Episode Transcript
[00:00:00] Speaker A: Hey, everyone, it's Adrian Ponozzo here. And welcome again to the more to Life Real estate investing podcast, where we try to help you get more to life by investing in real estate. So I'm here in my office in Hamilton and I'm joined by my good friends Joe and Michelle from Spark Financial, one of our partners here in the building. And I wanted to bring them in because it's probably one of the hottest topics, if not the hottest topic in real estate right now. Everything to do with interest rates. And I wanted them to. I got a good series of questions here I'm going to ask them, but I want to reassure everybody they're bringing together.
Get this one, guys. Over 50 years in the business, in mortgages, in the financial industry, of what we're going to talk about today. So it ain't their first rodeo, it's 50 years of rodeo that they're bringing to the table. So ton of experience. Welcome, guys. Thank you for having us taking the trip down here to Hamilton pleasures, all ours. And I know because this topic is so hot, we're probably going to run out of time.
We try to keep our podcast at 40, 45 minutes, but we could go on for days and days. But why don't we get started? So I'll just bounce the question off you guys. You decide who wants to take it. But let's start with when did you really start to see a change in your clients qualifications and becoming a lot more challenging with respect to these interest rate hikes? How long ago, what was the climate and what, I guess challenges came with this in your clients in qualifying?
[00:01:53] Speaker B: From my perspective, I feel that it was the stress test that initiated the spark of understanding how affordability comes into play when you're looking at your individual or your individuals that are borrowers for mortgages. Regardless, if you were applying for a mortgage, we needed to ensure that you were qualifying at that stress test. If the rates were at, at the time we're at two, three, 4%, you had to qualify for 5.25 or whatever that rate would be based on the qualifying rate. That stress test started the journey of making sure that if you can afford it at five and a quarter or whatever that rate would have been, you can afford it at one or two.
Correct. That was the spark that was the igniting of. This is how affordability is going to go moving forward, ladies and gentlemen. So get on board or you're not going to be able to be affording any housing.
[00:02:46] Speaker C: Yeah, absolutely. And piggybacking off of that, it became a matter of a whole new world for the clients saying well, how do I qualify at 5.25? Well that's ridiculous. And the argument always became, but that's not my rate. So why are you telling me I don't qualify for this amount when I'm going to be paying at 2.5%? So it became a whole education piece for the client and getting them to understand the reason why the stress test came about. Fast forwarding now with the whole pandemic and the markets and the increases in the bank of Canada in the past couple of years, we've started to see that clients are not qualifying the stress test or the qualifying rate remain the same. With the bank of Canada changes, qualifying rate remained at 5.25 over all these years, but with the increase in the actual lending rates, clients are not now qualifying at their rate plus two. And we're finding clients qualifying in the high sevens to 8% depending on the lender and where they're going to. So past couple of years have been really difficult on the financial side for clients and that stress test is really impacting them.
[00:03:55] Speaker B: Where we find an opportunity is to educate moving forward how that would have impact affordability back then and with renewals that are coming up and the opportunity to have someone afford property now, well, you've gone through the hard times of understanding the stress test. Now it's time to understand how you're going to use that knowledge that you should have or you could have or would have been empowered by individuals like us and say, well, I'm able to meet those requirements because I'm comfortable. I've already gone through this. Unfortunately, there are individuals that are challenged by that information that don't feel empowered by it or didn't want to listen. There's, there's not, every person is the same and not every mortgage is the same. But we empower those to educate on how to react or feel empowered or feel comfortable knowing that with any kind of fluctuations in the market, they're well poised based on their goals and their strategies. So if you, if individuals are not aware of how that could work, then we'll go backwards to move forwards on baseline calculations and make them feel better about how they need to move forward with their investments or where their primary residence or with their renewals.
[00:05:13] Speaker A: Let me ask you this, and thank you for explaining that. Let me ask you this, guys. Do you think we're at the end? Do you think this is the end? And we're going to start seeing, this is the million dollar question. We'll cut right to the end because nothing else. Everybody wants to hear this answer. And again, nobody has a crystal ball, but if we fast forward this, this episode right to the end, I should have asked this question at the end, but I'm going to ask it now.
Do you think there's, we're at the end and there's relief in sight?
[00:05:49] Speaker C: I'm going to say yes. Personally, I think we are at the end. The anticipation is, word out there is that yes, there will be rate decreases. Is it now June or is it going to be July? June? Some banks are predicting steady no change. Some banks are predicting a quarter percent drop anticipation. So currently the banks are in their fiscal quarter two at this moment. Anticipation is a quarter drop in their quarter three of their fiscal year with a possibility of a full 1% drop by the end of the year. So foreseeable future are no more rate hikes, but anticipating the rates to start dropping. But how much, we're not sure yet.
[00:06:32] Speaker A: We thought potentially in April didn't happen. Now everybody's saying gonna happen should happen in June.
