Mortgages, New Zoning Laws, Rise in Shared Living, and Affordable Housing (With Angelo Kappatos)

Hey, guys. Welcome back to another episode of the Inside Canadian Real Estate podcast. Today we have my good friend Angelo on. Angelo is a mortgage agent, but he actually runs a large mortgage team with a bunch of agents. He is the guy to talk to about financing, creative financing, working with private lenders, B lenders, A lenders. Angelo is your guy.

So if you have any questions about financing, if you're looking to buy a property for investment, for personal use, for commercial, whatever it is, today's going to be the episode you're going to want to listen to. So that said, let's jump right in and let's go talk to Angelo. Angelo, thank you so much brother for coming out. Darren, thanks for inviting me man. I really appreciate it. My pleasure.

Why don't we start before we get a little crazy here? Why don't we start with who are you? What do you do? Yeah, for sure. So my name is Angelo Capatos. I'm a mortgage broker and team leader with Mortgage Alliance.

I lead one of the top performing teams in within Mortgage Alliance. I've been doing this for a long time, over over six years, yeah. How big is that team now, I have to ask. We've started. I started with six agents. We're now 18 agents and there's about four pending.

FIZRA is a little behind. Yeah, you're still reviewing applications, believe it or not, from end of July. Yeah, we are in November, but we're getting there. What's one of the biggest things bringing agents to you'd like to work on your team? I I I'd like to think it's our process in place. I focus especially with new agents, I focus on training them on the actual guidelines from from from the lenders opposed to focusing more on the sales aspect of it.

I mean, I see a lot of different teams out there and brokerages that literally focus on developing new agents into great salespeople. Well, how can somebody sell if they don't know what they're selling? Exactly. Right. So we actually focus on learning all the important guidelines that will determine somebody's mortgage needs. Yeah.

So we focus more on teaching the guidelines and the basics of of qualifying for a mortgage first of all, right? No, I love that. Yeah. So basically you're you're you're giving them product expertise, so the knowledge to actually know what the heck they're selling and process expertise of how to sell it properly and and deliver that service at a certain level. And I'm assuming a lot of those are newer agents, so they they need that support and framework as well, right? Absolutely.

And some of those new agents, even from the sales aspect of it, I mean some of them, they don't even know how to talk to clients because of fear, loss, lack of confidence. And how do you build confidence? You're building confidence by educating yourself, right, knowing what you're talking about. And again, you can sell something you don't know anything about, right. And I don't personally see as as mortgage agents or brokers as selling. We're not really necessarily selling.

What we're doing is we're building relationships. And that's what I preach with all my, my, my agents and everybody on the team is like our number one job is to build a relationship with the client. We will sell them the same thing the next agent will sell them because the product doesn't change. We all work with the same products, we all work with the same lenders. But it's it's what type of customer service, what support are you providing to the client that support the customer service that understanding that you as an agent have with the client's needs and wants is what bills report, right? And who and who will deliver that in the smoothest possible way?

Because it's just like real estate sales, like any agent can sell your house, but how well they sell your house, how smooth that process goes, how much better you do. I mean, if you have like in your case as a mortgage broker, yes, all the brokers might have access to the same lenders, but not all of them will have the same relationships or the same process. So I mean, that's going to help. Right, absolutely. And relationships is very important especially with the lender side, right. And and that's why like the system that we have in place focuses on, on efficiencies, focuses on, on, on maintaining that relationship with the lender.

Because when we do need the lender to make certain exceptions on a file, you know they're more inclined to do those exceptions with a, with a, with a, with a, with a partner, a broker, an agent who they've done business with and they trust their process. They know how we operate. They know that we've had the clients, we pre screen them, we like, we do all the necessary compliance before we submit a file. So they're more inclined to provide that exception to us because we have the relationship. Right. So like, if we go back to basics now for a SEC, 'cause there might be some people listening that don't really understand this, but what?

What is a mortgage broker? What are you doing? Like, 'cause am I not just going to my bank? I'm just playing dumb for a second? Am I not going to my bank and getting a mortgage? Like, what is it that you're doing that that's unique to being a broker?

What are you providing? Well, I mean the main difference between working with a mortgage agent broker or your own branch bank for example. I mean you and I'm sure you've heard this before, you walk into your branch, you basically asking the bank, your bank to qualify you based on one or two programs they have available for your situation. Whereas if you work with an agent or a broker, I mean we we we have access to over 55,000 programs and that's the main difference. Yeah. And and it goes far beyond banks with you guys because I mean we should talk about that because not everyone I take for granted and not everyone realizes this, but there's banks which we call I guess a lenders, but then you have other categories you want to talk about the other categories.

