One of the things that I have tried to drill into all of the people that I coached on investing in real estate was to ensure that there was plan A, plan B, and plan C on every deal that you do, sometimes even a plan D. That is also something that I do with funding, and I ran into a situation recently that illustrated exactly why it is necessary.
On a regular purchase, having financing options might look this, when considering multiple ways to enter the deal on the borrowing side.
Plan A – this would be conventional lending, directly with a bank or mortgage broker
Plan B – work privately with a mortgage broker or private lender to close the deal with B lending or Private lending or bridge financing
Plan C – use a war chest of secure lines of credit or unsecured lines of credit to help you to close the deal, perhaps even promissory notes with friends and family
Plan D – since you’ve worked really hard to find a great opportunity someone else could benefit from this and you assign or retrade the deal and take an assignment fee
All of these plans require you to take time to develop. This isn’t something that you’re going to do in one sitting. This is going to take a lot of effort and once done, will ensure that you stay in the power position as a real estate investor.
I recently ran into a situation where I had second mortgage funding that I had planned for but did not come through in time. In fact it took over a month longer for the funding to come through.
When timing is important a 30 day delay is not acceptable. I’m a person who does what they say they’re going to do, even when other people don’t do what they say they’re going to do.
There were a number of issues that came up.
One issue was related to the insurance policy. There were a group of lenders that made up the second mortgage, rather than an individual investor. The insurance company wasn’t going to include the number of second mortgage lenders that made up the second mortgage on a policy in second position. This caused me to need to look for another insurance provider that would list out the investors, and delayed the closing. My lawyer on the transaction had never encountered the situation before.
Another issue was, in my opinion, the lenders lawyer looking for documents and not clearly specifying what was required. It caused a continually stream of asking for a new document, me or others trying to find documents, and causing a delay. Just when you though all the documents were received, something new was requested.
The mortgage broker did the best they could given the situation, but pushed me into my Plan B. I had more additional fees than were required, and the delay hurt. But I was still able to follow through on what I needed to do. If I didn’t have a plan B it would have cost me a lot more.
I could blame the mortgage broker, I could blame the lenders lawyer, I could blame my lawyer, but none of these things would helped the deal to get done. Only being proactive ensured that the deal got done.
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Action Taker's Real Estate Investing Planner, The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords, The Filling Vacancies Toolbox: A Step-By-Step Guide for Ontario Real Estate Investors and Landlords for Renting Out Residential Real Estate, and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.