[00:06:40] Speaker B: What do you think? I'm skeptical of anything happening in June or July. The only reason why it's going to happen because BOC will have their hands forced to do, to make the change from the government, because people are wanting to come back into the industry, they want to come back into investing, they want to come back into real estate. And they're just, the fear of missing out right now is huge. And for them to sit on the sidelines is, it's a challenge for the bank of Canada to understand. Okay, so we do have unemployment rate coming down. We do. Sorry, coming up because inflation is still where it's at. I mean, cost of goods are still, they're 0.1 or 0.2 off. But is it enough for them to decide? Well, that's enough for them to hurry up offense and say, now it's time to reduce those rates. Is it enough? The bank of Canada says we need to see month over month over month where any rate change takes about 18 to 24 months to kick in.
[00:07:43] Speaker C: Right.
[00:07:44] Speaker B: 18 to 24 months to see that opportunity of, of reflection of what's going to happen with rates. You're going to see all of those changes that are being made. It's going to reflect it within 12, 18, 24 months. So ideally, we want, as individuals that want to help clients out to purchase their property, we want those rates to come down. We want them, we are to the gods of real estate, please come down. Because we want people to come off the fence and insight for their dream home. We're all about people. We're all about guiding and empowering people, but we can only do so much with that type of guidance. But if those rates do come down, we are very excited.
I don't foresee unless BoC is given the, you have to kinda to reduce rates. But numbers don't show that potentially the June is going to come down. I think there's a steady to hit to stay where it's at. And then, because it's given it some time to work into the system, then becomes ladder Q three and possibly Q four to actually reduce. But that doesn't help us because we know that now until what? August, October before kids go to school? September. That is when the frenzy happens. That's when everybody wants to get into the market. We want that to happen because we know that come Christmas time, no one's coming in, no one's buying houses at that time. It's just a matter of maybe we'll see a change between spring, summer and maybe in the fall to winter. People are going to jump back in. But condo sales have come down. People are not just, they're not coming to, they're not banging on your door to buy. It's just more sitting on the fence for us to ensure that if you're sitting on the fence, at least do the pre work in order for you to understand if rates continue to stay where they're at. Where are you in the affordability side of things as a lender, have you done your work? Have you done your homework, your pre work? Have you talked to anyone with respect to, you know, your team, your real estate, your lawyer, your accountant, your broker, assemble your team while you're waiting on the fence, please.
[00:09:45] Speaker A: I want to talk. You said a magic word. I want to talk about that magic word.
[00:09:51] Speaker B: Crystal ball. Crystal ball.
[00:09:52] Speaker A: No, it's causing a lot of people a lot of stress, okay? People that are sitting pretty right now, but the magic word is renewals. And they're about to, they're about to get into some really deep water. I've been in deep water since these rates hike had started because I was one of those guys that all my properties, duplexes, triplexes, four plexes res, mortgages variable, every single one of them. So I've been, since this all started.
I mean, luckily for me, I've been able to ride the wave. Not that it's been fun by any stretch, but I, financially, I could ride the wave even though every single one of my properties went from here. To here. So now you got these people who potentially are on a fixed salary of, who knows, 60, 70, $50,000 a year and that renewal time is coming as.
[00:10:55] Speaker B: Bankers or as lenders. That work happens a year before or even a year and a half before. Where the foundation or the understanding of the baseline, is this working for you? Is it not working for what do we anticipate? Well, let's run the numbers. Has anything changed on income? Yes, but very small. We need to understand or give them peace of mind. Another, you know, magical words there. Peace of mind. Knowing that they are okay.
What should have happened is that that stress test should have given them that opportunity when they got their mortgage, or that, plus two, their opportunity to say, if rates do go up, if rates, are we able to afford it? If you were a good banker, if you were a good lender, if you were a good broker, you've already had these conversations with the person. What is your timeframe? What are your goals as industry professionals and advice and giving care to that client? We've already done this work at renewal time. There shouldn't be no surprise because they're going to be weathering the storm. Unfortunately, not everybody is in that boat. Not everybody has really good advisors like myself and Michelle. When it comes to financial analysis and financial information and the wherewithal to take care of people. It's just more what has to happen currently. Let's talk about current, because shoulda, coulda, woulda in the past and we foreseeing the future, we gotta stay in the present. So being in the present, what does that mean?
[00:12:19] Speaker C: So to put some perspective in that, I ran some numbers. So we have about 2.2 million mortgages coming up for renewal in the next two years. Okay, so we look at what happened five years ago. So five years ago, as previously discussed, stress test was at 5.25. So ran some numbers. We did a $500,000 mortgage at the stress test, 5.25, but they're going rate of 2.25.
The qualifying payment was 2700 and change. So they got a $500,000 mortgage approved at $2,700, roughly. That's their qualifying payment. Their actual payment was just over 1900. Okay, let's fast forward now. It's five years later on a renewal. You don't need to re qualify with the stress test with most lenders.
[00:13:07] Speaker A: Right.
