comes to some of this paperwork and list that we give them. Some of them are incredibly organized, they know exactly what to expect. And they know that they're more work to us, right, they appreciate your time, they appreciate that you have the knowledge base and all this kind of stuff. So, it's a bit of a spectrum, right, in terms of just setting an expectation with all these folks to say, Hey, listen, like we can probably figure this out. But I need everything upfront to be able to do some number crunching and look into what your options are. And your options, you know, may or may not be the rate you googled and found online, of course, this is the other fun thing with investors is that like, you know, I have new investors who don't they just haven't been through the process, they don't understand it yet. The biggest step, I think in being a mortgage broker and being that professional is setting that expectation of like, hey, these rates are not the same as the house you just moved into, they're totally different. It's a different risk level for the lenders, you may not qualify with every single lender, I might only have two to pick from based on the size of your portfolio, or your incomes or debts or whatever that may be. So, it's kind of setting that, like I will give you any and every solution I can find you but then you have to pick what works best for you.
Len 13:43
Right, and that's probably the biggest challenge I think for for most of them. Right that understanding. Obviously, you did a lot of work with the with REIN over the years. Was that mortgage broker the year for them as well, it was that kind of that title?
Cheryl 13:57
Yeah, it was one of the years. Yeah. I mean, the Real Estate Investment Network is great. They've been around for decades, and there's people across the entire country, right? And oddly enough, I did not join as a mortgage broker, I joined as an investor. I had zero interest in actually funny enough finding business out of that, I was like, No, I'm the same as everybody else. I'm gonna sit in at the table, and I'm gonna learn all these things for my own portfolio. And the problem is, is that as is the way when you're good at what you do, and you know what you're talking about, people tend to gravitate towards it and they ask you all the questions and then they want you to be their broker. I don't want to say by accident, but it was sort of not actually my original intention, I was focusing on my own portfolio, not my business and then it just sort of became that where, you know, a chunk of business comes in and I've had, you know, good friends through that now. I have like clients who started a full-blown you know, coaching and investing program. Wayne and Gabby run a great program, right? I've known them for a very long time and help them with their own mortgages and some of their like mentees and all that It's kind of stuff, right? So, it's a bit of a sort of cycle that came back around again.
Len 15:03
Yeah, well and not a bad one. Like I said, you have other mortgage brokers and they do their business because they don't really want to deal with it. It's a good thing. So, you know, we get asked this question all the time, should I start a Holdcol for my rental portfolio? I have mixed emotions about that. It's really an accounting question. But what what do you see it in, at what point is it an advantage, I guess, for someone to actually to have a Holdco?
Cheryl 15:35
The general biggest hole in that comment people have is that they don't understand what a Holdco is. They're like, I'm self-employed, I own a company that makes money, I want to buy real estate in that company. No, that is not a Holdco. That's an Activeco. And you are not allowed to have real estate and your active income. And it's funny, because I've asked a bunch of lenders over the years, and the easiest answer I generally get back is, well, guess what, if something happens, we don't want your business going under and dragging the property with it that we're looking after for. Vice versa, if something happens with the house, we don't want your business going under because of it. They have to be separate. So, for some people, accounting again, this is where your accounting comes in. How is it set up? How does it work, because for 90% of people, they go open an extra company, a secondary company, I'm going, but there's no tax benefits at that point, because you're still pulling it out of your active company, paying the money, and then you're moving it into a Holdco that's wasteful. There's less options in Holdco’s in terms of lender options, a lot of them have small but premium sometimes to their rates, like and the other thing is, let's be honest, at the end of the day, owning and running a corporation, anybody who's self-employed knows this comes with bookkeeping costs, and your accountant is more expensive. So, I have people ask me this all the time. They're like, I'm going to do a Holdco, it's going to be tax beneficial. And I'm going well, yeah, maybe, but probably not. Because if you're making $200 a month and cashflow great, but if your accountant costs you $2,000 a year between bookkeeping and accounting, filing, you're 2,400 bucks and cashflow just became 4. Put it on your personal name like you personally guarantee it anyways. If it's residential, it's the same qualifying rules, you're still like, you're still on the hook for that mortgage. It's not like your company's taking that liability. And a lot of people do think that there's like, I feel like it's more of an American concept, but they feel like they're like kind of indemnified by putting it in a company like they can't get sued. And I'm like, you can pull a registration like at the land title's office, right, like, they know who owns that company. So, here's the thing, down the road short, if you have a large portfolio, if you own, you're getting into like multifamily type stuff, a lot of that stuff goes into corporate, of course, right? I have a Holdco myself. But I had it set up with my accountant properly in terms of those tax benefits to flow it from my active to my hold, without me involved. But that's not the easiest thing to do and not the easiest thing to set up. And even I'm considering dissolving it. Because it's sort of like, well, it's goodish. But I'm paying that professional extra money for all these extra things that I could just throw it on my personal taxes. Call it a day, right, like.
Len 18:28
Yeah, and I think that's the one thing that about, the government has changed it so much on only holding another company of any kind, right? We actually did it with our own where we changed my marketing company and dissolved it. I just, I'm just sole proprietor now, but obviously, I own Brokers for Life, but to pay myself, I'm just the sole proprietor right, so.
