THANK you, trav-
ellers, for all your calls
over the past few
weeks.

Onc interesting, observa-
tion T noted in many of the
calls I received was the ten-
dency of people to take a
concept then call it some-
thing itis not! In all my writ-
ing, teaching and doing actu-
al real estate transactions I
never refer to “nothing
down” real estate. In my
experience there is no such
thing.

No down payment acqui-
si tion or 100% financing is

not “nothing down.” There
is aiways something down, in
the very least, your signature
on a legal and binding con-
tract. So, travellers, remove
the TY pitchman’s term of
“nothing down.” Replace
that jargon phrase with the
mind set of acquiring invest-
ment property using “100%
financing.”

Additionally, just because
I can acquire a property using
100% financing does not
meant I would want to buy
the property. It must quality
as a “well selected” property
before you ever consider writ-
ing an offer. “Well selected”
is a term and process J coined
years ago thar relates to the
critical examination of all risk
factors associated with any
investment property. (See my
column of July 10, 1998.) _

The key to real estate
investing is not 100% finane-
ing. TI here are many other
factors that are just as, if not
more important, than how
much cash you must come up
with in acquiring a property.

A word on investment
appropriateness. An invest-
ment in real estate is nota
primary stage investment.
According to Merrill Lynch
aud many knowledgeable
financial consultants there are
four levels that categorize
investment returns and risk.

An investment (not specula-
tion) in real estate is a fevel
two category investment.
This level includes such other
long term investments as
quality common stocks, high
grade corporate and munici-
pal bonds, utility common
stocks and variable annuities.

Thus, travellers, betore
you stare thinking about
acquiring investment real
estate you should satisfy the
first level in the astute build-
ing of wealth,

This includes a primary
source of income (ic. a job),
a savings account, a cash
reserve for unforeseen emer-
gencics to cover at least 90
days of living expenses, a
Canada Savings Bond, a pen-
sion plan or RRSP, a plan to
have consumer debt (car
Joans and credit cards) under
control, a strategy to pay off
your home mortgage in a
time frame that is less than
your mortgage's amortization
period, hold a good life
insurance policy and of
course draw up a will.

For most of us, this level
one satisfaction is a funda-
mental step in building for a
safe and secure financial
future.

Level nvo investments
include self directed RRSPs,
mutual tiinds and the astute
acquisition of “well selected”
real estate.

For those of you who are
seeking or need 2 more
aggressive approach to build-
ing wealth through real
estate, and perhaps have not

yet built a secure first stage of

the wealth building process,

Friday. March 12, 1999 - North Shore News - 54

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for voursell, PIE address more
AEE: © pre ape riv acquisi-
tion strategies in a future col-
umn.

So just how dees one
acquire a property using
100% financing when most
bankers will say, “it cannot be
done.”

One way is to do what the
bankers suggest you do in
selling the investments they
represent. Borrow against
personal assets and use that
money to purchase invest-
ments. This is exactly what
the banks are suggesting you
do when they offer to lend

“There are many
ways to acquire
real estate and
build wealth. All
require an
element of risk.”

you money to buy the mutual
funds and other investments
they are selling or to top-up
your RRSP. Rather than buy
what they are selling, we use
the tools they offer and
acquire a “well selected”
investment property.

The most common 100%
financing tool used today is
the personal ling of credit,
(PLC) either unsecured
(based upon your credit wor-
thiness) or secured against an
asset you own, (i.e. stocks,
bonds, home equity, ete.).

In taking out a PLC you
can have it structured so as to
pay “interest only” per
month or turn it into a sim-
ple loan with fixed monthly
payments. The month!. cost
in acquiring an “inte:
only” loan, dependin. on:
rate you negotiate, could be
as law as $270 per month for

inancing is not n

0,009. The draw back of
an “interest only” loan is that
the principal does not get
paid down. You will have to
have a plan for how you are
going to repay this amount.
Often lenders will stipulate
that an “jnterest only” loan,
if payments on the initial cap-
iral has not been made in, say,
two years, wil be turned into
a personal loan with both
interest and principal pay-
ments paid monthly.

Another common invest-
ment financing approach,
should you have an adequate
level of equity in vour home,
is to place a small mortgage
on your home and use that
money as your acquisition
down payment. T know, most
people hate doing this since
you have just spent 20 years
paying off the darn thing.