I mean you you got the AAA business which is your A side business, your top five banks, you have the monoline lenders who are basically financed. But the same top five banks on the A side more or less the programs are the same, the rates are the same, guidelines are the same. And then we also have the alternative space B side lenders where where your credit unions are and also some online lenders who do have more flexible guidelines per SE that will allow for example a self-employed board to to, to get credit when they can get it on the A side for whatever reasons, right, maybe it's ratios maybe they need, maybe it's affordability on the A side is you know preventing them from getting that extra bigger house or or or maybe a higher purchase price.

Well, we do have options elsewhere, not just the A side, we have the B side, we also have the private sector of the business, right. That's where all the private funds are or the private investors that come in and they they will I guess finance you based on equity of your home, not so much your income. Yeah, I think, I think that's the biggest value to me of working with a a, a broker or agent is you open up the full world of finance. It's not just one Ave. It's like if you need money for anything, maybe it's construction, maybe it's like an investment deal, maybe it's your house, maybe it's a refi. You're opening up the world to all these other options.

It's not just your your three or four banks. There's a whole other world out there where money can come from and how it can flow to you. And you guys are kind of like the gateway that opens up to let that in? Yeah. That that's a big one, man. So what the heck's going on?

What's going on with the Canadian real estate market right now? I have no idea. You guys are Realtors. You tell me what, what do you think is going on? I mean from what I'm seeing is I'm seeing the full market that is not really hot. Yeah, slowing down.

It's it's slowing down, but we're not to the point where we have to raise the bells or the alarm or whatever you call it, I don't think. Personally. I mean I do see based on the appraisals that we get values still supporting purchase prices. I haven't seen files where you know an appraisal might come back at a lower valuation of the what the purchase price was. We have witnessed a couple of new build situations where clients bought positions maybe in 2019, two 1021, 20 ones and 20 twos are very hard and whoever bought and you know end of end of 2021 onwards, they're in for maybe some surprises anyways come down the line, right? But those people they bought at the at the peak of the market, the market has come off by in some areas by 25%, maybe more.

GTA hasn't really be affected to be honest with you, but at least I don't see it and and and and and even though you know we see a reduced activity for the full market, prices are still remaining the same because guess what, we still have one issue which is supply. Exactly. So that governs everything. I mean, yeah, like you, you hit the nail on the head like the GTA, it's not like your house is worth half. What's happened at the market in the GTA is that it's just it's actually kind of better, it's more balanced, it's it's things move a little slower. There's a lot more inventory.

So as of October of this year, October 2023, Treb's data shows us 50% more listings than the month prior. That's a lot of listings. So we have a lot of inventory. What that means is your house sits a little bit longer, you don't get quite as many offers. When you do get offers, they're not clean. There's a lot of conditions it it's definitely a buyer's market but that's not so much reflected in in sale price, I know.

So it it's definitely currently a buyer's market for sure, not in the sense that prices have plummeted but that they have more control. So like two years ago, it's no conditions above ask, I'll close whenever you want me to give whatever Now you're seeing what we see all the time offers coming in. Yeah, I need financing conditions. I have inspection conditions. I I can close in two or three months. It, it's softened from that perspective, but the houses are still getting the value.

So the price is still there. You're just not selling in 24 hours for no conditions, right. And I think that's healthier, that's what we should be and that's where we are. The thing that I want to know even from you is, is because like we say it's healthy, but then I look at stuff like in precon an average family home, like I'm talking out of the city, let's say Bradford. So there's new developments in Bradford ON. That's a family friendly suburb, Bradford.

So like 488. OK, there's a lot of new developments going up there. A ton. A normal family home, four bedroom, 2000 square feet. These things are selling $1.3 million. Just doing the math in your head, that's a pretty big payment.

Like you put 30% down. I know this 'cause I just bought one. Your payment's somewhere right now around 6065 hundred a month. That's not really a family friendly payment. Like like are you seeing still normal families qualifying for these homes? Are they doing other things to get qualified?

Is it just really like wealthy people buying these homes? Like what's happening with this kind of product? Well, what's a normal? I don't know any income these days. I mean, we. That's what I want to know.

We're all trying to figure that out too, and I'm sure Bank of Canada is trying to figure. That out too? Well, you should see some of it like you see people. But but I mean, but I mean the the, the, the incomes that we've seen. I mean look I I gave you a stat yesterday based on based on what I heard this week from from from one of the lenders they and this number came from the insurance industry. They said in twenty 2383% of the mortgage is funded for AAA business.

That's top. That's a side business was 83% of that was uninsured. Wow. That tells us that a purchase price obviously it's over a million, so you can't insure it, right? And B, possibly clients need 30 year amortization opposed to 25 year amortization, right, because they need to spread their payment out a little bit longer. So we do see a lot of that in terms of income, believe it or not in terms of income on A2 two board file situation like 2, a couple, right, we're looking on averages about 150 to $180,000 in income, combined income.