[00:13:08] Speaker C: So now they're looking at possibly a five and a half percent rate. Remember, they qualified at 5.25. Their payment would have been qualifying payment 2700. Now they're renewing and they're opting for a rate, let's call it 5.5%. That $500,000 mortgage, providing they made all their monthly payments, is about 438,000 now. So now the renewal comes in term, let's say three years, five and a half percent. That mortgage payment, this is where they're going to see the effect. It's their budgeting monthly for that mortgage payment, that 1900 that they're used to is going to jump to about $2,600. That's the impact. But providing their incomes are the same from five years ago, their debt load from five years ago is relatively the same. They qualified at 5.25. Understanding that mortgage was approved with a qualifying payment of 2700. Where the impact is here is. Yes, just getting used to the new monthly payment for the term that they opt for.
[00:14:14] Speaker B: We argue that. Okay, so Covid, hit and income and jobs, we had to take on more debt. Well, what are we doing about that debt now moving into that renewal phase? Are we looking at a refinancing, are we looking at taking those 24 percenters, 1520 percenters that you've accumulated over time and reducing that in a set second? Refinance. There's a purpose to everything. What do we need to do at time of renewal? Lower debt. That's why if we take a look at it a year before, we could improve your cash flow, improve your debt situation, refinance, whatever we need to do. And then when that hits, when that renewal hits, you're better for understanding your budget. Twelve months ago, understanding that budget and riding the wave is important. You understood that. You figured that out, actually could have.
[00:15:02] Speaker C: Right?
[00:15:02] Speaker A: People are strapped.
[00:15:04] Speaker B: Not everybody.
[00:15:09] Speaker A: They just don't have it.
[00:15:11] Speaker B: Have you sat down and have you completed your budget analysis? Have they done that? No. So then we sometimes have to scale back. Sometimes we don't. We can't go by the vinyl, the exclusive vinyl that comes out at, you know, the, the.
This past weekend was the record store deals or, or what was going on. No one. Maybe you should not buy that $200 vinyl, the Beatles vinyl, exclusive. You scale back. Maybe that's a week's worth of groceries.
[00:15:38] Speaker C: Yeah.
[00:15:39] Speaker B: What I'm saying is that understanding the stress test and the dollar cost and what is important to you, that vinyl is not going to make any sense. You just got to scale back. You have been successful, you have the wherewithal to withstand the pressure. Someone with three kids. So now we have to say scale back. In times of need, you scale back. What do we scale back on? Okay, so maybe the kids aren't going to go. Maybe they do twice a week rather than the full week. Maybe we want to enrich our kids. I have 13 and ten year old, ten year old daughters. We want to enrich them with all the things that we can. However, however, in times where we can't, what's most important, food on the table or gymnastic lessons?
What's more important? Cost of gas to take them to and from school or wherever they need to go to make money or hockey practice? Sometimes those things have. Those are hard decisions to make, but those hard decisions will build the family up to be more stronger.
[00:16:39] Speaker C: And if we take a look back, I think a lot of it is important from the get go. Also, when you have the clients initially, face it, I not a firm, but I do love a variable rate mortgage, but it isn't for everybody. So understanding that you are able to weather the storm, and that's a terminology we use, can you ride the wave? Can you weather the storm? If shit hits the fan, you know, are you able to ride it? Because it's that whole discussion, what phase of your life are you in? Yes. Understanding the kids and the needs of the kids. Are there special needs? Are there, are they in special programs or extracurricular activities? So great. Everybody wants to be in when things are going well, whether it's an investment or whether it's a mortgage, everybody wants to be in at that time. But then when it starts going haywire, it's like, well, why did you put me in this? I think having that good team and having a good mortgage broker and having that conversation, to say, well, it may not always be like this. And for or foreshadowing the event that this may not always be gravy. Are you okay with that? And if not, if you're going to take this variable and you can't weather the storm, make sure you're talking to that mortgage broker earlier, locking in and getting out before, it's really detrimental.
[00:18:01] Speaker B: I want to echo some information on that with respect to Covid.
I was working at the financial, I was working at a bank during COVID and that frenzy of uncertainty made people go haywire.
They were taking out their RRSP money out of their investments, out of their investments, because they felt like the world was going to come to an end.
After considerable amount of advice and conversation, we identified that this investment is for retirement, 25, 30 years. Mm hmm. Your goal has now changed for what reason? Things happen with tools and resources at our disposal. On the Internet, we see the wave. Ride the wave. Because you don't need it now. You need it for 25, 30 years. So understanding how the goals and the impact of changing those goals may impact that emotional decision that someone may have. Variable versus fixed emotional. Oh, I want the lower rate because it's a variable. Hmm. Can you weather the storm based on your ability? Is this your forever home? No. Well, then we need to understand where the variable could go. We either do the variable or the sleep at night mortgage, which is the fixed. Are you, are you comfortable sleeping at night? Then it's a fixed, but I want the lower rate. Well, maybe that's not right because you've just said based on your goal and based on your advice and our advice, I like to sleep at night knowing that I'm going to be paying. But this is what it is. This is your, this is what you're saying. We're not going to put them in something or that doesn't make sense for them because I don't want them coming back, or we don't want them coming back saying, well, I wanted the lower rate, but now it's going up. But we talked about this. We made sure your goals are a, B, C and D, and this is why we went that way. There is no crystal ball the time of the renewals. It's just a matter of how do we go back and understand their goals today? And have they changed from four years from now or five years ago? And are they still in the same position? Are they a sleep at night mortgage or because that variable product allows you to come out and sleep at night.
