Financing For Laneway Homes & Garden Suites

[00:00:00] Welcome back to the Canadian Real Estate Investor Podcast. My name is Nick Hill. I am a mortgage agent and a real estate investor joined today and every Tuesday and Friday by my good friend Daniel Foch, a real estate broker and investor.

[00:00:26] And Dan, we'd like to help investors and developers and even first time home buyers across the country. So if you are looking to get a deal done, please reach out. In today's episode, we are diving into the world of innovative banking with a spotlight on a show sponsor, you may have heard, Equitable Bank.

[00:00:48] As Canada's Challenger Bank, Equitable has been shaking up the financial industry in Canada with a forward thinking approach and commitment to providing Canadians with smarter banking solutions.

[00:01:00] Challenger Bank, that's kind of got a badass ring to it. I like it. Founded back in…

[00:01:05] It's like the guys, like the crypto bros, like they all go and buy like Dodge Challengers after.

[00:01:12] That's the company vehicle at Equitable, I guess. Founded back in 1970, Equitable Bank has grown from a small trust company to become Canada's seventh largest independent Schedule I bank. And Dan, what sets them apart?

[00:01:29] Well, you probably heard this on the ads on the show already, but they're focused on digital first banking, competitive rates and unique financial products that cater to the evolving needs of Canadian consumers, which one of one of which we're going to be talking about today because it's something pretty excited about as well as businesses they work with.

[00:01:44] So not just consumers. You've probably heard a lot of this already again, since they are a pre-roll advertiser for the show.

[00:01:49] But what you haven't heard is probably about their brand new Laneway Home Mortgage.

[00:01:58] So in today's episode, we'll explore how EQ Bank is revolutionizing the banking landscape from their high interest savings accounts.

[00:02:05] They're more importantly for you listeners, their specialized mortgage solutions.

[00:02:11] Now, we'll discuss their recent innovations, including their support for Laneway and Garden Suite financing, which is helping to address some serious housing challenges in major urban areas across Canada.

[00:02:26] Yeah. So whether you are someone who already has a paid off property with a big backyard or maybe your first time home buyer who wants to do an ad value program or you're a savvy investor who's looking to increase cash flow on your existing portfolio by using some excess land that you have, stay tuned because we're going to unpack how Equitable Bank is redefining the Laneway and this innovative loan product that they're introducing to the market.

[00:02:49] And I'll just use this as an opportunity for a soft pitch. We are doing our next free webinar.

[00:02:55] I guess it's not really a pitch because we're giving you something for free on October 24th with Craig Race from lanescape.ca about how to plan and execute a Laneway project.

[00:03:05] So very similar to what we did for the multiplex event. We're going to be doing that on Laneway Suites and Garden Suites specifically with Craig Race from lanescape.ca, who's like an absolute all star in this space.

[00:03:16] And Nick, I think you or maybe Vince are going to be talking about the financing side during that webinar as well.

[00:03:23] Yeah, that's right, Dan. And honestly, LaneScape's website is super sexy. I've been lucky enough to see some of their finished product in real life.

[00:03:32] And again, Vince and I are working on some pretty amazing stuff as well that Laneway Suites.

[00:03:39] People get this idea, oh, you're going to live in someone's backyard or you're going to live in kind of a Laneway.

[00:03:46] It's shocking to see how different and how much better some of these places are than living in a condo.

[00:03:53] Yeah, you know what? Actually, sorry to interrupt you, but on that note, I was introduced to the Laneway Houses by a guy named Brandon Donnelly.

[00:04:02] So if you follow Canadian Real Estate and you probably know him, he has a daily blog. He's been doing it for years.

[00:04:08] It has like 30 or 40,000 followers, I think maybe more.

[00:04:11] But he'll just write about just random stuff, a lot of city building and stuff like that.

[00:04:16] And he built a Laneway House. I think Gabriel Fane was the architect.

[00:04:21] And this would have been like early COVID, I think, when I went and toured it with him and Adam.

[00:04:28] And he had this idea that eventually, this is a really cool concept, that eventually the Laneway would actually become the more attractive area for people to live because there's no car traffic, right?

[00:04:42] It's not like people are driving up and down Laneways to get places.

[00:04:44] And so, you know, and a lot of the houses that front on those main roads have already been converted to multiplexes and they're older housing stock and they're harder to renovate or they've already been cut up or kind of ruined because of the way they were to begin with.

