Monday, November 27, 2017

10 Ways To Improve Your Credit Rating

In the blog post yesterday, I posted a couple of free ways to get your credit rating.

Today, I’d like to share ten tips I learnt from a very experienced mortgage broker who specializes in getting financing for serial investors. These strategies will help you improve your credit rating.

Restructure Debts 

  1. Reduce your unsecured debt (i.e. credit cards and lines of credit (LOC) not secured by an asset)
  2. Eliminate car loans and car interest payments
  3. Reduce secured large revolving LOC debt (i.e. line of credit that is always full)

Boost Your Income

  1. Report all of your rental income
  2. Plan and report sufficient income (if self-employed)

Manage Mortgage Payments

  1. Slow down accelerated or double payments
  2. Re-amortize loans to reduce monthly obligation
  3. Avoid approvals with 25-year amortization. Always aim for 30-year amortization instead.

Plan Ahead 

  1. Review your investing strategy with an experienced mortgage professional
  2. Implement their suggestions

Sunday, November 26, 2017

Use Your Free Credit Report to Invest with Confidence

Lender's Point of View

Think of your credit report as your financial resume and references. Lenders and mortgage professionals look at your credit history and credit rating as an indication of your ability to meet your current debt obligations and borrow new funds.

Unfortunately, there are many situations when borrowers default on their loans. Understandably, lenders have to evaluate the risk before lending you some of their money for your deals. This is why lender evaluation of your credit report is an essential part of your credit application review.

As an investor, you have to do your best to maintain trustworthy image with solid financial reputation.

For Your Own Good

Credit rating and report are super helpful for your personal good. Let me explain.

As I grow my investing portfolio on the way to my 50 doors goal, I have to be careful about the risk of over leverage. Over leverage means that I've put myself at risk of going down because I can't pay interest on the money I borrowed to grow my portfolio. If I borrow too much, I will not reach my goal and most likely will have to start over.

Luckily, I don't have to re-invent the wheel every time. Credit bureaus have the tools for me to do my self-assessment. I know how risky / trustworthy I look in the eyes of lenders based on my credit rating and my score trending down or up.

If I have a low score or my score is trending down, I know that I should slow down, stop borrowing, and fine tune my investing strategy in order to avoid the risk of over-leveraging. And vice versa, when my credit rating is high and trending up, I can speed up, look for new great opportunities, finance them and grow my portfolio with little over-leverage risk.

Two Free Ways To Check Your Credit Rating

1) Mogo

I use Mogo app on my phone to check my credit rating. The app sends me a monthly nudge when my credit rating is updated. I login to take a look at the trend of my credit score going up or down over time. Then, I think back on what changes might have happened over the last couple of months that affected my credit rating and plan my next steps to improve my future score. Mogo is super easy to sign up for and it's free. It takes 2 seconds a month to keep an eye on your credit score.  

2) Royal Bank of Canada

If you are a RBC customer, login to your online banking account and click on "View Your Credit Score" in the right-hand side menu under "My Services". This will take you to your TransUnion credit rating dashboard, full credit report with all the details and credit education tab with lots of info on how to read your report. Study all three sections carefully to get a good understanding of your current credit report and rating. Plan how you can improve your score in the future. Re-visit this report every several months to stay on top of your financial resume.

Did this help? Post a Comment Pls :)

PS I hope you find this blog post helpful. If you have a question or comment, please don't hesitate to post it below.

PPS I had my first comment ever on one of my previous blog posts about Our First Rental Income Property. This was super exciting and I can't wait to see more feedback! 

Saturday, November 25, 2017

Why Jan 2018 Mortgage Stress Test Will Have Minimal Effect on Investors

No Need to Panic Because of New Mortgage Rules
Starting January 1st 2018, all Canadians looking for a mortgage will have to undergo a stress test. No matter how much down payment you put in, your lender will apply the stress test criteria to check that you will be able to pay interest even if interest rates were to go up.

Stress test rate is the higher of:
  • the rate that you are approved for plus 2%, or 
  • current Bank of Canada (BoC) 5-year conventional mortgage rate.

As of Nov. 25th, 5-year BoC rate is 4.99%. 

Fixed Rate Mortgage Qualification Example

Suppose you are applying for a 5-year fixed 3.29% conventional mortgage with 20% down payment.

