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Show Summary
In this conversation, Dylan Silver interviews Colin Ballantyne, a seasoned real estate investor and mortgage strategist from Ontario, Canada. They discuss the unique aspects of the Canadian mortgage system, the current trends in multifamily investments, and the challenges faced by investors in today’s market. Colin shares insights on financing strategies, the dynamics of the fix and flip market, and the shift towards midterm rentals. He emphasizes the importance of thorough analysis and understanding market fundamentals for successful investing, especially for first-time investors.
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Colin Ballantyne (00:00)
If you put in a factor that was saying, you know, all of your standard clauses, like what’s my vacancy, what’s my insurance, what’s my utilities, what’s my taxes, all of those things factored in, and it had a positive cashflow, what’s the minimum floor in that cashflow so that you can expect interest rates to change and you don’t go underwater? And I think a lot of people more recently, you know, five years ago did this and that math wasn’t being done for them or being assisted by realtors or maybe mortgage.Dylan Silver (00:26)
Right.Colin Ballantyne (00:28)
partner or whatever it may be, they just entered into their own and then they got caught and they’re in a negative clash fold position because now they’re at four and a half percentDylan Silver (02:10)
Hey folks, welcome back to the show. Today’s guest, Colin Ballantyne is a real estate investor in Ontario, Canada with over 24 years of hands-on experience who became a mortgage strategist after building his own portfolio. He helps investors go beyond simply getting financing by understanding whether a deal actually makes sense based on the math, the risk, and their long-term strategy. You can find him at TheMortgageBuilder.ca. ⁓online at themortgagebuilder.ca or on social media at The Mortgage Builder. Colin, thank you for taking the time today.
Colin Ballantyne (02:44)
Hey, really happy to be here. This is great.Dylan Silver (02:47)
Now, when we talk specifically about Ontario Canada, I mentioned to you, I’m a little bit of a fish out of water in this space, but you know, it’s interesting because you had mentioned the same principles apply. You had even mentioned to me before hopping on here that, know, America, you might be thinking, you know, 25, 30 year mortgage. You have three year mortgages up there, right?Colin Ballantyne (03:04)
Yeah, so the amortization can still be like 25 or 30 year, but your terms, a typical standard, if I would say, hey, what does a standard Canadian person get? A five-year ⁓ fixed rate mortgage. And that’s for maybe 25-year amortization. So at the end of five years, it comes up for renewal. So you can either renew with that lender, go to a different lender, head to a refinance or whatever, without penalty at that point, because you completed your term of your mortgage.Dylan Silver (03:30)
Now, typically does that mean the rates gonna change at the end of that term and that there’s no way to like lock in your rate over the total lifespan of that?Colin Ballantyne (03:40)
Yeah, that’s correct. The fundamental difference between what you’re going to have in a mortgage between Canada and the US is you don’t lock in the mortgage rate for the whole mortgage. You’re locking it in just for the term. So which means you can take advantage of lower rates, but it also means you’re exposed if rates went up that you may have to renew or switch into a higher rate.Dylan Silver (04:01)
Now, one of the things that comes to mind when people are talking about, you know, a variable rate is that can make real estate investing itself somewhat trickier, especially if you’re doing volume, right? How does that factor in when folks are looking at investing and are they thinking, well, hey, this works now, but what happens if rates double, right?Colin Ballantyne (04:20)
Uh, it’s a really good question. And part of that, I think is really comes down to the initial property assessment. So you have people that bought during, you know, the, the boom of COVID, the real estate up here was going nuts and there was a lot of FOMO and people were buying cause mortgage rates were like 1.5 % like they were ridiculously cheap, but they missed doing the fundamentals on the math. So you have to have a property that’s going to cashflow and expect that your mortgage is going to change over time. So.If you put in a factor that was saying, you know, all of your standard clauses, like what’s my vacancy, what’s my insurance, what’s my utilities, what’s my taxes, all of those things factored in, and it had a positive cashflow, what’s the minimum floor in that cashflow so that you can expect interest rates to change
and you don’t go underwater? And I think a lot of people more recently, you know, five years ago did this and that math wasn’t being done for them or being assisted by realtors or maybe mortgage.