But is that enough to buy like this, an average one point three $1.4 million home? People are doing it, so it must be enough, right? I mean they might have to put more money down obviously. Instead of 20% they might have to put 30%. Especially if you're self-employed, right? Depending how you claim your income, you gotta put more money down to make it work on the A side anyways.

Right. Yeah, it just it just see it seems, I don't know like the more I look at it the more I get worried like it's something coming because it's just the in my head the numbers don't work. Like if even if you're making 180 grand, 180 grand a year, let's say and your mortgage is 6500, then you have property tax, two cars, living expenses, you're somewhere around 1213 thousand a month to live. That's like all of your income. So if anything changes, you're kind of screwed. Well, I mean on the A side your, your debt ratio cannot be more than 44% of your income, right.

If you're if you're if you're all bad, you don't qualify. Wow. So the people who are qualifying, that means their debt service is lower than 44% on the A side. Right. Interesting, 'cause I I was worried I was talking to someone today about it. I'm like, I wonder, like, like using Brad for his example.

He was asking me, he's like, well, who's buying these Brad for homes? I'm like, probably people that bought in Vaughan 15 years ago that have a lot of equity and they're rolling it in and then he goes, well, who's buying a house in Vaughn? I'm like maybe someone in Toronto. I'm like, who's buying a house in Toronto? I'm like, I I don't know it. It doesn't really, I don't know.

It just seems off to me like the numbers don't make sense. It they I I understand that. And sometimes numbers don't make any sense. I'm gonna take a look for Barry, for example, right. I mean, in Barry, Barry's values have been going up since I remember. I've never seen Barry's numbers go down.

Why is that? I mean, you can't buy a house in Barry for for for less than, what, 900,000 these days. Around there depends on does. That sound ridiculous to you? A nice you can buy a nice four bedroom house for 1,000,000 bucks. There you can buy is that.

Ridiculous. A hole for like 650 A. $1,000,000 in Barry, right? It's crazy. It's never like that. It definitely still down this year, but it's still crazy. Like, it's still crazy.

I just, I tried to be a bit more positive and I and I try because that's my job. My job is to navigate through current situations and try to find solutions, right. So I try to stay away from predictions and and all that stuff. But I remember houses when I first got to this country 97. I moved to Berry houses. In Berry you can buy a beautiful single family Details 1800 square feet, 4 bedrooms, 3 bathrooms for 180. $1000 should have bought 10.

Everyone says that. So in as far as I'm concerned, everything is relevant. We're just in the process of change. I mean, people don't like change, right? And when change comes, it's kind of hard, right? But you know, I mean, another stat that I heard this week was the fact that, you know the the default rates, you know, everybody's yelling and screaming, but the default rate, well, there's 15 people out of 10,000 people that default in.

15 out of 10,000, that's it. So you see like it's the numbers, even though there are people out there that are going through hard times, the number overall and as far as the system is concerned, it's so minimal. It's still now, but is that a factor of renewals not coming up? Like like will we see a wave of that in 2025? I'm just playing devil's advocate and like the voice of the concerned viewer. But like, is it coming?

Is it are we just waiting or do you think? No. Like it's pretty stable through and through. I mean look, I see even starting from now, right. I mean the people who are renewing mortgages from 20/28/2029, they're renewing now, right. So you know those those folks they've they've they've they're going from 2 percent, 2 1/2 percent rates.

Remember 2018, 2019 rates were about 3%, right. So now they're renewing at 6%, it's 3% differences. You know it's it can be 5-6 hundred dollars a month difference in payment. So that's when they have to make a decision like does my spouse really need the car or should we just take in the transit. Right, right, right, right, right. So you know now what will happen in 2025, you and I have no idea, right.

And we can sit here and predict catastrophe coming, but I just find it very interesting that also elections is right about the same time, right. I like, I don't like talking politics, but I just find it very interesting. You know that you know the majority of the renewals, the majority of the people who bought in 2022 and and and the Fed knows who's in trouble, who's not, right. I I just find it interesting that everything just coincides together, right. I mean will we see a rate reduction personally, Yeah, we'll see a rate reduction. I don't think we're going to see what a lot of people are expecting and I don't think it's going to happen as fast as a lot of people are expecting.

You know first Bank of Canada has to turn Davis from Hockey's and that hasn't happened. In fact, rates came down this week because the bond market had for whatever reason they think, you know, rates will be cut next year. So rates were adjusted downwards this, this week with pretty much all the banks by 10 points. Well, big deal, you know. And then you have the deputy governor of Bank of Canada coming out saying guys expect higher rates for a longer period of time. Now what does that mean?