[00:20:03] Speaker A: So as investors, I'll share my story, my experience and how stupid I was.
[00:20:10] Speaker B: They're all lessons.
[00:20:11] Speaker A: Yeah, but as investors, ever since, I've been investing now for 14 years and ever since I started, somebody told me way back then and I believed it. And it worked while times were good, because as investors having that flexibility of a variable mortgage, in case you want to sell it, in case you want to refinance it, whatever you want to do, that flexibility was always attractive for investors, particularly so every single property that I ever bought on this, on the res side, not commercial res side, was all variables.
And life was great. And I probably speak for everybody's watching and listening to this. I probably speak for 80% of the population. We all did the same thing. I think back now and again, sharing my story. I think back now and I think, what was I thinking when rates were two and two and a quarter, I should have locked in for 20 years. What was I thinking? And I've had this conversation with other investors, and we say the same thing. Yeah.
Stupid, stupid. What was I thinking? Why didn't I lock in for even five or ten? And I'm talking to other investors that locked in, and they're sitting beautiful. They're still at the. Some are, you know, on their primary res. Some people are sub 2%.
It's free money.
[00:21:36] Speaker C: Yes.
[00:21:38] Speaker A: So, Joe, why didn't I lock in?
What was. Yeah, I always thought, though, I don't want to lock in, and some of my partners, some of my JV partners said, I think we should lock in. No. Why not, buddy, if we want to sell in a year, let's say somebody comes, knocks on the door, and says, I'll give you $2 million for this thing, and we can put 600 grand in our pocket. Don't you want that flexibility without paying the big penalty? Penalty?
[00:22:07] Speaker C: Yep.
[00:22:08] Speaker A: Okay, I guess you got a point. And then one rate hike, next rate hike. And you think, I would have locked in then. I waited till the end. And now you're committed.
[00:22:18] Speaker B: Now, your understanding of what you wanted to do from the onset was your decision maker.
Your decision maker was, if you want to sell, we have the opportunity. We have. Keyword is flexibility. Unfortunately, that superseded and overrode everything else that was. Should have been discussed.
When do we. When should we fix? If we have another two rate hikes, at what rate do we fixing?
Did you have that conversation? Okay.
[00:22:50] Speaker A: And you know what? Nobody sat down.
[00:22:51] Speaker B: No.
[00:22:52] Speaker A: Let's look at this.
[00:22:55] Speaker B: Does the flexibility outweigh everything else that you should have talked about?
[00:22:59] Speaker A: Exactly.
[00:23:00] Speaker B: Okay. Hindsight 2020.
[00:23:01] Speaker A: Yeah.
[00:23:01] Speaker B: Right.
[00:23:02] Speaker A: Somebody should have sat me down.
This is why. Well, I didn't know you back then.
[00:23:08] Speaker B: I know you're. You're enriching now.
[00:23:10] Speaker A: Somebody should have sat me down and said, okay, let's look at this. You're at two and a quarter.
Let's hypothetically say. And there's. There's a pretty good chance this may go to four and a quarter, 5%. Let's look at what that does. Over 30 triplexes.
Do you want to take that risk?
[00:23:30] Speaker C: Absolutely.
[00:23:31] Speaker B: Great question. I mean, I had somebody painted that picture for me from the beginning. Yeah.
[00:23:37] Speaker A: Because as you know, I don't own two, three, four properties. There's quite a few.
That's thousands and thousands of dollars every month.
[00:23:46] Speaker C: Right. That even if one did sell and you had to pay the penalty, I.
[00:23:50] Speaker A: Still would have been a better person.
[00:23:51] Speaker B: Correct?
[00:23:51] Speaker C: Yes.
[00:23:52] Speaker A: Right?
[00:23:52] Speaker C: Yes.
[00:23:53] Speaker B: Review of your full portfolio, whether it's an investment portfolio, whether it's an account or credit card. Everybody is.
Everybody should be able to have someone like people that are, you're sitting beside, go over and do the analysis to see where you are and where you could be better. And I apologize for that not happening to you in the past. But we are here to teach and empower everyone to say, don't make the same mistakes that we have, or these are the lessons. They're not mistakes. They're lessons. These are the lessons that we can empower you with to make sure, do not ask the questions. Make, have the hard conversations with your banker. Put them on fire. Like, put. Just put them in the hot seat. Not put them on fire. Put them in the hot. Put him or her in the hot seat, because that's their job. And your job is to get the information. And without that information, you can't make your sound decisions. That flexibility just overrode and made you become worried about everything else, and that's where you lost your money. Where are the benefits of A, B, C and D? Do you accept or not accept? I do not accept. Then fix it in.
