Episode Transcript
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(00:07):
lending, A and B. With A lending,it goes off of your declared
income.
So think about what you would have
paid yourself, T4 or otherwise.
And on the B side, there's
opportunities to pay yourself lesson paper and pay less taxes.
But there's differentconsiderations there because rates
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and things of that nature can behigher.
So today, we're just going tounpack that and do a deep dive
with it.
Yeah.
So if you are an entrepreneur, andyou're either A, going to be out
there shopping for a home, buying,selling, buying a rental property,
anything to do with real estatewithin the next year or so, this
episode applies to you.
So what we're going to be chatting
about is kind of like the stepsinvolved to determine whether you
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should try to qualify on the Aside or whether you should qualify
on the B side.
So like Brandon said, there are
two different types of mortgagequalifications.
And the A side is the most costeffective means of getting a
mortgage, but it doesn't mean thatthat's the route you have to go.
In fact, nine times out of 10, itmakes more sense for entrepreneurs
to declare less income and go onthe B side where you pay higher
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fees.
But we're going to break that down
in terms of how to really findthat out for you specifically.
And of course, we're generalizingthings.
So it's going to apply differentlyfor everyone.
But these are going to be thegeneral guidelines on how to get
to that goal.
So why don't we start off with the
first step, you've got to connectwith your broker.
So whether you're working with amortgage agent, mortgage broker,
or you're going to the bank, let'shope you're not going to the bank
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because you're not going to haveoptions there.
The bank only does a sidemortgages, some offer but B,
they're not going to have optionsthere.
The bank only does A-sidemortgages.
Some offer but B, they don'tspecialize in that and they only
have their own department to offercertain B-side mortgages.
Whereas brokers, we can shoparound.
We have over 50 plus lenders thatall work on the B-side.
So you definitely want to reachout to a mortgage agent or broker.
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From there, they're going todetermine how much you can qualify
on the A side using your T1s orNOAs and seeing how much you've
declared from an incomeperspective.
So that's the first step is seeinghow much you can qualify on the A
side.
If you're not getting to the
purchase price or the mortgageamount that you need, that's when
you can start chatting to yourmortgage broker to see, okay, how
much income do I have to declare?Does it make sense to go that
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route?And that kind of goes into your
second how much income do I haveto declare?
step.
Does see, it make okay, sense to
go that route?And that kind of goes into your
second step.
Like you have to think about what
your goal is.
So Brandon, I'll flip it over to
you.
Like how do we determine what the
goal is for the overall Yeah, forsure.
So when you're looking at this,taking things back a step further
on that A side, like Tom said,you're going to qualify off that
income.
So on your T1, whatever you're
claiming there, that's what you'regoing to use.
There are certain cases where youcan do what's called an insured
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stated income program.
With that, the lender is going to
say, okay, you have one year ofindustry experience.
It's pretty much guaranteed thatyou're going to go on with this
and earn this amount next year.
So you do that stated income
program that way.
The downside to that is that you
pay a higher insurance premium onthat.
So sometimes when you're lookingat things and then you go to the B
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side, you're gonna put a minimumdown payment of 20%, but then
you're going to always have that1% lender's fee.
We don't charge an additional fee.
Some brokers do.
So if you're with a broker that'ssaying, I'm oh, gonna charge a
broker fee plus lender's come fee,to us and save some money that But
way.
we don't charge you that 1% Some
fee.
brokers So if do.
you're with a broker that'ssaying, I'm oh, going to charge a
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broker fee plus lender's come fee,to us and save some money that But
way.
we don't charge you that 1% fee
that's paid directly to the lenderwho then pays us from that.
that.
Just to start to cut you off,
Brad, I just want to put that inthere because the reason why we
don't is because we want to do areally good job for you.
We want to ensure that, hey,whenever you think about mortgage,
you come to us and we want to haverepeat clients.
We want you to come back and get amortgage through us.
So why would we charge you anadditional fee?
We're already getting paid by thelender.
Yes, it's roughly half the amountthat we get paid on the A side,
but that's the reasoning for that.
So if you are with a broker and
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they are charging a fee, it's notto say that they're doing
something evil.
It is kind of standard practice.
But like Brandon said, if you wantto save some money, come on over
to us.
Exactly.
Our whole mindset is that we areentrepreneurs and we want to build
a community and a network thatsupports entrepreneurs.
So we'll take a little less inthis case just to support you and
your goals.