Nobody knows really what it means, but what I think it means is that we may not be in in in an interest rate environment that we got used to during 2019 and 2020 like you know the below 2%, I don't think that's going to happen anytime soon. Again, we might be probably in the mid threes to high threes and that's what I expect around 2025. Yeah, I'm in the same boat. I'm in the same boat but. Who knows, right? We don't have a Magic ball.

I wish we had a magic. Ball. No, I know it'd be a lot easier, wouldn't it? No, but I think, I think I think overall that's correct. And I think the one thing we will see is I think housing prices will still stay strong. I don't, I don't predict any change and I think that's just because the, the, the habits of buyers will change.

Like you might see, you might see cultural changes in the sense that like maybe not everyone's getting a four bedroom detached home on the sub anymore. We're going to change. If there's going to be more and you see it already, there's more townhouses. I've seen complete new con developments that were laid out to be detached homes, now completely pulled down, rebranded. Now they're all townhomes. That's the inventory we need.

We need more affordable housing. I think we'll see more of that. The province changed those rules to allow triplexes now and every single family lot up to fourplexes in some areas. It's a good, it's a good theory. Yeah. You know this whole, I mean that was the best thing that we've done so far, right.

If it works allowed, we have allowed three units on a single unit lot, right? But the problem with that, with what they're experiencing now, is this whole thing about not in my backyard. Yeah, exactly. You know, because you you might want a triplex on your property and, but your neighbor might not want it. And unfortunately, it's becoming a big problem. It's a valid concern.

We we had another guest on. It's a custom home builder and we're talking about exactly that. That's the biggest barrier. The problem is that's going to be the decision the government makes because if they if this pushes through and if this becomes I don't, is it already, do you know is it permanent policy already? Like is this done? I think so.

I think it is have adopted it, but not all of them 100%. Yeah, they're just, I think, I think Ontario's taking the three, but some have four, like Toronto has four, some have 4:00. But the biggest thing with that is what what they're doing is you still need to get permits, but you don't need to apply for rezoning. So if you don't have to apply for rezoning, the development is not subject to public hearing, which means neighbors can't complain even if they don't like it. There's literally nowhere they can go to stop the process. But then you're going to have tensions raised in these areas and what happens?

Like, maybe that's why there's so many fires at new construction. I mean, yeah, who knows? Who knows what's going on, right? I mean, but you find me a property downtown Toronto that you won't have to go through Committee of adjustment. It's crazy. Well, they're they're, they're they're promising you won't have, but I mean, well, we'll see.

That's the thing too, is like, they make promises, but then in practice it doesn't always end up that way. Like they say it's going to be one day, but you actually go to do it. It's a whole different experience. It's a great idea. Don't get me wrong. If we do need more 4 plexes, 6 plexes, 8 plexes out there.

And I mean, we're talking about bringing another million people in the country over the over the next 12 months. Yeah, where are these people going to go? And that's why I think it will stay strong. And and and one of the reasons, let's go back to the insured, the non insured mortgages that got funded, I mean I I also believe that they're trying to push people away from the, the, the, the, the big metro centers, right. They're trying to push them away like. They want sprawl.

Go live in Sudbury if you have to, you know, I mean, you know, instead of instead of buying a house, downtown Toronto. And unfortunately, a million people will come in the country and probably 70% will come in Ontario. 100% yeah, I'm I'm a big fan of pushing for more urban sprawl. Like we need to go wide. We need to. Get so much land, we might as well use it.

And it's, I don't think people are fully aware of it either. Like we have beautiful pockets. If you go up to Barry north of Barrie there's pockets like spring water or Almadante, all those little pockets. There are beautiful homes coming up on beautiful pieces of land that are a 1/3 the price of doing that anywhere near the city. And the quality of life is still fantastic and you're still close with the highway. These are options and there's more communities going up there too where you can get 3035 hundred square feet for $1,000,000.

Like it's it's there's value if you just don't need to live right in the center of the city. So I think we'll see more of that and then I think within the city we'll just see more multi family smaller units or kind of European style too. More families living in single family homes where mom and dad are staying with the kids or they're they're they're duplexing the house and one's living downstairs and upstairs. We did. We sorry to interrupt you. We did.

We did 4 purchases this past three weeks and it was literally two couples. Together, there you go. It was the. Brother, two brothers with their wives, right? There's like 4. Of them.

That's amazing because that was literally my theory. I was just talking about another interview as well. I was saying I think that's what we're going to see more of, but I'm just thinking I haven't seen it. So you saying that kind of confirms I I think that's the way it's going to be because now you have a, you have a 1.4 like that'll happen more before prices come down, like before detached homes ever drop. You'll just have more people squeezing into the same roof because that's what it is. And so you're going to see more of that.