Currently, the lender verifies that you meet their borrowing criteria at the contract rate of 3.29%. Let's say that based on your income, borrowing, etc., they determine that you qualify for up to $400,000 mortgage. Thus, you can afford a house up to $500,000.

Come January 1st 2018, the lender will check that you meet their borrowing criteria at 5.29% interest rate instead of the contract rate of 3.29%. This is because 3.29 + 2 = 5.29% and 5.29% is higher than the 5-year BoC rate of 4.99%. Based on this test, the maximum mortgage amount you will qualify for will be $328,000. Thus, you will be able to afford a house up to $410,000.

Variable Mortgage / Line of Credit (LOC) Qualification Example

Suppose you are applying for a variable 3.00% interest rate mortgage or a line of credit.

Currently, the lender uses Bank of Canada's 5-year conventional mortgage rate as their qualification rate for such applications. Say, you qualify for a variable mortgage up to $337,000.

Under the new rules, the lender will use 5% as qualification rate because 3.00 + 2 = 5% and 5% is higher than 4.99%.

Given that 4.99% is very close to 5%, you will not notice much difference and will still qualify up to $337,000 variable mortgage.

Qualification Summary Chart

Current Criteria
Down Payment 20% or more
New Criteria
Any Down Payment
House Price
Approved Rate
Fixed: 3.29
VRM: 3.00 (prime - 0.2)
Fixed: 3.29
VRM: 3.00 (prime - 0.2)
Qualification Rate
Fixed: 3.29 
VRM: 4.99%
Fixed: 5.29
VRM: 5%
Approved Mortgage 
Fixed: $400,000
VRM: $337,000
Fixed: $328,000
VRM: $337,000

Minimal Implications for Investors

At a recent Real Estate MeetUp, a survey of real estate investors showed that most of them did apply and were approved for a line of credit or a variable mortgage in the past 12-18 months. 

This means that the majority of investors already met the more strict qualification criteria, such as 5% test in the example above.

This tells us that for all the investors who have recently qualified for a variable rate mortgage or a line of credit (i.e. most investors), the new stress test will not make a substantial difference.

Useful Tools

Here are some tools you might find useful:

Thursday, November 23, 2017

Cash Flow Problem? Use Rent-to-Own (RTO) to Boost to $600+ per month

Invest With Great Returns and for a Great Cause
I attended a very helpful educational Real Estate MeetUp earlier this week. One of the topics covered was on Rent-to-Owns (RTO).

How Rent To Own Works

Investor and home buyer/tenant are the key parties in a rent to own deal. Here are their primary responsibilities:


Someone who buys a house as a temporary home owner with the intention to re-sell it to home buyer/tenant at a pre-agreed upon price at the end of the rent-to-own term. Investor's name goes on title at purchase. Investor qualifies for a mortgage and is responsible for financing and closing costs. 

Home buyer / Tenant

Someone who moves into the house with the intention to buy it from the investor at a pre-agreed upon price at the end of the rent-to-own term, usually 3-5 years. Home buyer treats the property as his own from the get go and uses the time to build up credit rating and down payment to qualify for a mortgage, buy the house from the investor and become the permanent home owner. Tenant / home buyer is responsible for all aspects of the buy-out at the end of the term.

Benefits For Investor

Rent to Own strategy can be a great way of investing for the following reasons:

  • Great Cash Flow when compared to traditional hold & rent strategy
  • No landlord head aches - home buyer / tenant assumes all home owner responsibilities and addresses all maintenance issues and repairs. Investor doesn't get calls or complaints.
  • No repairs / maintenance - no need to budget for and worry about any unexpected home-ownership related problems, since home buyer / tenant covers them.
  • Pre-determined Returns and Cash Flow - no guessing; the return on investment (ROI) is known ahead of time since the future sale price and length of term are part of the contract. 
  • Helping a family realize their home ownership dreams and become home owners. 

Benefits For Home Buyer / Tenant

Home For You and Your Loved Ones
From home buyer / tenant perspective, rent to own strategy can be a great way to become a home owner for the following reasons:

  • Own a home faster - choose a home and enjoy it before you can qualify for a mortgage
  • Equity - build equity in your house before you even buy it
  • Down payment - start with a 4-5% down payment, then gradually build up to the required 10% 
  • Mortgage Assistance - use time to work with a mortgage professional to strengthen your credit rating and eliminate the risk of not being able to qualify for a mortgage at the end of the term.