[00:04:59] Whereas the Laneway is all going to be brand new housing stock.

[00:05:03] You know, there's no limitations on what you can build.

[00:05:05] You can build it right up to the lane.

[00:05:06] So it's super walkable.

[00:05:08] I thought that was like a really interesting approach to what the future of the Laneway could be.

[00:05:15] And it got me kind of fired up to watch this whole Laneway housing thing evolve.

[00:05:18] And like, I remember the concept of Laneway housing was introduced to me 15 years ago at a ULI event.

[00:05:25] ULI being another partner on the show.

[00:05:27] It's been part of this conversation for a long time.

[00:05:30] And it's exciting to see strides and, you know, progress actually being made finally now that I guess the crisis that we're dealing with is severe enough that everybody seems to be really taking a stab at trying to fix it.

[00:05:46] Yeah, it's funny.

[00:05:47] You know, on that note, I grew up in Vancouver and there, you know, in downtown Vancouver and kind of the surrounding area, there was a lot of laneways.

[00:05:58] And everyone had, when I remember growing up, everyone had block parties, but they were never on the actual street.

[00:06:04] They were never on the block.

[00:06:05] They were always in the back, right?

[00:06:07] And that's because just as you said, there's no real traffic back there.

[00:06:11] It's just neighbors going to park their cars in their garages.

[00:06:16] And I remember one of the guys up the street actually had built another little, you know, at first it was a workshop and then he had like his brother come and live with him for a bit and he didn't have room in the house.

[00:06:25] So they turned that place into, you know, essentially a little apartment back then.

[00:06:29] And obviously as a kid, I thought that was the coolest place to live.

[00:06:33] I didn't want to live in the house.

[00:06:34] I wanted to live in the garage.

[00:06:36] It was basically like a big fort.

[00:06:38] Yeah.

[00:06:38] You know, and if you've been listening to the show, you already know we're huge fans of laneway suites, laneway housing, you know, garden suites.

[00:06:47] But I guess the real question here, Dan, is what are laneway suites and what would constitute a property as a laneway suite?

[00:06:58] Yeah.

[00:06:58] So if your property is connected to a laneway, you probably have already thought about how you could provide living space for family or generate income from your property.

[00:07:08] Do something more than just have an area to park your vehicle or your carriage probably, which is why these laneways were originally invented.

[00:07:15] I don't know.

[00:07:16] But, you know, like the lane loaded housing concept is, I guess it would have been during the war.

[00:07:20] So it would have been for cars, I suppose, not just carriages.

[00:07:23] But it would make sense to kind of park all your horses out back.

[00:07:27] That's what they say, right?

[00:07:28] Horses in the back?

[00:07:29] Or is that about a Lambo?

[00:07:30] I guess that's like the rear mounted engine.

[00:07:32] Anyway, I digress.

[00:07:33] Laneway housing might be the innovative solution that people are looking for to capitalize on that, right?

[00:07:39] So what can a laneway house do in that concept?

[00:07:43] Yeah, great question.

[00:07:44] I mean, the first and foremost is provide rental income to property owners, right?

[00:07:50] You know, if you already have that basement suite or if your property, you know, the ceilings are too low and you don't want to dig out the basement or whatever.

[00:07:59] Amazing way to make some pretty serious rental income for any type of property owner in the backyard.

[00:08:06] Of course, then it also provides that growth for either children or parents or in-laws, right?

[00:08:15] You can kind of have that multi-generational family on that same plot of land in totally separate structures.

[00:08:23] And then, of course, you can take advantage of existing infrastructure, right?

[00:08:26] Water, sewer, electrical are all already on the property.

[00:08:30] And, you know, it really helps vitalize these underutilized laneways into kind of more safer and, as you were saying, Dan, possibly more vibrant public spaces, right?

[00:08:42] I mean, I take, as I said, walks around my neighborhood and sometimes even I'm a little sketchy to walk down a laneway if it's literally just a whole bunch of garages, kind of dark.

[00:08:52] There's not really streetlights back there.

[00:08:55] You know, there's graffiti and stuff, but, you know, a couple years ago that could be-

[00:08:59] It's a lot easier if you're riding a horse like they used to.

[00:09:02] No, I actually looked it up.

[00:09:04] It was for cars.

