I wanted to post this to share two key insights that I never see mentioned in the usual discussions of CMHC MF insurance. Typically these discussions focus on a) how expensive it is and b) how CMHC rarely recognizes true market value as expressed in the closing price from an open market deal. The conclusion is usually that CMHC MF insurance is not a particularly attractive option. However, there are three overlooked aspects that can make CMHC insurance a ticket to early retirement. They did for me, probably shortened our trip to financial independence by about 6-10 years.

The first element is that by using CMHC in essence you are really taking advantage of a leveraged finance offering that comes with TWO separate independent reviews of your deal to make sure it is a good one. First the bank or broker looks at your deal and decides if there is much chance CMHC will accept it. If there is, then they are willing to spend time presenting it to them. Then CMHC goes through your deal, you, your history, everything in the four main risk categories - property/market/you/price paid - to decide if you have the right to 85 % leverage, which is 5.6 X leverage. Go find a bank that will give you 5-6 X leverage to buy stocks! If you are a first-timer, which everyone starts as, these levels of review will keep you safe and when you find that deal that actually meets their guidelines, chance are it was a good one with rents below market. Many people say that such deals don't exist in their market, that they can't find them, too much competition. Then change markets and look where others aren't, or get out there and dig harder in the one you prefer, or be willing to wait until the real estate cycle inevitably alters and makes targeted rates of return more common.

The second key aspect of CMHC MF insurance is that it protects your valuation. This is the fundamental reason why REIT's use CMHC insurance, even with very low 50-60 % LTV leverage levels. It preserves your capital.
The primary risk to your capital in RE comes from the leverage; a relatively small swing in valuation of 10-15 % means a 60-75 - 100 % capital loss at an 85 % leverage (LTV) mortgage. This is what killed so many people who bought US MF 2004-2006; an economic downturn resulting in widespread job loss = reduced rates of household formation = same population living in fewer housing units as people move home or double up = vacancy = reduced rents = value loss on building.
If refinance time rolls around during the period of lower rents (hello Alberta?) then you just lost a ton of money as the mortgage resets at the same level against a less valuable building. Even worse, you may need to kick in more cash to restore the leverage levels ie pay the mortgage down - to keep an uninsured bank secure. This is what bankrupted so many unfortunate investors in the US, and could do here as well.
The CMHC insurance means that because there is no risk to the bank, there will always be banks at the table at the same valuation as you originally paid. No resets of building vale even at lower rents.
Your capital is safe (r). Much safer. This is why the REIT's use CMHC, to avoid value loss at refinance. Its the singlest largest risk in MF investing.
Overlooked Advantage #2.

These two advantages do not apply to a normal market where you want to refinance at a 75% LTV level.

Of course CMHC makes sense if all you seek is a 50% mortgage like a REIT as rates will be lower.

Of course 85% LTV makes sense if you can get it which might be true for Halifax but not in any other normal city where CMHC values are well below market.

CMHC is an obsolete Canadian institution in my opinion. It used to have its place and I too used it a lot in my early days from 2000-2004 when I could get 85% levered cheap money. Those days are over in BC, AB, SK and ON.

The third and final advantage using CMHC insurance I found was that it allows you to explore into markets you otherwise might not in search of higher returns. CMHC's mandate is to help reduce the cost of housing to all Canadians through the single and MF housing insurance. But it also has the task of reducing risk to taxpayers, so it imposes a very conservative valuation mechanism that in large urban areas results in financing/insurance values much lower than market values. Big city investors frustrated with this tend to dominate the conversation about the value of CMHC MF insurance.