Cheryl 18:51
Exactly, right? I mean, it's one of those things where I mean, sure, maybe it makes sense, I don't know. But if you're brand spankin new, and you're just getting started, oh, like, leave all your options open for lenders, leave all your options open for what you can qualify for, what you can do. And then if you want to look at moving things down the road, great, let's strategize that, let's plan that. Let's talk about that. So, that you can plan forward not to fail.
Len 19:17
Exactly, and just off the top of my head, I can only think of two of our lenders that actually will do a Holdco’s, is that?
Cheryl 19:24
I mean the alternate guys sure, but no brand new business owner wants to hear about alt-rights, it's let's be honest, right, like?
Len 19:30
It’s 7% today.
Cheryl 19:34
They’re good for your local self-employed person like me, who now qualifies for a bit of bubkis squat because I went and bought the forever home with my spouse, but you know, it made sense and it cash flows and it like that's the thing when I did the math, I was like, it doesn't really matter. It's just a cost of financing. But that's not the mentality that a lot of people have. They look at interest rates like it's the most important thing in the whole wide world and I'm like your payments make sense. Your interest is a write-off technically, but it's still a part of your finances and your costs.
Len 20:03
It’s cost, right? That's the part that they miss I think.
Cheryl 20:07
100%, but again, that's setting that expectation with people.
Len 20:11
Exactly.
Cheryl 20:13
They can make sense. They can not make sense. It depends on how it's set up. It just, it's case by case, right? And most people I'm like, here's my view, it's just my personal opinion, take it for what it is. Go talk to your own accountant. Because, you know, the other big thing I've noticed over the years is that accountants really don't, they know how to structure things. They know how to help you save money on taxes, but they don't understand the act of Holdco, necessarily, unless they have clients that are in that realm. Or they have it themselves sometimes, right? Like, some of them have their own investments, like my accountant does, right? So, when he and I were setting things up, he's like, Yep, this is what you want, right? So, it really is a catch-22 on that, who owns and who pays the taxes. And like you said, the Feds love to change their minds on how taxation works. And they've changed it in the corporate world so drastically in the last decade, that where it used to be dividends, now, it's like, meh, T4s are fine. Like you do you, you pick you, there's no real major benefit difference.
Len 21:15
That's what we found, too. I was paying double taxes. I was paying, because we would take dividends out of the company. But it didn't reduce the income of the company or so the tax I was paying, personal taxes as well as paying other tax. So, and that's I think, when people look at rentals that we hear that all the time, I don't know if some of the organizations or like I said the mentoring people have suggested Holdco’s from the start, because we've heard that at least half a dozen times in the last six months, I'm sure.
Cheryl 21:42
Again, I think it depends on what people are doing. Like, I've heard, you know, coming out of some of the larger groups, and some of its shifted, right, like, there's the what's his name, Scott McGillivray type thing. He's got a big network across the country, and they do teaching courses and training. I haven't actually been to any of them. I did an intro thing once with my spouse, but we didn't end up being members, but he has coached a bunch of people actually in Ontario who are a part of that network on multifamily. And it really is one of those things that sure, maybe if you're doing like flips, where, you know, there's money in and money out, and you have the capital gains to pay or things like that. Maybe that makes more sense because it's jacking up your personal income if you have capital gains. But the most recent shift that takes effect in June is not going to cut, you know what I mean, like corporate is automatically that 66%. There's no 250,000 allowance in corporate side right now from what we can find and what we found and searching everything on CRA. So again, some of these people in Holdco’s, it's not going to make sense because you're automatically paying the government more money when you sell it. And if you sell it at a profit, which let's be honest, buy hosts, buy low sell high is always the thing that people want to go for. You're automatically giving the government like 17-18% more in terms of the capital gains, immediately.
Len 23:08
Yeah, no. Personal opinion, no.
Cheryl 23:14
Exactly. This is the thing. So, again, that's the conversation would be accountants, where does it make sense? I have no idea anymore. Like, I talked to my accountant enough. And I'm on track with him. And I talked to him and keep them organized that like, you know, it's one of those things that you know, it's good, but maybe?
Len 23:38
Again, talk to your accountant, right?
Cheryl 23:41
Sorta, maybe, kind of. I don't know, talk to the professional that does your taxes.
Len 23:43
So, the best advice for buying rentals is talk to your accountant before you do anything else.
Cheryl 23:47
Totally, just get some advice, because if you're self employed, and you don’t pay yourself much and adding on a rental or two isn't going to change your taxation. Great. But if you make a couple 100 grand on your T4s out of your corporate job, maybe maybe it makes more sense at that point, like, I don't know.
Len 24:05
Definitely an accountant question but something that we hear way too often, as far as I'm concerned. So, I'm not sure who’s.
Cheryl 24:10
I get asked that a lot too.
Len 24:13
Who's doing? Who's suggesting that? I don't know who that is. But anyway, Cheryl, again, I thank you for your time. I hear you have dinosaur pancakes in your future. So–
Cheryl 24:23
I do.
Len 24:24
So I better let you go spend the rest of your long weekend taking care of the boys. Thanks again. Have a great day.
Cheryl 24:31
Thanks, you too.
Len 24:34
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.