So going back to those goals, if
you say, I want to buy a $500,000home on the A side, you're going
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to need a certain amount of incometo qualify with that based on the
gross debt service and total debtservice ratios.
Typically, you're going to fallunder 39% gross debt service and
total debt service under 44%.
On the B side, they allow you to
stretch that a bit.
So you can go up to 60% in each
category depending on the Solender.
it gives you a little bit offlexibility.
Now that on the said, B you side,can go up to 60% in each category,
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depending on the So lender.
it gives you a little bit of
flexibility.
Now that said, on the B side, you
can also look at what income getsqualified.
So you might only pay yourself$40,000 on paper, but you keep
$100,000 in your corporation.
We can go off the six to 12 month
bank statements and show what areasonable level of income is.
And that allows you to qualify formore mortgage.
So figuring out your goal of whatyou actually want allows us to
work backwards and see kind ofwhat do we have to start with and
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how do we have to map this Yeah,exactly.
And in regards to the gross debtservicing, like the numbers that
we kind of just threw at you,probably sounds like alien
language, but essentially all itis, is we're just comparing the
debt to your income.
So your monthly debts to your
income.
So that includes your mortgage,
car payment, line of credit, allthat good stuff that gets compared
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to how much income you make.
And the reason why the B side is
so powerful is because again, likeBrandon said, we can stretch that
up higher, meaning we can qualifyyou for more and be no pun
intended on the B side.
We can use what's called a bank
statement program like Brandonsaid, because we can qualify you
based off of the income coming inthere versus what you show on your
T1.
It's typically gonna be a lot less
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because your accountant does sucha good job that they wanna get
that number as low as possible soyou pay the least amount of income
tax.
And when we look at these things,
in most cases, paying less incometax far outweighs the amount of
money you're going to pay on the Bside.
Because for the B side, the feesthat you're going to pay are
typically that 1% lender fee onthe mortgage amount.
And then you're going to have aslightly higher interest rate as
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well.
And it depends on where the
market's at, but usually it'sanywhere from 0.5% to 1.5% more
depending on the lender and howfar you're going onto the B side.
But I mean, even today, if we'relooking at rates, the one and two
year fixed rates are prettysimilar to the A side, if not the
same.
So it's definitely something you
should consider.
But again, that kind of goes into
our next step here is what is yourgoal?
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Are you trying to just maximizethe purchase price based off of
what you're seeing right goal?Are you trying to just maximize
the purchase price based off ofwhat you're seeing right now?
Are you only trying to increase itby 20 or 30k?
Because that's going to determine,maybe it does make more sense to
declare a bit more income for thenext year.
And right now is a great time togo over all this because we're at
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year end.
And it depends if you're an
incorporator or not, like theseare the different timelines.
But the first thing you need to dois, again, reach out to your
broker, and then tie in youraccountant at this point, once you
determine what your goal is, andwhat the broker has told you that
you can qualify with, because thenyou can kind of go over and
compare the income tax versus paymore fees on the B side.
that conversation, when youconnect your accountant in with
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us, it's just like when we have agreat realtor or a great lawyer to
work with, it makes the process somuch smoother because we're not
working at odds with one another.
The accountant knows your goal and
it's in tangent with the moveswe're making as well.
It also makes it a lot easier onthe documentation side when your
accountant can just say, okay,here's the T1s, here's the NOA,
and they just flip us thedocuments directly.
It saves you a lot of steps thatway.
And it saves you a lot of moneybecause let's say hypothetically,
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pay yourself $100,000 from thecorporation, or you could leave
that money in there, pay yourself50, pay the lender's fee.
You know, depending on your taxrate, you might pay up to $25,000
in tax there versus $5,000lender's fee is 1% of a $500,000
mortgage.
So you can see the savings there.
The lender's fee kind of scarespeople when you say lender's fee.
Everyone kind of turns their noseup.
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Why do I have to pay this?I don't like this.
But when you look at theopportunity behind it, there's
actually a huge savings andadvantage to being an entrepreneur
in that Even the word B-side oralternative mortgage, I think a
lot of people are turned off by itbecause it does have a negative
connotation.
It shouldn't.
I love the B-side because itprovides more options.
I have a B-mortgage as well.
And I'm going to continue doing
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that once I keep getting more andmore rental properties, which is a
whole other discussion becauseit's not just for entrepreneurs.