Dylan Silver (06:04)
Right.Colin Ballantyne (06:06)
partner or whatever it may be, they just entered into their own and then they got caught and they’re in a negative clash fold position because now they’re at four and a half percentAnd all of a sudden you’ve gone from a really casual positive property to one that’s severely negative.
Dylan Silver (06:22)
Now, when we talk specifically about multifamily syndicators and fund managers, I’ve seen many of them ran into this issue in the US where it felt like there was a period from like 2014 maybe to 2020 where you couldn’t buy a deal wrong practically. Of course you could, but it felt like you could make up for the appreciation. Yeah. And then we saw the exact opposite of that. The black swan event of COVID rates doubling materials. ⁓Colin Ballantyne (06:41)
High times.Dylan Silver (06:52)
going up drastically. And then in some U S markets, you’re also saw rents maybe even stabilize it, even go down, which is unheard of, right? But that can be all detrimental to multifamily investors. Were you seeing a similar trend in multifamily in Ontario or was it different?Colin Ballantyne (07:08)
No, there was a lot of the same trends, but even in fact, the last point you made in regards to rental rates going down. So we had rental rates in Canada that were skyrocketing, but over the past year, they’ve actually started to decline. So Toronto specific, there was a massive amount of condo building that was taking place. And a lot of them, you people may call them shoebox condos. So they’re tiny little condos, maybe 400, 450 square feet. And they were all being bought by investors because don’t worry about it. The equity is going to be great. You’re going to make your money.But that’s not a fundamental reason to buy if you’re just going to bank on the equity growth because it’s not always guaranteed. So now it’s a double whammy. Now they’ve got all these condos on the market and they’re not renting because nobody wants to live in a 450 square foot box. So they’ve got a lot more choice. So now you’ve got a double whammy that you’ve paid a lot of money for this at the premium of when you bought before it was constructed. Now it’s closed. The value of that property has gone down and so has the rent.
So now you’ve got people that ended up into a situation where they’ve got hit twice.
Dylan Silver (08:10)
Now, when investors are looking, and I guess this is very specific to Canada, but when investors are looking at what good looks like, right, and they’re trying to identify, hey, what’s the lender that we should go with? What’s the terms that we should go with? Where should we be buying, right? Your background, I’m sure, colors your perspective, not just on the deal, but also the deal partners and what makes sense, who you should be going to.as a source of funding. I’m curious to get your perspective on hard money loans and bridge debt versus raising the capital yourself or going the traditional route.
Colin Ballantyne (08:52)
Yeah, and it’s interesting. It all depends on what your objective is. So, you know, if you’re buying a dilapidated property that you’re going to maybe renovate into a duplex or as a single family or turn it into even a fourplex is pretty common to go through and do. Then you’re probably going to end up going into private money. So you’re going to go through, you’re going to get a lender that specializes in funding the renovations unless you’ve self-funded for that. So maybe you have pulled your own investments out, but if you get that work done, you can move into an A lender. So now.one of the rules within Canada is saying like, hey, if you’ve done this work, really the property needs to have a solid value for years, kind of what they’re looking at. And then the big banks will look at it and say, okay, this is stabilized. Now refinance it in and pull your money back out. Now for a while, the BRRR projects and stuff like this were more difficult because property prices were expensive, interest rates were going up and that was a little more difficult. That’s starting to come back into maybe the word is maturity that you can actually see that happen again.
And especially when you’re actually seeing some people who started down this process and couldn’t finish it. So they can access, if the numbers make sense, they can access lenders. They’d be like, yeah, we will support you on this because the numbers make sense.
It’s all about the calculations.
Dylan Silver (10:41)
Now, before people are going in to, let’s just take for example, a fix and flip, right? One of the things that is somewhat hard to predict is where exactly the market will be upon exit, right? Because if you’re having a three month flip and then if there’s a holding period, I know in some places that you need to hold for certain period of time, then that could change the timeframe to sell of a product.right? And so is fix and flip something that is still very active in Ontario or is that something that’s been more challenging?