[00:09:06] They were trying to get cars out of the street, which is like, I get that.

[00:09:08] You drive through a new subdivision right now and there's just cars parked all over the street.

[00:09:11] It looks like crap, honestly.

[00:09:13] It looks really bad.

[00:09:14] So, respect to the 1920s planners who were lane loading all of these urban houses.

[00:09:21] They probably did not know that this was going to happen to those laneways.

[00:09:25] People, they'd be like, oh, the kids these days are turning all our laneways into houses now.

[00:09:33] Now, there's an important distinction here, Dan, and it's really not that big of a difference, but I think it's worth noting, just so people don't get confused.

[00:09:43] There are laneway suites and then what else is there that's quite similar?

[00:09:47] Yeah.

[00:09:47] So, the other piece would be garden suite, right?

[00:09:49] Right.

[00:09:49] So, laneway suites where the property is lane loaded.

[00:09:52] So, there's like another road behind.

[00:09:54] So, imagine your subdivision, there's your street and then your house backs onto another house.

[00:09:59] Well, between your house and the other house, there's a laneway.

[00:10:01] And that is on which a laneway house would exist.

[00:10:05] But then there's these garden suites, which are detached secondary dwellings located in the rear yard of the principal residence.

[00:10:13] And in a lot of cases, you need a bit of a bigger lot because they need to have a straight shot from the road to the garden suite.

[00:10:20] Mostly for fire code because they want to be able to get a fire hose back there.

[00:10:24] I think that's the main reason.

[00:10:25] You know, like that 36, you need a 36-inch pathway.

[00:10:28] I think it's actually wider in most jurisdictions.

[00:10:30] But they're intended to create this kind of like modest scale separate housing unit that integrates sensitively with the existing neighborhood areas.

[00:10:40] So, you know, the idea is they take the extension of laneway suites and extend them to all residential properties, including ones that don't have laneways.

[00:10:53] So, you know, you could put this smaller dwelling in your backyard even if you didn't have a laneway access.

[00:10:57] Now, again, it would require that your lot and the house on the front of your lot can accommodate for like the requirements.

[00:11:05] Setbacks and stuff, yeah.

[00:11:07] Yeah, setbacks.

[00:11:08] And I think the big one is like getting the – in most jurisdictions.

[00:11:11] I'm most familiar with Hamilton because Joey, a friend of the show, has done a lot of contracting with us.

[00:11:17] He does a lot of these laneways actually.

[00:11:19] I'm going to try and get him to join that free webinar to talk a little bit about the construction side of it.

[00:11:24] Yeah, he's got a couple active ones on the go right now.

[00:11:26] Yeah, so he's very familiar with like the – yeah, I think basically the idea is it's mostly fire code stuff.

[00:11:32] It seems to be fire code is like the main reason for a lot of the rules where you're adding a second suite to a building because like if one of the families has a – or second suite to a property in the basement or in the back, if one family has a fire and the other one doesn't get trapped in there, right?

[00:11:51] Yeah, I mean it seems like a good idea.

[00:11:53] So Dan, in today's episode, we talk about garden suites and laneway suites, but we also try to answer some questions that I think a lot of people are trying to figure out.

[00:12:02] And we're joined by Mahima from EQ Bank who really provides some great context.

[00:12:08] We answer questions like who is this product for and what are the requirements to be able to secure this kind of financing product from EQ Bank?

[00:12:19] How does somebody go about applying?

[00:12:22] So we have a big conversation kind of like end to end on what it looks like to get one of these mortgages and then take it out with a long-term mortgage in the end.

[00:12:30] Yeah, and then what triggered EQ Bank to be the first in the space, the early adopter to create this product?

[00:12:37] We talk about success stories and we prompted for failures, although there haven't been any so far, and the challenges that they're facing so far.

[00:12:45] Yeah, and then finally, you know, the role, the very important role that appraisals play once the suite is finished.

[00:12:53] And then again, that step-by-step guide from literally the first thing reaching out to a mortgage broker all the way through your construction process and draws all the way to renting it and taking it out.

[00:13:03] We go through that whole process.

[00:13:06] So stick around if you are interested in possibly putting one of these in your backyard or in your lane.

[00:13:13] Yeah, and then, you know, I'm glad they mentioned the mortgage broker piece too.