The flip side of the coin is that the rural and small town areas get subsidized by the big city customers, (you can get 85 % of purchase price in smaller markets) and investors get the imposed discipline of the conservative underwriting (its not as a good deal if the cashflow isn't fat and the DCR healthy). There are many smaller secondary or tertiary markets within an hour or two of large economically healthy urban centers that have much less competition from investors for buildings but also from existing landlords for tenants. A new owner can stand out more easily IMHO, and there's more opportunities to find buildings with low rents = significant rent increases in provinces without rent control = big jump in building valuations. One deal can mean financial independence over a 5-6 year time frame, it did for us. This strategy has become the cornerstone of how we could afford to leave two solid middle class careers and move to the south of France, we now search out the small secondary markets overlooked by others that have a good future and location.

At todays super low CMHC interest rates 15-16 % of mortgage principle is paid down in a 5 year term. I just did a small town CMHC refinance mortgage where the mortgage paydown over 5 years at 2.23 % is 120 % of the equity value in the building. Essentially you double your investment in a 5 year span just on mortgage paydown; its why development of purpose built rental stock has returned in such a big way after 30 years of no building in most of Canada. CMHC insurance and the low rates mean that even if the building makes no cashflow at all for the entire 5 year hold, you still double your money while hedging the risk of refinance at a lower value.

Advantage # 3.

To me, true financial independence is what all investors seek, maximizing reward and minimizing risk. CMHC multi fam insurance allows me to explore higher return markets while hedging many of the risks of those markets.


Please post insights or feedback as I am always on the hunt for contradictory viewpoints (based on experience) ... too much Kool-Aid of one flavour is a dangerous thing

#3 is correct and to me THe ONLY remaining advantage of CMHC, with the caveat that smaller market do have higher risk if a major employer shuts down, or if markets correct.

Smaller towns also have less liquidity.

We used to own in quite a few small towns and usually did well there but the risk of market correction such as in 2008/2009 and again recently in AB and SK with oil price collapse should not be underestimated.

Congrats on your wins, Tris !!

Thanks! Always a pleasure to hear from people with ++ more experience than one's own:

"These two advantages do not apply to a normal market where you want to refinance at a 75% LTV level."


- Thanks for the super rapid response, it happened as I was posting up the third advantage I'd found in my much less limited experience. What do you define as a normal market?

- I have now done 3 CMHC financings or refinancings on MF with a 4th coming up. All were at 85 % of a valuation that either was or is arguably close to market, and a former CMHC head in Nova Scotia told me several years ago Atlantic Canada had the highest ratio of 85 % financings across Canada. In smaller markets say Stony Plain or even further out along Hwy 16 in Alberta, the towns of 5000 people and up - is there still such a large gap between CMHC and market values? Several REIN members have posted about getting 85 % valuations but I don't know where they were, they seemed to be Alberta but in small towns.

- It seems to me there will be many small markets across Canada with federal or other gov't institutions that are durable (hello Cold Lake for ex) where there is a high probability you would get 85 % financing but I have no experience outside my part of Canada - Feedback anyone? My posts are really aimed at people willing to look outside large cities but worried about the other risks small towns entail – having become financially free through this strategy I feel like I owe it to other investors to let them know and also to learn about any downside risks I'm not seeing.
If one could solve the management problems, I would think a pool of buildings diversified in small communities across Canada taking advantage of the CMHC insurance would be a very strong performer.

- Cheers, and I hope Italy is treating you well...

Small markets can have higher risks, lower rents but the same R&M costs to renovate. Proceed with caution.

Atlantic Canada with its ample subsidies and slow to very low growth spread out over a few cities with a huge area is not a normal market.

But indeed in the early years I too did quite a few 85% deals and loved CMHC.

Most normal markets i.e. major BC, AB, SK or ON markets do not allow 75% CMHC refinances anymore, or you pay the 85% premium for a 70% refi eliminating any interest rate differential !

For example, we did a refi in Calgary earlier this year at 2.36% at 70% LTV and were contemplating CMHC. Their quoted rate based on 80% of their value would have meant a fee of over 3.5% and less of a mortgage, so more expensive and less money. That seems to become norm these days in normal markets !

But if you can get 85% in at least flat markets go for it ! Then vacation in Europe !! Vive la France .. Especially southern France. Enjoy.