Yet remember, leveraging,
your assets, using them as
collateral for investments
rather than to buy consumer
items, is a shrewd investment
strategy. Doing this allows for
you to acquire additional
investments to further build
your net worth and the inter-
est you will be paving on chat

i tmene” mortgage now
sas an income tax
deduction.

With today’s market rates,
if you took our a $50,000
mortgage with a 20-year
amortization your monthly
payment would be less than
$400 per month. That
$50,000 could buy you at
least one, if not pwo or even
3 investment properties, that
can show a break even cash
flow within a few years.

The strategy you use
depends largely on what your
invéstment goals and time-
lines are. When investing in
real estate, the type of prop-
erty you acquire and how you
structure the acquisition’s
terms and conditions, by its
very nature, requires a per-
sonally tailored plan. Whar is
right for Barb most probably

thing

would not be right for Ken!

Creative financing tool
numbe: two: Back in the ‘60s
and °70s a finar ‘ial contract,
called an “Agreement For
Sale” was. very commonplace,
Probably 40% of all sales at
that time, were written as an
Agreement For Sale.
Nowadays, this financing
vehicle is rare, vet boy, does it
have advantages — for sellers,
buyers and investors alike.

An Agreement For Sal¢ is
a contract berween 4 seller
and a buyer wherein the seller
agrees to finance the buyer in
acquiring the property using
some or all of the seller's
equity in the property. The
buyer agrees to pay the seller
the agreed upon price and
the buyer further agrees to
make monthly payments on
the equity loaned, at so much
per month, at a negotiated
rate of interest and time peri-
od.

Should there be an exise-
ing mortgage, the buyer will
also pay to the seller the
monthly mortgage payment.
The seller remains Hable for
any existing mortgage vet the
seller “retains the title to the
property” until such time as
the buyer has satisfied the
contract (paid off the mort-
gages).

The buver'’s interest is rey-
istered in the Land Title
Office as a charge against the
seller's certificate of tithe.

The Agreement For Sale
can be a great financing tool.
Properly structured, both the
seller and buyer are protect:
ed, plus it saves the costs of
mortgage application fees,
appraisal fees, and other legal
and sundry costs. The
Agreement for Sale is very
useful when, for some reason
or another, the buyer cannot
qualify for the needed mort-
gage amount or when the
seller has an urgent need to
sell and when market sales
activity is slow.

The risk to the seller in an

Agreement For Sale, is that
the buyer may nor make the
required payments vet will be
in possession of the property.
Hawever, as the seller
retains title to the property
and if the buyer does not
make payments, the seller can
sue for specific performance
and for cancellation of the
agreement instead of going
through a lengthy foreclosure

The risk to che buyer is
that the seller might not pay
the property taxes or pass on
the monthly payment the
buyer is making to the seller
to pay for any existing mort
gage. Both these risks can be
easily countered through the
carctul and diligent work of
the realtors who prepare the
contract and in using a lawyer -
familiar with Agreements For
Sale to draw up the final con-
tract on your behalf.

‘These are just two of the
more conservative methods
of acquiring real estate using
106% financing. In coming
weeks PIL give “examples of
other methods to acquire real
estate, both for the investor
and for those of us who may
think chat home ownership is
a dream that may never
become a reality.

There are many ways to
acquire real estate and ‘build
wealth. All require an cle
mene of risk and a large mea-
sure of knowledge.

Owning reat estace is not a
right. It must be carned. It
requires thought, planning,
usually some professional
guidance and a measure of
personal effort. However, the
rewards are well worth the
ettore.

Just ask anyone who owns
investment property that is
now mortgage free.

~— Michael Dowty is an
fayestment realtor with
Century 21 Prudential Estates
Ltd. aud a national reat estate
investinent instructor. You can
seach him at 925-6453.

crore

Feature Listing
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AT A GLANCE ...

APOC eNO e eran sereoes aaron eHOrsTesreeneeness

ADDRESS: 4698 Weodgreen Drive

vessees

eeseesecnsns

LOT SiZE: 170' x irreg.

INTERIOR SIZE: 4, 090 sq. ft.

eevee

NUMBER OF BEDROOMS: &

eanes

ASKING PRICE; $795,000

Deere eeeneusecsetecaesasneerevessceseevene

OPEN HOUSE: Sunday 2 - 4pm

LISTING AGENT: Don Eilers & Lauren Kent,
926-6233, (cel) 889-9449 .

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Cypress estate

This outstanding masterpiece home is quietly nestled
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to the entertainment-sized and exposed aggregate

patio and pool. The
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ReMax Masters Reaity