I think brothers, parents, grandparents, more of that to make these single family homes work because now you have 4 incomes instead of two. So now the 1.4 million makes sense, right? I think we'll see more of that. So outside of that, that's a lot. Of we also need to see sorry it's it's construction cost coming down a little bit too because you know I mean and I honestly think a lot of builders are standing by they're standing by you know what I mean how are you going to how can how can it be profitable for a builder to build even affordable housing which I have an issue with it because I don't really understand what the definition of affordable housing is we haven't really gotten.

Affordable to who? The, the, the right definition here because if you look at the even the insurance company that provides financing for it, affordable housing to them on a, on a, on a on a new build, it's about 20 or 25% of the entire building that's affordable housing and that 25% is 30% of the median rental income. I give you an example in very the medium rental income is 60,000. So 30% of that works out to about $1500 a month. Is that affordable rental for somebody? I mean I don't know.

To me it would be if it was under $1000 then OK fine, I I agree with that. But when you have somebody paying $1500 for a one bedroom, or even a studio or even 1 1/2 unit dwelling or or condo or apartment, $1500 is a lot of money for rent. It is, I guess, comparative to the market. Yeah, I think the overlying market is a problem. It is very expensive here. So even discounting by half is still expensive.

So the the, the macro problem has to be fixed first, which is how do you bring the cost down altogether because how, how, how do you get lowered? That's the problem is like how do you get it under 1000? Like do you just like who pays for that? Is that just the government subsidizes it? Like how, how do you get these? How do you get these apartments to be like if the market's demanding, OK, you're at 1500, we built this unit.

It's, it's built affordably and you need to get under 1500. How do you do that without you? I mean, you can't change the cost of the the, the construction, the materials are going to be the same. Well, that's the problem. The land is the same. See, that's the problem.

The problem is everything else remains the same. It's just the demand from this particular program, this financing program that it does doesn't make any sense because if you really want to promote affordable housing then maybe you should boost that up to 90%, 90% of the units available should be affordable housing should be based on 30% median whatever average rental income they yearn, right, right. That would make sense. But they don't do that. They only do that on refinancing on existing properties, on existing property let's say if you want to use an insured program for we're talking commercial here, right. So so you can get the 50 year amortization and 95% loan to values you on a on a on a on a pre-existing building.

On a used building you you need to be at 45 or 50% affordable housing, which is 30% of the median rental income. OK, this is interesting. This is all kind of news to me now. I actually don't know anything about this. So now I'm learning and I'm trying to understand. So maybe as I try to understand I'll help like go deeper here.

So you're you're talking about this from the financing perspective that they're so they're they're trying to produce affordable housing but through incentives in the financing program so they're making. Incentives through the financing program that basically entices the builder to do certain things in order for them to get, sorry not the builder, the vendor to to get the maximum benefit of the program, which means with the maximum benefit of the program is 50 year amortization and 95% loan to value and lower insurance premiums. The rate is pretty much the same. I mean the rate on the commercial side, I mean it used to be anywhere between 75 points to 150 points above the bond market.

Now you're seeing probably up to 350 points above the market. So in terms of the rate, you're not going to see a big difference, but you're going to see a huge difference when it comes to whether you will qualify for a 40 year amortization or a 50 year amortization. And as a vendor it makes a big difference having a 50 year amortization cash flow wise, right. So they will entice you. They want you to focus on affordability, efficiency and accessibility, right? So certain units, certain amount of units within your building, let's say you have 100 unit building, right?

25% of that has to be accessible to people with disabilities, right? You get points for that. It's a point system. You, you start from 50, you go up to 100, you can pass 100. If you pass 100 makes stronger, right, Your case. So you know you, you, you got to hit points on those 3 categories, right?

So you know, let's say let's say you and I find a 100 unit building and we're trying to see if it makes sense for us to purchase it, right. So what we're looking at is first thing first is obviously rent rolls. We want to see if the property cash flows and good luck finding the property in Canada, the cash flows, OK, because there's a requirement that you need to be your debt coverage ratio for the property has to be 1.1 times. So you find me a property that cash flow is 1.1 times right now based on current valuations. So give me, let's do that with numbers so we can visualize it. So let's say in a $10 million building, what do I got?

A cash flow. I mean, I, I don't know, you got to write the numbers, right? That's it has to go based on your net operating income, right. And so your net operating income including your debt payment, your mortgage payment has to be 1.1 times what it's earning. So you got to be in the green. Think about it.

Why would anybody give you money? Cash flow doesn't make. Sense 100%, right? But those numbers are gonna be super hard. So if you buy a $10 million building and your NOI is something like like what's what are cab rates right now in residential Toronto? Like 2% if you're lucky.