[00:13:19] I guess EQ is big fans of the mortgage broker channel.

[00:13:21] And I mean, it was a good little pitch for you, but I know you've been working on a lot of these types of applications, right?

[00:13:29] So I think that it's an exciting space and I think it's only going to become more exciting.

[00:13:33] And the piece about the appraisals is probably my biggest takeaway.

[00:13:36] So you're going to want to dive in and listen closely to this interview because the space is evolving very quickly and it's going to create a lot of opportunity over the next couple of years from my perspective.

[00:13:47] So without further ado, and I like how you have it written here is without further ADU.

[00:13:52] Let's bring in Mahima.

[00:13:55] Okay, we are joined here by a friend of the show and sponsor of the show.

[00:14:00] And if you've been listening for a long time, you know that we're big fans of EQ and wanted to have a conversation about one of the new products we've touched on a couple of times in the show.

[00:14:14] And one of the segments of the market that we're really excited about on the show.

[00:14:17] So we are joined here by Mahima, who is going to talk to us about that.

[00:14:24] Could you just give us a quick introduction of who you are and the product that we're going to be talking about today?

[00:14:30] Yeah, fantastic.

[00:14:31] Thanks for having me on.

[00:14:32] So Mahima Podar, I'm the group head of personal banking at Equitable Bank.

[00:14:36] And so that includes our single family residential mortgage businesses, reverse mortgages, as well as EQ Bank, which is our direct to consumer digital bank.

[00:14:47] I've been at Equitable for nine years and absolutely loved every minute of it.

[00:14:53] I'd say my favorite part is being able to innovate in the Canadian landscape and deliver better solutions for Canadians.

[00:15:05] And the Laneway housing product is an absolute great example of that innovation.

[00:15:10] What we are doing is giving borrowers access to low cost financing to allow them to build a laneway or garden suite on their property.

[00:15:24] And the idea is really to increase the value of their properties, help with affordability challenges in terms of additional rental income,

[00:15:32] as well as to accommodate the reality of changing family structures.

[00:15:38] So maybe extra room for multi-generational families or children or home office use cases.

[00:15:45] Yeah, no, very cool.

[00:15:47] I mean, we were very excited to have you on and to discuss this product because there's such a fascination and a push towards this type of construction,

[00:16:00] this type of housing solution, right?

[00:16:01] Whether it be the new laneway suite or a garden suite or a missing middle.

[00:16:05] But like the thing that holds it up isn't the desire for people to do it or even the know-how for people to do it.

[00:16:12] It usually comes down to the financing.

[00:16:14] So what triggered EQ Bank to be really an early adopter in this space and to create this product?

[00:16:23] And what, I guess, was the driving force internally to get this going?

[00:16:27] So, I mean, as Canada's challenger bank, our mission is really to be a leader in innovative products that add value for Canadians.

[00:16:36] And we, on the mortgage side, focus on borrowers that have a more complicated credit profile than perhaps what the large banks focus on.

[00:16:47] But I'd say the motivation really came through COVID and the feedback we were getting from our customers as well as our broker partners on just how challenging the affordability challenges were as the interest rates were rising.

[00:17:04] And so the way we thought about the laneway house mortgage was if we could give people the opportunity to stay at home, which we knew was very important to them, but also generate more income, that payoff becomes really powerful because it makes their day-to-day easier.

[00:17:28] And the other piece is from a society perspective, you get the benefit of housing densification.

[00:17:35] And we all know that there's a real problem across the major cities in Canada around housing shortages that's reflected through high rental costs and home prices.

[00:17:45] And so this was a really creative solution in that we're solving or helping to solve borrowers' affordability challenges.

[00:17:55] But also, this was a great aid in housing densification within established neighborhoods and communities in our major cities.

[00:18:05] Yeah, I couldn't agree more.

[00:18:07] And I think we can speak for a lot of people where we can say, we appreciate you guys for doing this.

[00:18:14] And hopefully, this sets a bit of a trend for other banking and financial institutions in Canada to be able to support this kind of newer construction and newer type of housing we're seeing.

[00:18:27] So I know you've already touched on it a little bit, Mahima, but maybe you could elaborate even further.

[00:18:33] Who exactly is this product for?

[00:18:36] And then what are the requirements to get this type of financial product?

[00:18:42] Yeah, so it's targeted at people who obviously own their homes.