Here are the numbers from a case study we reviewed at the meet up based on a recent Rent To Own property in GTA. This deal had a 3 year term with 4.4% annual appreciation used to determine the future purchase price.

Purchase Price: $394,900

Homebuyer Deposit: $16,000

Initial Investment: $78,780 (includes down payment remainder and all closing costs & broker fees)

Future Purchase Price: $450,354

Return from Sale: $43,728 (includes mortgage paydown and credits)

Monthly Cash Flow: $646

Profit from Cash Flow: $23,256

TOTAL RETURN: $66,984 = 28% annually over 3 years.

I hope this post gives you a good initial overview of what rent to own investing strategy does and how it can boost your cash flow. If you have any questions or would like to discuss in more depth, please post a comment in the comments section below.

PS Don't forget there are always cons and risks to any strategy! It might be a good idea to start with a reputable rent-to-own turn key provider if you are new to investing. 

Wednesday, November 22, 2017

The Best Way to Always Keep Kicking

Whenever I throw my hands up in the air and say "I have no idea why I'm doing all this!" or something along these lines, my dad always tells a story of two frogs:

The two frogs fell into a jar of milk. One gave up, stopped moving, and eventually drowned. The other one kept trying to get out, she was paddling her webbed feet inside the jar, trying ever so hard to escape. After a long while, from all this kicking, the milk turned into cream, and then into butter.

The frog pushed off of the butter, jumped out and lived happily ever after.

Today is One of Those Days

Today is one of those days when my hands are down. It isn't very clear how I will ever achieve any of my goals

Knowing myself pretty well, I can tell you that this depressed state is a result of three things combined:

  1. Physical exhaustion after a long day yesterday
  2. Starving myself yesterday since I thought I didn't have time to eat and, so, I didn't eat
  3. Emotional drama because my best friend told me she doesn't want to be friends with me any more.  
Yes! You heard it right. I admit that am not capable of feeding myself when I'm hungry; taking a break when I'm tired and am re-living the worst nightmares of my pre-school life in a grown up version.

Very awkward. 

Head and Body Management

What led me to this situation is my diversion from my routine and discipline of head and body management.

Every day since July to end of October, I meditated for 10-15 minutes and worked out for 30 minutes to an hour. 

Regular meditation and exercise help my life balance a lot.  They keep me from saying nasty things to my family and friends. They keep my head clear. They make me super productive. They also help me eat, sleep and rest on a daily basis.

Whenever I stop meditating and exercising, my emotions spill out and unfortunately usually shoot at the most dear people to me; I stop eating; and I forget to take breaks from work.  

You know what happened in June before I started exercising and meditating? 

Exactly the same chain of events. I was too busy and one day I had no time to meditate and exercise. Then, another busy day followed. Sure enough, two weeks flew by with no basic self-control and things got out of hand. 

At the end of the two weeks, I literally starved my self having 5 coffees a day instead of eating food, worked like a machine for over 16 hours every day, got super tired, started crying for no reason, and quit my job on an impulse. 

Lessons Learned

I must be disciplined about my head and body management routine.  ALWAYS! 

I am not sure how the story of the two frogs ties in here, but thinking about it definitely cheered me up. I also just re-watched "Nothing Box" about men/women brain and had a good lough. 

Going to meditate & work out now. 

Cheers! Wish you all a great balanced day! Keep kicking :) 

PS If you can relate to this post or would like to share your survival tips & tricks, post a comment!  I already had one comment on another blog post and can't wait to see some more

Friday, November 17, 2017

Our Second Rental Income Property

Sunday used to be my least favorite day of the week. Every Sunday, I used to wake up with a life draining feeling of the weekend being almost over, dreading the inevitably approaching Monday. I loved my job but it consumed me. I knew I was a workaholic.

Every Monday I had a one-on-one with my boss to walk her through the weekly report, which she'd be presenting to the CEO and other executives at 9 am. I'd be on standby during the executive meeting to answer questions. Our CEO always had questions. I spent most of my Saturdays preparing the report and most of my Sundays worrying about the upcoming CEO quiz...