[00:24:59] Speaker C: And I think with that, not to say that you made the mistake. You were very much part of many, many individuals that still stayed in a variable mortgage because as the variable rate went up, so did the fixed rates. So everybody's mentality or people that I spoke to and having these discussions were, can it really get that bad? Well, hang on a second. Is it really going to get that bad? Is there going to be another rate increase? But as we saw that extra quarter increase and then that extra, the fixed rates were going up, and then people started saying, well, I'm not going to, you know, commit to now a 6% rate for three or four years. Forget it. I'm just going to wait because it can't be that bad. They're going to start going down.
[00:25:42] Speaker A: Yeah. And the opposite.
[00:25:44] Speaker B: Who had whoever had the crystal ball, right. Win the game or won the million? So no one has that, but it's that breaking point. Discuss where your milestones or your checkpoints are on that journey, on that map and say, if it does go to here, I'm prepared to lock in whatever rate because I want to secure myself and not worry about potential. But what if the rates are coming down?
[00:26:05] Speaker C: Right? Right.
[00:26:06] Speaker A: Yeah.
[00:26:07] Speaker B: What if I had a crystal ball? I'd be $77 million richer, and I wouldn't be here. I'd be in Sardinia on my boat, 100%.
[00:26:13] Speaker A: Okay, so let's talk about the services you and Michelle at Spark Financial or spark mortgages.
Give your clients. So let's say you obviously have a database of mortgages you've set up. So let's say I was a client and whatever CRM you use and you get notified, my mortgages, however that works in your world, you get notified that something's coming up for me, whether it's a renewal, whatever it is, tell me what you guys do that I should have had happened with me, but it never did. How do you look after your clients to make sure there is a strategic plan and they know all the options to make the right decision? How does, how does spark do that? How do you guys do that?
[00:27:09] Speaker B: I'm always talking about going backwards to move forwards, because you have to understand the foundation of what transpired four years ago, five years ago, three years ago, or one year ago. You collect that data, has this changed? Are you changing where you want to live? Are you selling or you have a light, you have a child, are you wanting to move out of your condo? What's going on? And then this is what you said a year ago or five years ago, what's been, what's transpired? To make any kind of changes that you need to make, that renewal then becomes a refinancing. That renewal becomes, I can't, I gotta sell, I'm moving in with my parents, or whatever the case may be, go backwards to move forwards. That's the foundation. And that happens at least twelve months to six months before the renewal, at least twelve months out, we get a call, anything changing, anything that we need to be aware of. Did you change your job? Did you lose your job? Are you working more? Are you working somewhere else? Are you, have you moved to the United States? Are you working in. There's a lot of variables that could change, that have changed from COVID to now that have caused people to pivot and change industry, or move somewhere or work remotely from Italy if they wanted to because it's 6 hours behind, they could do that, right? And I know people that have done that, you know, they work in the US, but our services are, we understand how they came in. We got to go back and see if anything have changed to collect income, to collect data, to collect information changes like they may have had a child, like I said, and that changes the whole thing in terms of where they want to live. And it's a refinance to a bigger home.
[00:28:38] Speaker C: So with the CRM tool, we have a fantastic tool that we work with, and so it houses all the information that we need and the dates, etcetera. So as Joe said twelve months prior, you're just touching base. But we really want to get hands on six months prior to that renewal because we want to start collecting new documents between that six month, five month, or understanding the story going to lenders, most lenders now, when we submit an application, if we're able to pivot to put them in, if we needed to refinance or interest rates are better with another lender, most lenders will hold the rate for 90 to 120 days. So we want to get that application out right at that time when we can submit it out to get the client peace of mind, knowing rate hold, your rate is not going to go any higher than this because we have you protected, but it could possibly go lower. But in order to do that, we need to understand at least five months prior, six months getting that information.
Documents are always in the lender world, 60 days, three months worth of documents, but at least to get the ball rolling to say up for renewal. What are we doing? Are we just renewing? Are we refinancing? As Joe said? Do we need to consolidate? Let's start moving forward on that.
[00:29:50] Speaker B: What has happened in your life to make you change the way that you saw your living arrangements, or where you wanted to live now, or what life changes? Did anything happen? Was there, God forbid, death in the family or something that you needed to do to make sure that this whole thing about life and your goals have now changed? If we don't understand that, we don't know where to take you. So baseline, I'm always talking about baseline cash flow analysis, understanding where you are today, understanding where you are yesterday to move forward, because without that data, you cannot move forward, you cannot allow empower yourself with your goals. This is about you. It's not about us, it's about you and how we can help you achieve those goals with your family and your.
[00:30:33] Speaker A: So if your mortgage broker is not reaching out to you six months before your renewal, he's not doing his job.
[00:30:41] Speaker B: You have to understand, like, again, you got to go backwards to understand what is transpiring. Because we come from a background of advice and relationship building and making sure that you're okay, not just let's get the numbers in, let's, let's get all this, this, the KPI's and the money. And it's not about that for us. It's about building relationships. And the one person tells ten people to ten people tells 50 people, it's about, hey, go, go see spark. Because they take care of you on a personal level, not just a number. So we want to continue to advocate for that type of business model where it's not just about numbers, it's about advice. Six months before or sooner to understand if there are any life changes that happen in those twelve months, we start collecting docs based on that life change. If everything's not as cool. Good. Let's go. Yeah.