Colin Ballantyne (11:14)
It’s a good question. I think it was a bit more common previously. There was ⁓ a funding rule that was put in, there was a penalty put on for people who were just flipping. So they were picking up something, doing a cosmetic and then flipping it along, which was causing real estate prices to increase. So they did put a penalty in regards to people that are flipping, but that doesn’t mean to say that they don’t make sense. There are a lot of people I know that the smell of money is walking into a house and it smells terrible. Like it’s a dilapidated home.But it’s also, as you know, understanding the fundamentals. Are there new industries coming in? Is it a growth area? Do you have high population moving in? What’s the future prospect? So is there a battery plant, for instance, being built in that facility? Is a new industry coming in? Then that’s your signal for, okay, this property is probably going to maintain and grow in equity versus another area that might be struggling. So the analysis needs to be, let alone the house itself. Obviously you have to take a look at the whole environment around it.
because all those are factors on the future projection of what that home may be worth. And this is where some of the lenders that I work with actually help you to do that. They actually have ⁓ agents within their brokerage on the mortgage side to assess these kind of factors and say, yeah, we agree with this. We’re gonna lend with you because we see future potential and they’ll walk away from other ones. Maybe you’re presenting a great house and they’re like, we don’t agree with your thesis because we don’t agree that this is a high growth area. It’s too high risk route.
Now you’re stuck with only pulling private funds or ⁓ maybe something of higher cost funds to go through and do because they dub the risk too high.
Dylan Silver (12:50)
Now, specifically, you know, if people maybe aren’t flipping as much because of regulation and the penalty, are they looking basically entirely at like a long term buy and hold? Is there also a lot of short term rentals happening? Also, are you seeing like, you know, maybe a movement against short term rentals, which we see in many markets in the U.S. where, you know, you might have an explosion of short term rentals and then the city says, OK, we’re done. No more short term rentals.Colin Ballantyne (13:17)
Yeah, we’re facing the same dilemma there, but actually the workaround that a lot of people I know are working in is they’re working into midterm rentals. So instead of doing the short, a lot of the bylaws or the town is like, you know, we want to cap how many Airbnbs we’re going to have in this specific area is moving into the midterm. So go back to your discussion that you had mentioned before. I think it was before we were on the call, you were talking about traveling nurses and traveling pilots and things like this. People that are highly mobile or maybe again, going back to maybe there’s a new factory B.built in a town where they’re flying in supervisors or contractors or professionals for short term, but on that mid range. And a lot of people are switching to that mid range product because it avoids the short range issue, but you still have the shorter duration, which is a higher than a longterm rental. So you can kind of twist different strategies out of it.
Dylan Silver (14:05)
Yeah.The thing that I’ve noticed from real estate operators is you got to have the ability to pivot, right? And if it’s your first project and you’re thinking like, hey, this is going to be my strategy and it’s just going to run smoothly and definitely, unless you’ve got ⁓ a year to year lease, you know, ⁓ in an area where you feel confident about it, it’s a very stabilized area. That’s probably going to be a fairly bulletproof strategy. But I mean, as we saw during COVID where there’s like moratoriums on rents, you know, that can be tricky as well.
Are you seeing ⁓ any investors, you know, maybe even waiting on the sidelines, like waiting for the dust to settle as it were, until they jump back into investing both in the single family space or in multi.
Colin Ballantyne (14:39)
Mm-hmm.Yeah, you’re right. And I think a lot of people actually moved out of ⁓ sort of the, the, BRRR or the single families and they were going into multifamilies. So
there’s ⁓ different products up here in Canada, of course. So there was incentives for products that were brought out to create more rentals. So maybe taking older apartment buildings or creating apartment buildings that had special financing on like 50 year amortizations on the product. So you could build something and have it cash flowing.
And then you had a lot of the smaller investors pull back. So there was a lot of investing that took place and I’ve noticed a lot of them had sort of retreated. But the interesting thing now is there are people that are under stress, unfortunately, on some of those rental properties and they’re starting to come back on the market. And those numbers are starting to make sense again. So some people who have kind of held their money back and sort of waited are now starting to see opportunities come back up in the market that they can pick up.
a property that’s under duress for someone else in their financing and being able to get back into that acquisition mode.