[00:18:47] Equitable's position in this is that we need the house to be free and clear or in a position where Equitable can take first position on the mortgage.

[00:18:58] So those are kind of two of the criteria.

[00:19:01] One of the real benefits of our product is that we use the appraisal at completion in order to determine the amount available to borrow.

[00:19:13] And that's a really unique feature of how we've designed the product.

[00:19:17] But in terms of, again, who's eligible, we're offering the product to start at least in the GVA, the GTA and Calgary.

[00:19:26] And it really is open to anyone who is either looking to increase the value of their property if they want to adapt their home for extra living space or extra room for family members,

[00:19:43] securing additional rental income to supplement their lifestyle or make their existing mortgage more affordable.

[00:19:49] And as I had mentioned, that was really the impetus behind the product to start with.

[00:19:55] And then the last piece is one of the themes that we're starting to see is a desire to downsize in the future while remaining in the neighborhood and the communities that people love.

[00:20:07] So this is another avenue for Canadians to be able to do that as well.

[00:20:12] I think that aging in place element and the multi-generational living theme that we're hearing a lot in policy make a lot of sense as an easily accessible target market for this type of product.

[00:20:26] You mentioned the idea of the as-complete appraisal.

[00:20:30] And one of the things that we found interesting is, you know, Nick's gone through a couple of these with a partner of his.

[00:20:38] I've done one a long time ago before they were maybe the legal environment of me actually doing it was not.

[00:20:44] Before they were sexy.

[00:20:46] Dan was an early adopter as well.

[00:20:48] Yeah.

[00:20:48] Yeah.

[00:20:48] So, you know, and but now I think this is a really kind of trailblazing thing.

[00:20:54] But I had had an appraisal after I put a laneway suite on my property in an old detached garage and they didn't account any of any of the value of it.

[00:21:01] They were like, yeah.

[00:21:02] And so how do you see that space evolving?

[00:21:05] Because this is kind of like trailblazing.

[00:21:06] Like every new house that has a laneway house added to it and then transacts.

[00:21:12] Are those data points like moving the needle a little bit?

[00:21:15] Does it seem like the laneway house is adding sufficient value to the property to get the appraisal where it needs to be to substantiate a kind of takeout on that product so far?

[00:21:27] Yeah, absolutely.

[00:21:28] I mean, the average cost of building a laneway is between $300,000 and $600,000.

[00:21:33] And then we're seeing the appraisal value be at least 20% above that $300,000 to $600,000.

[00:21:40] And I think the construct is really meaningful.

[00:21:43] But because to be able to get that kind of value to cover the cost of the build, you really need to consider the future value.

[00:21:51] It's rare that people have enough value in their standalone property.

[00:21:56] So pre-construction to allow for an additional $600,000 in borrowing capacity.

[00:22:02] And so that was a really important construct for us to introduce to the design.

[00:22:06] I hope it takes on.

[00:22:08] Like I think laneway and garden suites are a great solution.

[00:22:11] And if we can help to carve the path for other banks to follow, it will just make this financing that much more available.

[00:22:21] I'll be honest that I haven't seen any real attention in this space.

[00:22:26] So hopefully we're the first example and others will follow.

[00:22:30] But I would say it has yet to be seen.

[00:22:32] Yeah, I think it's like I always liken where Canada is in our housing crisis to the New Yorks of the world and London's when, you know, 100 years ago, they were having this massive influx of people.

[00:22:47] And that's when all of the housing in London was cut up into flats, right?

[00:22:52] As we know them, this is perhaps one of the big roles in our outcome or our full housing outcome as we transition to what our new normal is going to look like in the fullness of time is to me is I think laneway houses play a huge role and ADUs play a huge role.

[00:23:07] Laneways especially because you're not interfering with the life of the person who's in the main dwelling while you go through the construction process, which is a huge thing for investors, which is our primary audience in the podcast.

[00:23:21] You know, to build a laneway house in the backyard is a lot different than doing demolition and cutting holes in concrete in the basement to put a basement apartment in, which is going to cover the entire house with dust, right?

[00:23:33] So I think that that's actually a key factor in the adoption for investors.

[00:23:37] I think you made a really good point around London and New York being early signs of what could happen in Canada.

[00:23:47] Why I really like the laneway or the garden suite solution is it feels like a made in Canada solution in that it allows the neighborhoods to retain the feel and the homeowner can stay in home.