[00:31:29] Speaker A: Amazing. So we all have, like, I'm in this situation, too. My daughter's 24.
You know, I guess parents at my age, give or take, have children that are potentially looking to get into the market. 24, 23, 27, whatever. So they're at that age, like my daughter is at that age now. She's looking right. And I think it's a great investment. Obviously, let's get into real estate for you.
Obviously, it's tough if you're, if you're, if the parents are not in a financial position to help them with a down payment.
But what, I want to quickly touch on that. So let's, let's talk about, you know, my daughter Vanessa. She's 24 years old, she's working full time, but obviously single income. What can she realistically afford if she's making, I'll throw out a number, $80,000 a year.
[00:32:31] Speaker B: I'm not going to even entertain Vanessa and your daughter, the reason being is because she's been welcomed into a world of entrepreneurship and working her ass off to get where she needs to do. Because maybe the parents, I'm not sure. The parents taught her a few things. Things about working your ass off and getting to it. Right. Okay, let's talk about, she's not the average individual where we have a 24 year old. We're talking about, you know, you've worked hard to make sure that she's set up properly and she's learning from you. Let's say there's your average Joe that has, you know, that's been working. It's not an entrepreneur, it's a nine to fiver, a mechanic or a laborer somewhere and hat. And has someone does this, this 24 year old understand the benefits of, did they understand the benefits of saving and putting their money aside and doing all the work that is necessary to build that nest egg for something specific?
[00:33:31] Speaker A: Probably not.
[00:33:32] Speaker B: There's your answer. So that's where that person is not going to be able to afford it unless mommy and daddy or the bank of mom and dad can take out their, their, their checkbook and write a check. Or let's say in the middle. That's a no. In the middle, you have bank or you have mommy and daddy that understood that there's a benefit of investing an asset. Maybe a condo has purchased something, then they understand that that condo is going to go to today. I'm not able to purchase that type of property unless I make changes to my lifestyle for my 13 year old and my twelve year, my ten year old dog.
If I have to buy something, it has to be now because the condo prices I hear have come down. So do I want to pull trigger on that? How am I going to pull trigger? What have the parents done to ensure that that can happen?
[00:34:20] Speaker A: Right?
[00:34:20] Speaker B: Did you Refi, are you refinancing your line of credit to buy that for them? Is it going to be an investment property? Does that daughter or son want to go into that condo right away? Or can we rent it out for a little bit and then cash flow it?
[00:34:36] Speaker A: Or even a duplex? They live in one unit, rent out.
[00:34:38] Speaker B: The basement option triplex. Buy a triplex and then do that. Like you, there are other options. That is where your professional opinion, your advice comes into those individuals that have potentially that opportunity to think in that mindset today, these kids today. I mean, I don't want to.
So this instant gratification, this is a bone of contention with me. It's instant gratification. Forget about your, your, what do you call them, your dunks, your sb high low Jordans or whatever it is. You don't need to buy those things. It's just, what are you gonna do with that money? What are you, what is your goal? I want to buy a house. Well, then you shouldn't be buying those dunks. You shouldn't be buying that chain, and you shouldn't be buying this, this, Tesla that. Whatever. I just, I'm over.
I get a little bothered by it because it's. We're empowering. We continue to say, what are you going to do with this opportunity that you have today where there's technology, where you can make money and at the same time bank money? Your goal is not to buy a house because you can't. Well, then continue buying your chains and your dunks.
[00:35:46] Speaker C: So it's a great question that you posed, and it's something that we receive every day. What can I afford? Just this. And it's thrown out there. What can I afford? So our quickest answer to that, and what most lenders do use is you used a number of 80,000, 80,005 times your salary is what's out there generally with lenders, and that's what you can afford. Five times your salary. Salary. Excuse me, conservatively, we'll use four and a half. Just because we haven't pulled credit. We don't know what type of credit is outstanding, what kind of debt they're borrowing and carrying on their credit, bureau card debt, student loans, etcetera, like that. So just to be conservative until we get to that point that we can do an actual application and pull credit. So I'm going to say the most important thing is get that pre approval done. Let us talk to you. Let us get that pre approval. Let us give you peace of mind knowing that when you are out there shopping, you know what you're shopping comfortably for.
The worst thing would be you fall in love with a property, but you can't afford it. Or understanding. It's even that discussion of understanding, well, this is what you can afford. Now, client, do you have a co applicant? Oh, you do? Okay, let's have a discussion with the co applicant. Because as much as the co applicant, they all think, okay, I'm going to bring in a co applicant. As much as you're bringing in that co applicant's income, you're also bringing in that co applicant's debt. So it's the whole picture to understand where they're at and what you can comfortably shop for. So as much as a skilled agent, real estate agent is important, a skilled broker is important to put you on that path to your home ownership journey.