Dylan Silver (16:35)
Right.Now, I’ve also seen, you know, on the flip side of this is because there’s maybe more people on the sidelines right now. And then there’s also, you know, some fair degree of distress in some, you know, funds and syndications that people are both more open to. And then there’s more offers being made in like seller finance and creative offers. And even even in the single family space where you’ll have like homes potential. I don’t know about up there, but we’re on license in Texas.
Homes might be sitting on market for months. might be pulled, the listing might be pulled down. They don’t want to drop price. But now they’re thinking, okay, what do I do? Do I rent this out? Do I keep living here? What do I do? And so that’s where we start to see interest in some of these alternative strategies like seller financing. Is that taking place up there as well? Are there people making seller finance offers in Ontario as well?
Colin Ballantyne (17:27)
Yeah, a hundred percent that had increased as well. We call it a vendor take back loan. So this is where the owner can say like, Hey, you know, I’ll, I’ll finance you either fully or to a certain percentage. that’s a creative financing option that’s certainly increased over the past few years that I don’t think was as prevalent when the market was hot because nobody wanted to hold it. They’re like, just give me my cash. I can go on to my next, next project or, or cash out.Dylan Silver (17:52)
you put it off, you put a home on the market and you have five offers by the end of the next business day. It’s a different, different situation entirely. And one of the things that’s challenging when working with not just, you know, sellers, but also investors is if that was your reference point of how things are supposed to go, then it can be challenging to operate in a different market for folks who are maybe getting into investing in Ontario, right? Do you have any, ⁓general advice for folks who might be first time investors and looking at getting into let’s say single family investing.
Colin Ballantyne (18:27)
Yeah, it’s a great question. And I’m not trying to tell myself on this, but I am going to speak to my personal experience, how I work with clients is, you know, it is a non-emotional decision, whereas buying your own home becomes incredibly emotional when you come in. like, check the emotions at the door. They don’t really mean anything at this point. It’s all numbers driven. So it’s research and analysis that has to get done. You need to understand the fundamentals before you react. I said like,probably familiar with a realtor in Texas, anybody can sell you an investment property. That doesn’t mean to say it’s actually the right property to buy. It’s that investment thesis you put together, you do the research that you calculate it, and that assessment is what you need to learn. There’s lots of tools out there you can go and leverage, or if you need someone to walk you through, that’s where you contact a mortgage agent and a realtor that are experienced in that to help you through it. ⁓
I go back to my wife and I were buying rental properties and it wasn’t uncommon for us as we’re going through, we could analyze a house usually in about 15, 20 minutes to say whether it was going to be worth or not and just hammering through properties. we’re like 46 no’s that we’re looking at. Couldn’t figure out if like you can rent the garage on top of it. Can you get a higher and better use out of it? And then you’d plug in the numbers and we’re like…
wait a second here, this one comes out, shows that it’s green, it’s got cash flowing, this is profitable, we’re like, okay, we’re going to see this place. And just knowing that that level of research and discipline is something that’s required, it’s not as simple as just flying in, seeing a great place, being told it would be an excellent investment without realizing that somebody’s over promising what the rents may be.
Dylan Silver (20:10)
No, yeah, I mean, that’s exactly right. I mean, one of the things that’s challenging, especially right now is you have so many people investing across state lines, investing out of the country, right? And theColin Ballantyne (20:20)
lots oflots of people in Ontario in Canada investing in the US for single family homes and rentals. Lots.
Dylan Silver (20:26)
That’sright. And when you see that, it makes it seem like, okay, well, I can do this too. But then if you take, you know, what’s working in your local market and extrapolate that to another market, things can be drastically different, right? And so, you know, something as simple as, hey, the big, you know, employer is leaving that might be granular knowledge that some people might have, but you might not have that same information, you know, on the outside looking in.
or something else like, there’s a lot of multifamily development. Let’s say that’s happening or happened already. That can of course too affect single family housing. And so, when you have that granular region specific knowledge, it does tend to make things easier. That’s not to say it’s impossible to invest that estate. There’s tons of people doing it. It’s just another layer of complexity.
