Direct answer
MLI Select is a balance-sheet program. In the takeout structures we arrange, the buyer contributes a 5% deposit, demonstrates liquid assets of about 10% of the purchase price and net worth of about 25%, and signs a personal guarantee. Income matters less than liquidity and net worth because the building's income services the debt. It fits investors with capital they intend to hold for a decade; it does not fit anyone who needs the cash flow immediately or cannot absorb a funding shortfall.
Key facts
- Takeout qualification in our structures: 5% deposit, about 10% liquidity demonstrated, about 25% net worth, personal guarantee.
- Liquidity is demonstrated for qualification and must remain available to absorb a funding shortfall.
- Year-one cash flow is modest by design; returns come from rent growth, principal repayment and recycled qualification capacity.
The three tests
Deposit: 5% of the purchase price, usually staged as an initial payment on signing with the balance on waiver of the legal and financing conditions. Liquidity: about 10% of the purchase price in cash, marketable securities, available credit or other assets the lender accepts, demonstrated for qualification rather than spent. Net worth: about 25% of the purchase price, which most investors meet with real estate equity plus liquid assets. These are lender and insurer requirements and are confirmed in each commitment letter.
The personal guarantee
The insured mortgage is supported by a personal guarantee from the borrower. Its scope and duration are set out in the lender's commitment. Investors holding through a corporation should expect the guarantee to reach the principals. This is the single term most often discovered late; we raise it in the first conversation.
What the program rewards
A buyer whose capital is patient. Cash flow in year one is modest by design, because 95% leverage and a 50-year amortization allocate most of the building's income to debt service. The return is built from rent growth, principal repayment and the ability to recycle the same liquidity and net worth into the next acquisition once the first one is funded. Buyers who model a ten-year hold see the structure clearly; buyers who model a two-year flip do not.
Who should not proceed
Anyone whose liquidity is exactly the minimum, because the holdback and rate scenarios described elsewhere on this site draw on it. Anyone who cannot tolerate a delivery delay of several months. Anyone who needs the property to replace employment income in year one. And anyone unwilling to read the commitment letter, because the covenants in it, not the pro forma, define the investment.
Questions
Does my employment income matter?
Less than in residential lending. The insurer and lender underwrite the building's income and the borrower's balance sheet. Income supports the personal guarantee assessment.
Can I use a corporation?
Yes, and most investors do. Expect the personal guarantee to extend to the principals and confirm the structure with your accountant and counsel licensed in the property's province before signing.
What is the CMHC application fee?
In the structures we arrange it is charged per unit and paid by the buyer; the current fee is stated in the standard underwrite inputs.
Sources
MLI Select: multi-unit mortgage loan insurance,
Canada Mortgage and Housing Corporation (CMHC)
Standard underwrite model (this site),
Daniel Kim & Associates
Related pages
Reference material prepared by Daniel Kim & Associates, Sotheby's International Realty Canada. Not a recommendation to buy any property or security. Figures are illustrative and reviewed quarterly; complete independent due diligence with your counsel and accountant.
All reference pages