It's also for people that want toadd more rental properties to
their portfolio, because B lenderslook at rental properties more
favorably, based off of the rentalcalculations.
So there's many different benefitswith the B side.
But speaking of that, there's alsosome downsides.
And Brandon, you already alludedto it, the biggest downside is you
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do have to have that 20% down.
So if you don't have 20% down, the
only option for you on the A sideis to look at that stated income
program, like you mentioned.
But other than that, you're going
to have to get that 20% down ifyou want to venture to the B side
to what you're looking for.
important piece of clarification
is sometimes when youraccountant's writing things off,
some people feel like they'redoing something illegal and that B
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mortgages are like a gray area.
It's not.
It's totally above board.
These lenders are all legitimate.
The financing institutions allunderstand what's going on here.
They just know that can bestructured differently when you
own the business because you'renot having that pension.
So you might retain some earningswithin that corporation to set
aside for your retirement down theline.
So it's not illegal to have thingswritten off.
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It's not illegal to use statedincome programs.
It's totally above board.
And it's important to just note
that because some people feel abit uncomfortable with it.
Yeah.
And you actually just touched on
something that I do want todiscuss briefly here, because it's
a program that is near and dear tomy heart.
And I absolutely love it.
And nobody talks about it.
It's almost like a secret programthat hasn't been discovered yet.
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And I won't mention the lender,but it's business for self income
program on the A side.
So you're qualifying with a fully
featured a mortgage, no feesassociated, same interest rates
that you would get with any otherprogram.
And what it does is it allows youto use the retained earnings in
your corporation.
So if you're incorporated, this
program might be for you, becausewe're able to qualify you based
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off of the retained earnings andthe income that you've declared on
your T1s as well.
So it's super powerful.
I've used it for many of myrealtor partners, because it's
huge for realtors, the ones thatare incorporated.
But if for you as well.
that's a big one that not a lot of
people know.
Yeah, I think they kind of get
confused with it on theunderwriting side.
Yeah.
And they're I'm not going to do
it.
like, ah, fuck, I'm going to flip
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it somewhere else.
And that's why it's also important
to partner with someone whounderstands these types of
mortgages.
Like Tom and I do a lot of stated
income, a lot of self-employedborrowers.
So we know some of the nuancewithin it.
If you're getting someone who's alittle bit greener or who only
does a business, they're not goingto know the opportunities for you.
And that can lead to you payinghigher interest rates or more fees
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strictly because they just don'tknow that programs such as the one
Tom was describing exist.
side.
Yeah.
And the last point on the B side,
speaking to that negative outlookon it that people have, for the
most part, it's a fully featuredmortgage.
You still have the same prepaymentprivileges.
Every lender is different, butit's typically the same as the A
side.
There are some caveats to that.
Some B lenders, a lot of themactually don't offer bridge
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financing, which could be an issuefor you.
So if you're selling and buyingand you need that bridge
financing, it could be a trickysituation.
Like I have one file right nowthat we do have to qualify on the
B side and we have to look atlenders specifically who offer
that bridge financing.
And without that, then we're going
to have to go through a thirdparty, which is going to be a lot
more expensive in order to bridgethat mortgage.
Yeah, for sure.
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And the other thing, too, is that
lender's fee.
You could renew with that lender
and not have a fee.
So it's really just when you're
getting that mortgage.
If you wanted to renew with that
existing lender, they're not goingto charge you that fee again in
most cases.
So it's a one-time thing that way.
So it really is an opportunity tobuild up your portfolio because
you qualify for so much more.
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So if you're thinking
strategically long-term investing,and even if you're getting rental
properties, all these fees and thedifferent interest rates, they're
all write-offs against the incomeyou earn.
So it's really a non-issue at theend of the So if of the day.
Yeah, we are not accountants, butwe do have experience in it.
So, I mean, don't take it asadvice from an accountant, but we
will be having an accountant onhere very shortly.
And this is all the kind of stuffthat we want to chat about because
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it is important, first of all,entrepreneurs and real estate
investors as well.
So I think we've kind of really
nailed everything on the headhere, Brandon.
Is there anything else that weshould be adding?
No, I think we've covered a lot ofbasis.
So really, in summary, A versus B,should you declare more income?
Ultimately, it depends.
But I would say in the vast
majority of cases, have youraccountant do the best possible
job they can do on their side andjust utilize the advantages that B
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lending provide to entrepreneurs.