One of the inescapable realities of living in Canada’s most popular urban areas is that every aspect of life is intimidatingly expensive. When it comes to owning – and investing – in real estate, that expensiveness is at its apex point. Likely no one needs to be told that real estate is supremely expensive in Toronto and Vancouver, but it’s that reality that of course makes many people want to be able to invest in it.
As a realtor the bulk of your clients will be buying homes to live in them, while others will be buying them as revenue properties with the aim of renting them at rates the market will bear. In either scenario, however, it’s a fact that the people are making investments, and in most cases it’s an investment in both their immediate future AND their financial future.
Here at Real Estate Leads, the benefit of our online real estate lead generation service is that it puts you in touch with buyers and sellers who are legitimately considering making such a move, and as their realtor it’s your responsibility to tailor your efforts to meet their prerogatives.
The fact of the matter is if you’re a realtor working in Toronto, Vancouver, Calgary, or Montreal there’s going to be would-be buyers who are prevented from being prospective clients because of the market being unaffordable for them. That’s an inflexible reality and simply a part of market forces, but it’s unfortunate that it means fewer would-be clients.
Seems there may now be a little bit of an equalizer for people who’ve until now been resigned to being priced out of the market. There’s a new platform could make investing in Canada’s most expensive real estate market less daunting.
Introducing Fraction
Fraction is a Vancouver-based equity stake lending platform that promotes itself as a more secure option than traditional home equity lines of credit. Their premise is that by taking a 40% equity stake in a property, it can reduce a buyer’s mortgage payments by 35%. The home buyer still must secure mortgage financing for the remaining amount, but the drastically lower figure is much more workable in that regard.
Now of course, yes, this significantly diminishes the amount of equity they can build up in the property by making their monthly mortgage payments. However, it’s best to look at it this way; if you own a home and want to take some equity out of it, your existing option is you could sell, or get a HELOC or reverse mortgage. The 2nd party-financier option may be better because you can sell up to 40% of the future value of your home to them.
Provided the market’s robust enough – and in Canada’s big urban centres it most certainly is – a client can still count on making a tidy profit on the original investment even while still reimbursing Fraction its 40 percent.
Investment Properties Too
It also promises to be a good choice for investing in additional real estate properties.
Those who want to invest in real estate in Vancouver, for example, would be able to buy securities from Fraction and have the value of those securities being debt-protected. It doesn’t take anyone with an advanced understanding of economics or investment savvy to see the potential advantages in that. “
The investment serves to be a mortgage charge on title, and by that they’re able to secure their stake in the property. That’ fine, but what about my part of it your client may ask. Well, it also means that their principal is more secure too.
Adding to First-Time Buyer Incentive
The 2019 Federal Budget arrived last week, and it includes a Canada Mortgage and Housing Corporation equity stake incentive for first-time buyers. However, that incentive is capped at 10%, and household income cannot exceed $120,000. Plus, the total cost of the home can’t be greater than four times that amount.
With a service like Fraction, the impediments put up within the first-time homebuyer incentives being introduced within the budget are not nearly as prohibitive when it comes to buying property. The investment is quite a bit safer because it’s not a down payment. It’s still a mortgage on title, so it’s way safer than the CMHC one, which will be more like a down payment itself most of the time.
An Example
Let’s put together an example of how this would work. Let’s say the owner of a home worth $1 million—not uncommon at all in Vancouver or Toronto — wants to take out $200,000. They’re able to sell 20% to Fraction, and when they sell the home 4 or so years later for something in the vicinity of $1.5m, that 20% is worth $300K. That’s paid at sale, and they’re still $200K up when all is said and done.
Appreciating at 5.5% per annum has been the norm for Canadian properties, and so if a property invested in with this model and service fails to increase by that much there’s a built-in interest rate of 3%. Of course, that rate will vary by region once Fraction spreads out a bit.
It’s easy to see how this is something that you as a realtor should be recommending to buyers who don’t want to be stretched too thin in the beginning but can see the near certainty of that property appreciating nicely in the not too distant future.
Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads delivered to you exclusively and for you similarly-exclusively served region of any city or town in Canada. What this service does is put more opportunities in front of you, and when you’re an informed realtor it’s that much easier to become a reputable realtor based on an ever-growing track record of what you’ve been able to do for your clients.