[00:24:03] But it also avoids this issue of NIMBY not in my backyard because every homeowner is self-electing to do the construction in their backyard and or in their ancillary to their property.

[00:24:20] And so you don't have the stakeholder impact of having to, you know, get a whole neighborhood to come together and agree.

[00:24:29] It's really what makes sense for that homeowner.

[00:24:31] And if you look at the landscape in the major cities, there's quite a few properties that become eligible for laneway addition.

[00:24:42] So in Toronto, there's about 28,000 lots that are eligible.

[00:24:47] And then the municipalities have also updated regulations.

[00:24:51] So they think that could go up to closer to 40,000 eligible lots.

[00:24:56] And then Vancouver has seen some really good uptake with additional laneway builds.

[00:25:02] Calgary already has 15,000 registered.

[00:25:04] So it feels like a meaningful way to increase density without really disturbing the fabric of the individual neighborhoods.

[00:25:15] Yeah, I think, you know, I live downtown Toronto and I go for a lot of walks in my neighborhood.

[00:25:21] And some of the laneway homes I'm seeing being built are just incredibly beautiful, right?

[00:25:26] Whether they have a bit more of a modern flair to them.

[00:25:29] I think they really add some cool character to the neighborhood.

[00:25:32] And I love the theme that you brought up, NIMBYs and NIMBYism.

[00:25:35] Because NIMBYs traditionally may be, you know, it's a group of people that band together and they're like, you know,

[00:25:39] I don't want that condor, that mid-rise in my quote-unquote backyard.

[00:25:44] But here we're literally talking about people building things in their actual backyard.

[00:25:48] So I just think that's kind of funny.

[00:25:50] You know, for organizations such as EQ Bank to put this much time, effort and energy into creating a new financial product for essentially an emerging market,

[00:26:04] I'm assuming there was probably a lot of very smart people that put a lot of research into this.

[00:26:08] So how does EQ Bank see this section of the market growing over the next couple of years?

[00:26:14] Again, I think this is a great solution.

[00:26:17] So our take is that we will see this solution take more speed or uptake in the coming years.

[00:26:27] So the federal government has repeatedly noted that gentle density through the construction of three or four unit buildings,

[00:26:35] as well as secondary suites in existing residential neighborhoods are going to be a key part of contributing to housing density.

[00:26:43] In Toronto, the city launched the development charges deferral program for ancillary secondary dwelling units.

[00:26:52] So we're seeing strong municipal and government investment in these areas.

[00:27:00] There was also like a forgivable loan of up to 50,000 in Toronto.

[00:27:06] And that was on the back of insufficient provincial funding.

[00:27:10] So I think it comes down to this is a strong solution that we can spin up in a decent amount of time in Canada to deal with a very real problem.

[00:27:19] But there is this reality of financing and funding still being a challenge.

[00:27:24] And so that's where Equitable is really hoping to play a major role in addressing that financing gap.

[00:27:30] Yeah, for sure.

[00:27:32] And I know this is basically a fairly new product hitting the market.

[00:27:38] Have you seen any success stories, any failures, any challenges that maybe some of the early adopters outside of Dan who did this before was cool?

[00:27:48] Have you seen any people that have come and tried to use this product and gotten denied or have tried to use this product and it's gone really well?

[00:27:57] Like what's happening on the ground right now?

[00:28:01] So, I mean, for Equitable, it's early days.

[00:28:03] But the feedback that we've gotten from our broker partners and borrowers has been fantastic.

[00:28:08] This appraisal reality that we talked about is a key advantage of the product.

[00:28:14] I will say that there's different uptake in different geographies.

[00:28:20] So Toronto permits and application process seems to be more challenging than what our customers have seen in Vancouver and Calgary.

[00:28:31] So we're hoping that that improves with time because there is so many eligible lots.

[00:28:36] But there does seem to be more difficulty in getting approved as well as the speed at which the permits are being given is quite a bit slower than some of the other areas.

[00:28:48] And then one of the bigger challenges that we've seen specifically is that it's important for our borrowers to be able to keep their first mortgage in place.

[00:29:01] And so because we're not taking a second position with this product, that has been one of the key points of feedback that we're getting in terms of making the product a little bit more difficult for borrowers to get access to.