It depends. I mean, yes, downtown Toronto, you're probably around 2%. I mean, everywhere else you're probably around 5:00, you know, I mean, just. So even even at 5%, so 5% of 10 million we. Can't. I've run the numbers.

I in fact, I challenge many Realtors to come up with deals for me. I'll buy them myself. That's impossible, interesting and. Even if you decide, let's say, let's say, because I personally believe there is opportunity to build purpose, build buildings for specifically for for housing to to address affordability, accessibility and efficiency. I don't care what the politicians say. Politicians will hit you with affordability, affordability all the time, right?

But if you can, if you can address those three areas that at least the finance company is looking for so you can get the maximum benefit out of it, you will need to invest in those three categories. Which means you got to spend more money on heat pumps, on efficiencies, right? Right. You need. Those ESG scores. Exactly.

You got it. And then you have to make sure your, your cash flowing including let's say 25% of your 100 units, 25 units are affordable housing, right. So if all those three boxes tick, then sure go ahead and build a new building. I think that's probably the only opportunity we still have left if the land is priced is cheap enough, right? Which means you got to go outside the GTA. There's no way you're going to find affordable land in the GTA unless you're building 3400 units or houses, right?

And you know, during COVID, little bit after COVID, like I know of people personally that bought land north of Toronto for dirt cheap, right? But I don't think that's happening anymore. Tough to find on market for sure. If you can get off market deals, the world is your oyster so to speak. But if you're looking on market it's very hard like we bought 20 acre, it was part of another deal that we did but a 20 acre piece of land in the Brace Bridge 10 minutes out of the city. I think when you when you run the cost and what it worked out to is about 150 grand for 10 or almost 20 acres.

So pretty considerable like that you can build pretty much anything on here to make money. But those are very hard to find unless you are looking in a certain way. So this leads me to a lot like this is actually very. Interesting also, but sorry to interrupt you again. So you just address the land cost. Yeah, right.

How much it's going to cost you to build 100%? I mean, you look in and don't think I know where you're going with this because I know your family is in history, right. So ignore that part. Don't, don't think about how what cost you to build. Think about what the average investment, what it cost them to build, right. And right now you're looking anywhere between 295 to 350 a square foot.

Yeah, I mean, that's insane. Yeah, exactly. And we're not talking about custom build homes here. You're right, we're talking about cookie cutter homes, right. So it's not easy. Yes, the intention is there, but it's not easy to build within economies of scale and make it worthwhile for for a developer or a vendor to to come ahead and to go ahead and say I'm gonna build 100 units.

Yeah. Well, 100% and and these cities even are still not that receptive. The municipalities are not that receptive. The first thing I did when we got that land, it's kind of been my my pet project was contact the city and see what they'd be willing to play ball with. And they made it very clear nothing like, yeah, you can push for this, but hey, we'll let you build a house. How about that?

Anything else? Here's the process. I'm like really rural Brace Bridge. You guys have nothing here. You need housing it. They're like, sure, but here's the process that will take you three years to build anything.

So of course we settled on building a single family house. But to your point, even with the cheap land and our build cost being probably just shy of 200 square foots or probably somewhere around 180, that still leaves us a very thin Brava margin. So if we have to build a full cost, it's like it's very hard to make money in that space right now for all those reasons. We're focusing on the wrong things. Yeah. What what we should be fixing is we should be fixing the bureaucracy that's exactly exist.

That's what I know it's not easy. It's hard is I mean you know it's been there for hundreds of years, right. And but but but you know I, you know if the intention is there, then follow it through. Right. I mean you know you you you you can you can say, you know we're trying to open up and make it more flexible. I mean to to, to give an example, this, this, this condo project downtown Toronto, the the one which I'm sure.

You know what I'm talking about. Yeah, yeah. I mean, everybody's quick to blame the developer for lack of experience. I heard lack of experience. I mean, I mean maybe so. But the bottom line here is that this poor guy right And and and and I saw of I know of Sam.

I don't know him personally. I know of him, but he was waiting for 6 1/2 years to get permits. Yeah, like, what do you expect? Yeah, he has to pay interest on that money. It's not free, right? No, right.

No, it's that's the problem is the city says yeah, housing, housing, we gotta fix housing. We need more housing, but they're the very barrier, like they stand up there saying we're trying to figure it out. We're working on invest. I'm like, you don't need to invest anything. You should get out of the way, like there's so many barriers to do anything in the city. That's what makes it hard.

But, and this is where I say that the less we complain and the less we ask for government's assistance, the better is true. Because the more we complain. There is some colleagues of mine. We've been in the business for many, many, many, many years. But it seems to me that they haven't learned. Because the more you ask for the government to help, the worse you make in it.