[00:37:28] Speaker B: That 24 year old needs to sit down with the whole team to understand what do you want to do? What are you going to do about it? How are we going to help you get there in order for you, possibly if mom and dad can't, there is no mom and dad and the bank of mom and dad does not not exist. What do we need to do for you to empower you with that information? Do they have the financial literacy?
Do most of the 24 year olds understand what financial literacy is?
[00:37:52] Speaker A: No.
[00:37:52] Speaker B: We have an opportunity to change the mindset and say, this is what you need to do. This is how you need to do it. Can you do it? What are the goals? And the pro, this isn't woe is you or let's hammer on you. No, it's about we understand the challenges. We need opportunities to coach and make sure that you are able to come out of whatever that challenge is and understand where we need to bring you, where we need to take you in terms of very strategic goals and opportunities and activities that need to get you there and you need to buy in. If you don't buy in, then you're not going to be able to afford or be able to. And if that's not the goal, great. Rent all you want, no problem. But if you are a homeowner, if you want to be a homeowner, then let's get. Let's go backwards to go forwards. Let's do the work for you and empower you so you can get it done.
[00:38:40] Speaker A: You're pretty passionate about this topic.
[00:38:43] Speaker B: I have children, so you have a teenager. Mine's 13 years. We want to make sure that we and you, you've done that. You're doing that. You continuously do that. That we learn from individuals like you that have been in the business saying, what do I need to do to empower my children to be better off or to be well, to understand financial literacy, to understand how it works and how you can become successful? Is it a nine to fiver? Most likely not. It's probably being an entrepreneur. What kind of solutions to problems are you going to, you know, come up with so people are able to be empowered by those solutions? Are you going to.
[00:39:19] Speaker A: Yeah.
[00:39:20] Speaker B: Yeah. Tell me.
[00:39:22] Speaker A: When I started to buy real estate, I had $0.
I wasn't an entrepreneur. I was probably making, at that time, 15.
Well, when I bought my first one, I think it was about 1415 years ago now. So I was probably making 100 grand a year as a police officer. And I had a dual income with my wife, but we didn't have any money.
Paycheck to paycheck, so to speak. A little bit of savings.
[00:39:50] Speaker B: Love it, but love that I wasn't.
[00:39:52] Speaker A: Putting a down payment. I didn't have 60 grand in the bank to put down. Okay.
But what we did have, and I would highly recommend this personally, was the heloc.
That's how it started with me. I pulled a $200,000 home equity line of credit on my principal residence. And my wife wanted to kill me. And she thought, we are going to lose everything. You're an idiot. But she let me do it.
That's how it started. Had I not leveraged that equity, I'd probably have a small mortgage now, but I would not have not even a quarter of what I have now. So for everybody listening, for me, leveraging that Heloc was what took off for me. That being said, I would leverage. Let's say my daughter came to me today. I had still one house. I was still a police officer, hypothetically. And my daughter says to me, I want to buy my own house, but I need help. Let's just put out a number. I need 200,000 dad. I have a hundred. But I need another hundred.
And I could get that hundred from leveraging my house. I would.
[00:41:10] Speaker C: Correct.
[00:41:11] Speaker A: To get hurt. Right?
[00:41:12] Speaker B: Absolutely.
[00:41:12] Speaker A: It's still an investment at the end of the day.
[00:41:14] Speaker C: Yes.
[00:41:15] Speaker A: But she. If. Back to your example. If Vanessa was the type that, you know, she bought all the fancy shit and this and that and basically had $45 in the bank. Would you? No.
[00:41:29] Speaker B: Right. Right.
[00:41:30] Speaker A: No. Because we're. I'm of the same kind of mindset as you two with respect to, hey, we'll help you as your parents. But you got to show some skin in the game.
Yeah.
[00:41:43] Speaker B: It's. You have to skin in the game. Responsibility. Like opportunity to say, yeah. Well, we understand that there's a partnership here, and we respect that. You're our parents. But you're not gonna bail me out. You're just. It's a partnership. And you're making me understand the benefits of doing it this way 100%.
[00:42:00] Speaker A: So the only reason I share that is because for everybody listening, if you have equity in your home and you could leverage that, and your child is maybe taking that step and already has a substantial savings or at least making that effort and is responsible, I would highly recommend personally, because at the end of the day, it's an investment. Even if she keeps it, then it inflates in value in, say, ten years or 15 years. Guess what? You can probably do it again.
[00:42:31] Speaker B: Finance that one and then take the money out and then do it all over.
Generational wealth.
[00:42:36] Speaker A: Yeah.
[00:42:37] Speaker B: Absolutely. Absolutely. So it's a very important piece of information from a personal providing.
[00:42:44] Speaker C: Yeah.
[00:42:45] Speaker A: It's.
[00:42:45] Speaker B: Well, your prime example.
[00:42:46] Speaker C: Your prime example. Yeah.
