Scott Dillingham: 00:21

Welcome back to this version of the wisdom lifestyle money show. I'm your host, Scott Dillingham. Today, I'm gonna be talking to you about a challenge that a lot of investors are going through. And investors that currently own rental properties, a majority of them have the variable rate mortgages. And because the interest rates have went up so high they're missing out on the positive cash flow that they would normally receive from their portfolio.

Scott Dillingham: 00:47

Now traditionally variable rate mortgages are the way to go for investors. There's very low penalties to exit, You have higher prepayment privileges, so if you want to pay this off faster, you can. And then obviously, they're historically lower rates. Okay? But since everything went up, the opposite is true.

Scott Dillingham: 01:06

So now a lot of investors are facing challenges where they are not having enough positive cash flow, and they're in a negative cash flow scenario. I get calls all the time from investors and they wanna sell, they wanna know what their options are, that type of thing. And there's 3 main options that I keep finding, I keep letting investors know. So I wanna let you know the same thing. This way it might help you.

Scott Dillingham: 01:32

Right? It might turn your negative situation into a positive situation. Now also keep in mind these are options that we're able to provide to investors. Okay? Not every lender can offer these things.

Scott Dillingham: 01:44

So when in doubt, I suggest you call somebody on my team. Now if that's what you're interested in, our phone number is 519-960-0370. That's the main reception and then obviously we'll connect you with somebody on the team. But so here are the 3 solutions that I offer to my investor clients that are struggling. So what you can do is get an interest only mortgage or an interest only line of credit.

Scott Dillingham: 02:14

So we take your current mortgage and we convert it to this type of product. Now interest only, you don't pay it off, but if you speak to a lot of investors that's good. The real investors they're not interested in paying this off. Somebody who might buy 1 property or 2, a lot of times they still have that homeowner mentality where they want to pay off debt and they, you know, they want to get rid of it. But if you're an actual real solid investor with a large portfolio, you know, that you don't actually want to pay off these things.

Scott Dillingham: 02:46

Why pay it off? Right. When you can get the appreciation, you can get the cash flow, and then none of that money is going just to pay down principal. It's debt equity. That's what they call it.

Scott Dillingham: 02:54

It's debt equity. If it just sits there doing nothing for you. So an interest only mortgage or line of credit, it does have a higher interest rate than an actual mortgage. So that would be the negative thing here. But because it's interest only, you save that principal portion of your payments.

Scott Dillingham: 03:12

And because you're saving that, it actually ends up much cheaper monthly payments. And because those cheaper monthly payments, that's what's giving you the stronger cash flow. Now depending where you live, you know, also these products may or may not be available. So it is location specific, it's debt ratio specific, credit score specific. Right?

Scott Dillingham: 03:33

So you have to have a decent overall portfolio. But when in doubt, again, reach out to an expert, and we can look at that and see, you know, what those options are for you. So another great option is to change lenders. So a lot of people think, you know, I'm gonna stay with my lender and you know, I've got the variable and I'm gonna lock it into a fix now to save, but by changing lenders, what we can do is re extend your amortization. So by re extending it, we can get you up to 30 years with primary lenders.

Scott Dillingham: 04:07

And the benefit of doing this, right, is, again, lower payments. So you might have a variable, and your lender could offer you 5.2 if you lock it in. Again, I'm just making up these rates because we actually we do have some that are lower, but let's just pretend for the scenario. It's 5.2. Okay.

Scott Dillingham: 04:24

But they're gonna lock you in at the amortization, the natural amortization that's left. Right? So if you had variable, you probably went to a negative amortization. So now they're gonna lock you into your natural amortization. So let's say you originally started with a 30 year and you've had the home for 7 years.

Scott Dillingham: 04:43

The natural amortization would be 23. So that's what they're gonna give you when you lock in your interest rate. But by changing lenders, and let's say the rate is also 5.2, so mentally in your mind you're like it's a wash. It's the same rate. Yes.

Scott Dillingham: 04:58

But now I can get you 30 years instead of 23. So that lowers your monthly payments as well to potentially increase your cash flow. So those are options there for you too. And actually I do wanna touch on one more thing on the interest only product that I forgot. The interest only especially if you get the line of credit, you can convert it to a mortgage at any point in time.

Scott Dillingham: 05:19

So if you felt there was a better rate in the future or whatever, you have that opportunity to lock that in. So just wanna touch on that. I didn't wanna forget that. And then lastly, what a lot of investors are doing is they're adding second suites to the property. So you can take your mortgage now, refinance it, and pull equity out of it, and use those proceeds to add a second suite.

Scott Dillingham: 05:41

Of course, you have to check with your local municipality. You wanna check with the zoning and make sure all of this is supported. But the key benefit of this is you're taking, you know, the equity out, but you're adding another unit. And because you have that extra unit, that is more rental income, which is exactly what you need because you're in a negative cash flow scenario. So even though you're taking money out via the refinance, which is increasing your monthly payment because you can add extra rent that's ideal.

Scott Dillingham: 06:10

Even if you cannot add another suite, but you still take money out of the property and you use that to improve the property, that's gonna give you a higher cash flow. So you have to look at the balancing effect and see, you know, does this added payment? Will I get at least this much or more when the property is renovated? And if so, then that might even make sense for you. So those are the 3 ways.

Scott Dillingham: 06:34

So the interest only mortgage, or the line of credit, swapping lenders right, and extending your maximum amortization, and refinancing to add a second suite to the property, or renovate a property if it's in disrepair. So those are the key strategies that I keep repeating to my investors. So I was like, you know what? I'm just gonna record a quick, podcast episode about this because people are asking me for this all the time. And this we've used this strategy, a mixture of them or an individual strategy, and we have helped our investors to save money on their interest expense for the Bank of Canada rate increases.

Scott Dillingham: 07:11

So if you think that you're affected by this and that these solutions might help you, reach out. Again, my office line is 519-960-0370. Thank you.