Yeah, you gotta allow the market to be free. You know, if somebody can't afford the house, maybe they can't afford the house. Yeah, exactly What? What are you gonna do different but make it like you? For some reason, no one wants to accept that for some reason. It's like they're looking at a problem that like they're trying to force a solution of like, well, the average family can't afford 3000 square feet in the perfect suburb community.

Yeah, maybe they can't. So they got to start somewhere else and they got to work their way up to that. That might just have to be the. Reality like the rest of us. Yeah, exactly. So there's no way to force that.

But anyway, back to you earlier, because I'm very fascinated by this whole, because this is the first I'm hearing about these incentives for some reason and I feel very behind. Listen when your next Next time, if you invite me again, how about how about this, we'll actually go through the. Entire program. No, I love that because that's something. The only question I have about it is like, so if I'm like me, I'm a developer, I find a piece of land, I want to build something on it, I'm going to do that model. I want some affordable housing in there.

What? Like what I don't understand is what what dictates, what makes it affordable housing. So for example, you say 25% has to be affordable housing. Is that just the owner artificially keeping the rental rates down? They're just purposely charging less. You need to have a commitment.

You need to have a 10 year or twenty year commitment. A 20 year commitment will give you extra points. What does that mean? 10 year commitment. Basically you're committing that this property, this dwelling for the next 10 years after it's completed, right, you have occupancy permits and whatnot for the next 10 years. Those 25 units will always remain as affordable housing, which means you can't rent them more than 30% of the average rental income.

I see. So and the rental income changes per municipality, right, the Barry's a little bit higher, Hamilton is a little bit lower. So you know it it it changes with with. That's interesting. So me as the owner or investor, what I'm basically doing is the way I'm doing my business plan here is essentially I'm going to build this property. Trying to factor in, if I get the special financing programs, it makes sense because it's like, OK, I'm, I'm holding my rents artificially low in some of these units.

But it's making sense because of these preferred terms I'm getting from my lender. Now the building as a whole should make sense. That's the theory. You got it. But, my, but, but, but the point is it's only 25%. Yeah, affordable housing.

But everybody talks about affordability, affordable housing, right? Well then make it them 100%. Yes, you're talking from the perspective of the end user for sure be better for everybody, but from the investor, it's the now they get the charge full price for 75% of the unit exactly it's better for the investor. Of course it is. Yes, Good to know. Yeah, but.

But, but, but, but you know the and and you know we work with a lot of developers who, well, the ones, the ones who come to us before they pull the trigger, right. Because we get a lot of them after the fact. And you know sometimes we can't even help them. But you know, we, we, we sit down with them and say listen it. It might be better. You might be better off using your cash and buying land and building if you meet these criteria, it might be better for you opposed to looking for an existing property that you gonna refinance or purchase at that point, right?

Because on an existing dwelling there the the requirements are a little bit more stricter than than building obviously makes sense, right, because they are promoting more supply. Yeah, the best returns that we had on one of my guests a few weeks back is he works at Equiton. I don't know if you've heard of that, but they're big private equity, so they're about a billion something and a lot of their portfolio is multi family apartments. They buy these as existing buildings, but now they're doing more development and the development returns you can see visibly are much higher. There's there's much more profit to be made, There's a lot more room to be made when they can find the land and location.

Now they prefer to build because that's where we've gone with the numbers. They also work this big companies, right? Equity companies, realistic equity company. I don't know if they're trust or not, but they also work with private money, right? I mean, they raise. Yeah, that's what they're doing.

Yeah, They raise their, their, their raise in private equity, right. So they don't necessarily use those type of financing options that we just described. Yeah, exactly. So it might not apply to them. Yeah. But if you're telling me that they're going more the construction route now now, yeah, maybe that's what they're doing, right.

They're utilizing their money, their investors money anyways, smartly. Yeah, I'm not sure how they distribute. I know in some cases the the private equity side, when they raise capital, they're using that money for the down payment like whatever the equity in the deal is required using that. And then they're they're still raising the rest through lenders. But in some cases maybe on smaller deals, they're using all of the equity. But cause for them leverage still makes sense.

Like if I have, if I have a billion dollars of my client's money, I'd rather use that billion for down payments and still finance the remainder and leverage the rest for scale, more risk. But I think that's what they're doing. Well, I mean in construction, like I tell everybody, when it comes to construction, if you're building a brand new 100 unit building, if we can do it the non insured way, it'll be a lot better for you than actually having to go through the insured way. Because even though they'll give you if you meet the criteria, they'll they'll finance, they'll do construction financing and they'll go, if I remember correctly about 75%.

But the process is just, it's just ridiculous. It takes six months to 8 months before you get answers. You will have to complete the task before you get the next draw. So, you know, sometimes it's better. You're better off to finance the entire construction part of it with private funds where you raise them privately or you go through a private lender. Yes, you'll pay a little bit more in interest, but trust me, it's probably going to save you thousands and thousands of dollars in aggravation and and headaches and also interest, because if you go through the insured way, it's going to take you longer to finish your project, right?