[00:29:18] But when the mortgage is free and clear, and especially in Vancouver and Calgary, we've had some fantastic success rates.

[00:29:26] Interesting.

[00:29:27] What seems to be the exit strategy that a lot of people are using?

[00:29:31] Is this being more adopted by, like you mentioned, somebody maybe moving in a friend or family?

[00:29:37] Like I know I have some clients who are doing this for having elderly parents move in to be closer to home for, you know, just care and proximity.

[00:29:47] It's obviously been very popular with investments, many of whom in the GTA and GVA, like you mentioned, who are having a hard time cash flowing because rates went up and rents have kind of stabilized.

[00:29:58] And this is an easy way to introduce more income to the property, especially if there's a financing product attached to it.

[00:30:05] And I guess on that note, like, do they seem to rent high enough to cash flow the term debt that's put in place thereafter?

[00:30:14] Is that kind of like the more common exit strategy, let's call it?

[00:30:18] Yeah, that's exactly it.

[00:30:20] So once the product is complete, what we see is people refinance into a standard forward mortgage at lower rates.

[00:30:28] And then a lot of the use cases that we've seen are rental properties.

[00:30:33] And because of where rental rates are, the homeowner is able to cash flow with the rental income coming in to cover the additional mortgage payment and then some.

[00:30:43] So it also becomes a not only are you paying down the principal, but there's additional cash flow to help with the rest of the mortgage.

[00:30:51] Mahima, could you maybe walk us through this might be a sound a bit basic, but again, this is a new product.

[00:30:57] And I know that there's a lot of our audience that is trying to do this.

[00:31:01] And some of them are using, you know, some of them are refinancing or using HELOCs or just different types of creative and in some cases very expensive financing.

[00:31:11] Can you just give us literally a walkthrough from the very start to the very finish of what this looks like?

[00:31:19] I'm a homeowner in one of the prospective markets that you just spoke about, Calgary, GVA, GTHA.

[00:31:25] I am interested in doing this.

[00:31:28] I hear this episode.

[00:31:29] I want to know more.

[00:31:31] I maybe want to talk to someone at Equitable and do it.

[00:31:34] Walk me through literally step by step what that looks like all the way from that first phone call to securing that financing to what maybe you guys want to see from a construction drawing standpoint or construction budgetary standpoint,

[00:31:50] all the way to that eventual takeout or that eventual blended of the mortgage or, you know, how does it how does it finish?

[00:31:58] And where does the where is the end user or that investor stand by the end of this process?

[00:32:04] OK, great.

[00:32:05] So Equitable specifically, all of our loans come through mortgage brokers.

[00:32:11] So I'd say step one is find a mortgage broker in your vicinity and they will help you through every single one of these steps.

[00:32:19] We fundamentally believe that the best way to get a mortgage in this country is through a mortgage broker, especially as the complexity seems to increase with all of the regular.

[00:32:30] I could not agree more.

[00:32:31] Let's let's get that on record, everybody.

[00:32:33] Remember that.

[00:32:33] OK.

[00:32:35] Yeah.

[00:32:36] And it doesn't cost you anything.

[00:32:37] Plus, you get the benefit of comparing products across different lenders.

[00:32:41] But the minimum loan size for Equitable is two hundred thousand.

[00:32:47] The maximum is two million.

[00:32:49] It's a one year open term and the payments are interest only.

[00:32:56] As we've mentioned a few times, the benefit of the product, our product specifically, is that the amount available takes into account the completed appraisal value of the product.

[00:33:08] But it's only offered on properties that are freer and clear or where Equitable holds the first mortgage or will hold the first mortgage.

[00:33:17] The way that the construction lien holdbacks work is that.

[00:33:25] So actually, maybe I'll start with the draws.

[00:33:27] So there are draws at 20 percent, 40 percent, 70 percent, 80 percent and 97 percent complete.

[00:33:37] And each draw is supported by a progress report from the appraiser.

[00:33:43] There's also a property inspection that might happen at Equitable Bank's discretion.

[00:33:48] And just confirming that the borrower has paid any outstanding costs that might exist.

[00:33:56] So interest is up to date.

[00:33:59] For every draw, there is a holdback of 10 percent, which is released at minimum 45 days after 100 percent completion of the construction.

[00:34:15] And then once the construction is complete, the way that it works is that a is that the borrower will refinance into a regular forward rate mortgage.