[00:42:47] Speaker A: Had I not done that 15 years ago, we probably wouldn't be here in this setting, getting to know each other. Meeting spark meeting. This meeting. Like it changed my life. So back to my point.
I'm gonna end off with this when you two. And I'll give you both an opportunity to answer this question I ask everybody on the show at the very end.
Hence the name of our podcast.
So I'm gonna start with Michelle.
So, Michelle, when you picture more to life for you, Michelle, when you picture more to life, what do you see for you?
[00:43:32] Speaker C: Wow. That's a deep question. So when I picture more to life, I see myself continuing the path that I'm on because I am satisfied helping people. I understand my purpose in life is that I just want to help out. I want to put people in a better position than what they were before. And whether that be with mortgages or even outside of the my employment world. It's always doing good, being kind, fighting for that underdog. I just. My focus, first and foremost is my family.
I have older parents, family, my husband, my daughter. It's just a matter of ensuring everybody is living a good life and a happy life. I want to be able to look back and say, the memories that we've made are ones that have always made me happy and have made me smile. And if that comes along with while I'm working, helping out my coworkers, making them better people, or educating them into things that they were never aware of, because I bring in so much knowledge and experience and helping families and individuals getting into their dream home, I'm happy.
[00:44:53] Speaker A: Amazing. Just so that, you know, there's no right or wrong.
[00:44:56] Speaker C: Yeah, there isn't.
[00:44:57] Speaker A: I get everything from, I want to own five jets to I want to give all my money to charity, for example, and everything in between. Yeah, so go ahead.
[00:45:08] Speaker B: Balance is important for everyone. I feel it's important for family, it's important for work, it's important for relationships outside. Whatever it is that you're doing, you need balance. So what that means is that you need to find ways to ensure that you come to whatever job you do and understand that you're performing, you're leading from a level of balance. You go home, you leave it and you just bring it home. And now you're enveloped in whatever the family is doing. You stay connected to your family and find your purpose. There's got to be a why. Why do you do, why are you alive? What are you going to do with your purpose? And some do philanthropic work, some help people just generally empower them with information. Doing stuff like this really excites myself, probably Michelle, as you can see, with the way that I come across. I talk with my hands, not because I'm italian. It's because I'm very passionate. Passionate about. Yeah, it's just about teaching and empowering people to find that the answers to be better leaving than they were to come in. And that's either with kids, whether I want to be a very involved father in that lesson and that empowerment of these women that are these young girls that are going to be fierce women, finding balance and finding a way to navigate through this world with power and supporting my brother with Francesco, my nephew is autistic. And that balance comes in. How do I become better at supporting my brother mentally and balance and financially as well? Being that I'm in this industry as well, I see my future self is someone who has the ability to help more people like my brother in the autism world and providing that opportunity, build possibly that opportunity to go somewhere after the age of 18 and 20 and 21 or 22, because we know that the government does absolutely nothing if not minimal. And then there's a lot of grants that happen between two to 13 years of age. After that, there's nothing happening. And my nephew is ten turning eleven. And we want to make sure that there's balance there. And my brother and my sister in law being able to find that balance and comforting that we're all here to help out, because without help, we can't really do anything without each other. We can't really help each other out. So everybody needs to be more kind and honest and transparent and genuine with each other. Yeah, it's just incredible.
[00:47:34] Speaker A: Yeah. Well, listen, it's been a great show. Thank you guys so much for taking the trip all the way to Hamilton from Vaughan.
[00:47:42] Speaker B: I needed my passport to actually come in. I need to exchange money as well.
[00:47:46] Speaker A: All the way to transatlantic.
[00:47:49] Speaker B: I did the new one. Ita is a new one. Thank you.
[00:47:52] Speaker A: But no, it's been great, guys. I hope you got some value there. Over 50 years experience, they obviously know what they're talking about. And if nothing, you've learned, they're very personable, very down to earth mortgage people that definitely can put you in the right spot, regardless of, I guess, your background, they're going to suit what best suits for you and your. Your situation. So, Joe and Michelle, you can look them up. Spark financial, tell us about how we get in touch with you guys, your website, or how do people listening to this, how do they find you? How do they reach out to you should they want your help and obviously need your help? How do they do that?
[00:48:37] Speaker B: You're going to provide a link and information on the podcast to do that.
[00:48:42] Speaker A: That's a really good answer.
[00:48:45] Speaker B: You're gonna add in all the links and all the. The handles on this.
You. I want to see you personally do it.
[00:48:53] Speaker A: I want to get to you. I wouldn't know how to do it. Yeah, that's why we got Karina.
[00:48:58] Speaker B: Absolutely. Spark financial group, Joe at Sparkmortgages, CA, Michelle at Sparkmortgages, CA, and, yeah, we'll have your permission. Person behind the scenes right now who's fantastic at what she does to do what she needs to do to get you guys in touch with us.
[00:49:17] Speaker C: Perfect.
[00:49:18] Speaker A: Awesome. All right, guys, that's it for this episode. Thanks again for joining us again, more to life through the power of investing in real estate. We'll talk to you soon. Cheers.