This Sunday Was Different

Sunday, Apr 30 2014 was different. My husband and I were now with Robert Kiyosaki's Rich Dad coaching program. 5 weeks ago per our coach's instruction, I wrote down our goal: 

"I am beginning on my road to real estate riches March 20, 2014. In 5 years I will reach my Real Estate Passive Income Goal of $10,000 / month."

Our first rental income property was already scheduled to close on May 7th, 2014. I was determined to find our second property. We had mortgage pre-approval and enough room on a credit line to cover the down payment.

After putting kids to bed, I was looking through Kijiji ads trying to find a property with existing tenants and positive cash flow of no less than $200 per month. And here it was!

Grasping An Opportunity

At 12:34 AM, I sent out the following email to a Kijiji ad titled "BARRIE 3+1 Bedroom FREEHOLD Townhouse for sale":


My husband and I are interested in purchasing an income property in Barrie. If this property is still available, could you please send us some additional information regarding rental income and expenses that will need to be covered by us?

We will be able to provide pre-approval.

Thank you".

12:40 AM: The current rental income is 1200 per month and the tenants cover the utilities.

12:50 AM: Can we please make an appointment to see the place?  We are open Sat. May 3rd, preferably in the morning and also Mon - Thu. evenings next week, starting 7:30 pm.

8:12 AM: Sure, what time Saturday works for you?

8:18 AM: Good morning!  How about 10 am? If this doesn't work, any time will be good!

8:22 AM: Good morning, 10am works for me too.

Numbers Worked!

I plugged in the numbers into my Excel template and realized the house was cash flowing at the asking price exactly the way I needed:

 $1,200 rent
- $100 insurance
- $200 tax
- $600 mortgage
- $100 miscellaneous

= $200 positive cash flow.

$200 / month net cash flow was our criterion for getting new properties.

Morning of the Showing

Now I knew we should be ready to make an offer, if the property looked good. I started googling for a Purchase and Sale Agreement template. Found it.

I started filling out the template on my computer, but realized that there was no time to do it properly before the meeting. My mother-in-law noticed that I was in panic mode. She always gave good advice. She suggested to print a couple of blank templates and take a copy of our P&S agreement from our first rental house purchase, so we could fill out an offer by hand, if we liked the property.

The House Looked Great!

The house looked good based on our gut feeling.

It wasn't shiny, but it was solid. We'd already heard some landlord/tenant horror stories from friends and family, who thought our 50-Doors plan was crazy. So we were prepared to be non-judgmental and open minded about tenants and their ways of living. All rooms seemed just fine to us: a little messy with no doors on the closets, but livable.

We met the tenant. She was nice. 

We loved the seller. She was friendly and very approachable. We said we'd like to make an offer. The seller asked us if it would be okay if she invited her friend who had some real estate experience to help her out during negotiations. Sure we said! and agreed to meet in the nearby Wendy's restaurant in about half an hour.


My husband and I filled out two copies of P&S agreement by hand. We copied all the terms from our first deal. Price 80K (10K below asking).

Seller reviewed and asked for 85K. We agreed! 

Closing was set for May 30th. Here is a page from our hand written offer:

Thursday, November 9, 2017

Overcoming Hurdles with New Rentals

I am working towards closing 5 new doors at the beginning of December. So far, transaction isn’t going very smoothly.

On financing side, our application is being reviewed by the lender. It’s been several weeks since we applied and the process is going very slowly. I worry that we will run out of time. My back up plan is private money. This option will consume most of the cash flow and is not ideal. But even with private money the opportunity is still worth going for.

Today I learned from my insurance adviser that we will have to look at sub standard market insurance providers. Standard market insurance companies don’t want to take on the properties since the properties don’t meet their “best in class” underwriting guidelines. This is expected. There are a couple of things that need to be fixed per inspection. The plan is to obtain a short term insurance policy with a sub market vendor, make improvements upon closing to bring the properties to “best in class” level, and switch to a primary insurance provider. 

Keeping fingers crossed. I am grateful for all the help from our mortgage and insurance advisers. 
New Income Propery

Tuesday, November 7, 2017

Giving Myself a 2K Raise

Last year we came across a free hold town house in Barrie. We already had several rental properties in the neighborhood and were intimately familiar with the market. We realized this was a great opportunity because the house was about 50K below market and could be brought to market with 10-15K investment.