[00:34:27] And so during the life of the construction loan, the pricing is variable at prime plus two percent.

[00:34:34] And then once construction is complete, it's refinanced into whatever product suits you.

[00:34:40] So it could be another variable mortgage or a fixed term mortgage.

[00:34:45] Should mention that there is a liquidity requirement.

[00:34:49] So you need to have 25 percent of the value of the budgeted construction costs available in liquid assets.

[00:34:59] So that's our way to confirm affordability of the construction project.

[00:35:06] So fairly straightforward.

[00:35:08] And I would say like the mortgage broker is a huge asset throughout the process.

[00:35:11] And so they'll guide you along the way.

[00:35:14] And then we work with a set of appraised, approved appraisers across the three geographies we mentioned.

[00:35:23] And they will also be like quite helpful throughout the process.

[00:35:26] Do you do you have any idea what these are renting for?

[00:35:28] Like is that something that seems to be appearing in the appraisals?

[00:35:31] Do they use an income approach or?

[00:35:34] They do use an income approach.

[00:35:36] So it's really just based on market rents that are available in the locale.

[00:35:42] But I would say that laneway and gardens, we'd seem to be attracting quite premium rates.

[00:35:48] So akin to apartment rentals or other single family kind of rentals.

[00:35:54] So above basement, if you will.

[00:35:57] Yeah, some of the ones that Dan mentioned that we've been working on and some of our other partners in Toronto that have been kind of early adopters before this product came out that we're funding them in different ways, whether it was a CMHCMI select.

[00:36:13] And, you know, that was like kind of the plus one on the back.

[00:36:15] Like I've noticed that they and, you know, I feel like no one's really building these laneway suites or garden suites, you know, very, very basic or builder grade.

[00:36:26] They all seem to be very, very nice.

[00:36:27] And I have not seen one that does not rent for what I would consider in some cases like a very, very respectable amount for that investor or developer, whoever is on that other side.

[00:36:41] So that's great to hear that that's kind of happening across the different cities that you had mentioned, Mahima.

[00:36:48] Yeah, really appreciate the insights.

[00:36:49] I don't have much more to add there, but just wanted to say thank you for taking the time to inform our audience about this.

[00:36:56] And also thank you for taking the time to put this product together because I think it's a much needed addition to the industry.

[00:37:03] And I think we're in early innings right now, but I imagine this is going to have a really big impact on, especially now that you've mentioned that to me, like the biggest takeaway from that conversation, the appraisals are coming in at 20% over build costs.

[00:37:15] We were previously concerned when we were seeing people try to execute these where appraisals were coming in kind of at build costs.

[00:37:22] And that really made it difficult for people to pull extra equity out.

[00:37:26] So I really think that we're given that info, it's probably at the beginning of having a huge impact on the market over the next little while.

[00:37:35] So thanks again for your time.

[00:37:37] The appraiser, the appraisal piece, just before you leave us, Mahima, the appraisal piece is interesting because I remember Dan and I were talking about this stuff two, three years ago and trying to get appraisers on the phone.

[00:37:48] And again, early adoption to anything like this, where there's just a lot of unknown and none of the big institutions have maybe jumped on it yet.

[00:37:58] Appraisers did not know what to do when you could put a $300,000 beautiful unit in your backyard and they might come in and be like, okay, yeah, we'll add 150 grand kind of thing.

[00:38:13] So to know that like that appraisal now is coming in, not only at value, but higher, I think is a massive incentive and a huge step in the right direction.

[00:38:23] Mahima, thank you so much.

[00:38:24] And as Dan said, thank you and the whole team at Equitable for putting this product together.

[00:38:28] I think it's very exciting and we should probably have you back on in a year to see what kind of progress has been made.

[00:38:34] Thanks.

[00:38:35] The Canadian Real Estate Investor Podcast is for entertainment purposes only and it is not financial advice.

[00:38:43] Nick Hill is a mortgage agent with Premier Mortgage Centre and a partner in the G&H Mortgage Group.

[00:38:49] License number 10317.

[00:38:52] Agent license M21004037.

[00:38:58] Daniel Foch is a real estate broker licensed with Rare Real Estate, a member of the Canadian Real Estate Association,

[00:39:06] the Toronto Real Estate Board and the Ontario Real Estate Association.