That makes sense. So you know you, you you, you facilitate the entire construction phase with private funds and then when you're 97% complete we refight into CMHC for example and hopefully you get your 50 year amortization and and all the perks and. Benefits. I didn't even know that was a thing until today. This is like I'm learning something new. So do you guys do a lot of commercial like compared to residential stuff for?

Individuals we like My time is probably I'd say about 7030, we do 30% in commercial. It's not commercial, I mean other than construction and you know it's like we focus more on the residential of course, but we'll we'll do commercial if it comes our way. No, that's awesome. Very good, man. Cool. Well, any other thing you want to add before we wrap this up?

Did we miss something cool that everyone needs to know about? I mean, I'm sure we missed a lot of cool stuff that we just don't have the time to talk about it now. So hopefully next time, you know, we can we can talk about more. I mean I'd love to show you this whole program about the one that we described today and I and I can explain to you how it works. So you and your viewers can understand yeah what, what the options are out there if they decide by, you know any multi residential properties, you know commercial is 5 units plus, right. And good luck finding a unit.

Yeah, property, it's not easy, but cash flows these days, right? It's hard. In fact, I challenge you. Find me one, We'll buy it. I could find one. I'd buy it, yeah.

It's not. It's not. It's not easy. It's not easy. Calgary, you can still find, I mean, I mean, I from what I'm hearing Calgary's market residential. I don't know so much about commercial in Calgary, but residential side, they're pumping like there's activity out there.

Because the values make sense, the housing is still very much affordable compared to here. Well, plus oil is over $50. That's the thing. So they're making good money there and housing is still relatively cheap like compared to what it is here. So the market is way more balanced and I think it makes sense. The one thing that I wanted to mention that we didn't cover today was the tenant landlord board that we have here in Ontario.

Let's. Talk about it. It's a disaster. It's a total disaster. I mean I've never seen a more non landlord friendly environment. It wasn't always like this, right?

I mean it's just got worse over the years and and and we used Calgary for example, right? I mean, in Calgary, if you don't pay your rent, you're out of there. Yeah, there's no waiting around, which is exactly. How it should be. I don't understand how it's anything but that it makes no sense. That's exactly the way that it should be and and look like talking but we say we don't want to talk politics but I'll talk politics anyway.

People complain about housing affordability. How do we fix it with your vote? Because look at the provinces that we have issues in Ontario, who runs things? And look at the the, the, the provinces that are run by a different political party. Like Alberta is very much a conservative province. I don't think that's an accident.

And how strong their jobs are, how strong their economy is, how well things are run. Everything's different there. Their gun laws are different there, everything is complete. And I mentioned that 'cause I'm a big sport shooter, but everything there skews towards the conservative side of things, including bureaucracy. They just believe in more freedom, make things easier, let business do business, let builders build, let people do what they need to do. If that was run differently, that could be a whole different.

Like if they ran Alberta the way they did here with all that oil money, all that economic, and they thought we'll just grab all of this, let's let's increase taxes, let's take control of this company. And that come, it would be the same situation. It's different because it's run different. So if you don't like where you are and how things are working, a lot of chances. I mean, there's a big chance that it's also who you're voting for. You're voting for people that don't know what the heck they're doing, but yet they're given control of all these factors and levers that control all these markets that we need to live.

Vote different, vote different and you'll see something. Different Put your name on the ballot, I'll vote for you, and that's a cut. Oh, there you go. That's it. Hey, before I do let you go, where can people find you if they wanna connect? In social media, Instagram, My my my name I guess is lend funds.

We're in LinkedIn, Instagram, Tiktok website. Perfect. Yeah. What's your e-mail? We'll get it on. My e-mail, Yeah, my e-mail is angelok@mortgagealliance.com.

Perfect if anyone wants to reach out. Or if you want to send us a deal and we can do a deal run for you to send it to deals@brokerlab.ca. There you go. Even better. Awesome. Thanks, Angela.

I appreciate it, man. Thank you so much for talking again. I appreciate it. I had a great time. Me too. We'll do it soon.

Thanks, man. Thank you. Thanks for tuning into another episode of Inside Canadian Real Estate, guys. Don't forget if you liked the episode, if you found it enjoyable, if you learned something, if you liked our guest, if you liked our topics, don't forget to subscribe to Inside Canadian Real Estate on Instagram. That's where you'll find all of our clips posted. We're also sharing on YouTube, so just search Inside Canadian Real Estate on YouTube, follow along and please, please, please if you really want to help the show, because again, there's not a lot of Canadian content on real estate.

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