Financing was promising to be problematic. So we found three tentative options and ran our numbers:

Plan A

2.99% interest rate with 40% down payment resulted in $18/month cash flow with additional $250 of principal paid by the tenant during the first year. $268 cash flow per month is more than our goal of $200 per door per month.

Plan B

With 4.99% interest rate and 25% down, we'd be losing $210 dollars per month. But again after taking principal pay down into account, the cash flow is positive $15.

Plan C

In the worst case scenario of 7% interest only financing, we'd be losing $278 every month. This is a type of deal we don't want to get.


Before making the final decision and waiving financing condition, we confirmed with our mortgage broker that Plan A and B looked doable. We also negotiated a $200 / month increase in rent 3 months after purchase with the existing tenant. With this rent increase, even in the worst case of Plan C our loss would be $78 per month. We decided that we could live with this loss temporarily for 6-12 months, while securing a better financing option.   


We qualified for Plan B and went with a 1-year term. 

During the first year, we averaged $164 cash flow per month plus principal pay down. 

At the end of the year, we re-financed and got 2.84% interest rate, which is $155 cash saving per month. In addition, we increased rent by $21. Lastly, we reviewed insurance with our insurance broker and removed flooding and earthquake, since the house is on top of a hill and earthquakes never happened in Barrie before. This saved another $5.

Overall, cash flow after the first year increased from $164 to $340. This means I gave myself a 2K raise.

Friday, November 3, 2017

Great Contractor Gone Bad

Beautiful Bathroom by the Contractor (last project)
Remember my 30K mistake? I was lucky to find an amazing contractor who helped fix that property at a very short notice. He went far beyond my expectations to turn the unit around super fast. I really enjoyed working with him.

But guess what? Apparently, there is an issue with great contractors. They become very popular! Then, they start having capacity issues.

New Job

At the end of August, we completed Summer property inspections in all of our self-managed rentals. Most issues we found were very minor and my husband took care of them. See details here, if you'd like to know the specifics.  

In one of the units, tenant reported several more substantial issues during the inspection including:
  • Because there is no fan in the bathroom, ceiling is getting dark (aka moldy) 
    • New fan needs to be installed. Ceiling needs to be sealed, cleaned and re-painted.
  • One of the eavestroughs is clogged to the extent that trees are starting to grow out of it.
    • Eaves have to be cleaned.
I received a quote from my hero contractor and a text that he can get the job done in the next 3-4 days. 

58 Days Later

My job is too small. The contractor is in high demand and has a higher priority bigger job every week.

Here is what happened:
  • Sept 6 - Quote finalized and accepted. Contractor commits to 3-4 day timeline
  • Sept 6 - Contractor requests full up-front payment. I ask for smaller pre-payment.
  • Sept 7 - We agree to 50% deposit. Deposit sent
  • Sept 8 - Contractor confirms he'll contact the tenant and schedule a date/time
  • Sept 12 - I follow up with contractor. He was crazy busy; work not scheduled yet; he'll get to it
  • Sept 21 - I follow up with contractor. He was crazy busy and is going away for a week. He will handle as soon as he is back.
  • Oct 4 - I follow up with contractor. Tenant not happy with mold. Please fix ASAP.
  • Oct 5 - Contractor apologizes for not having enough hours in the day and promises to get to it
  • Oct 10 - I follow up asking if contractor had a chance to schedule a date. Contractor responds that he will call the tenant tonight. Visit is scheduled for Oct 12th. Hurrah!!!
  • Oct 16 - I check in with contractor regarding the status. Contractor sealed the ceiling and is going to install a fan and then paint bathroom. He will do it this week.
  • Oct 24 - I follow up with contractor. It's been crazy busy and he should be able to get the fan installed early next week
  • Nov 1 - I ask if contractor had a chance to schedule a date. If not, can I please have the money back?
  • Nov 2 - Contractor is aiming for Friday or Saturday this week. Tenant confirms that a date isn't scheduled yet
  • Nov 3 - I follow up with contractor... no response

Next Steps

I plan to find a replacement contractor on Monday, November 7th and get the job done ASAP.

I asked my friend who had recommended the contractor not to recommend him again. I felt really bad about it because I really liked the guy. On the other hand, I have to do the right thing and save other potential victims from losing their time and money.

Do you have any suggestions?

Please share in comments below.