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A
young couple living in Brampton bought
their house in 1994. When they contacted us this
year, the wife had lost her job a year
prior.
While she had gotten another job by the
the time they contacted us, they had both accumulated a credit card debt of $8,000
to Visa, $7,000 to Mastercard, and a furniture
loan of $4,000. The average interest on
that debt was 19%.
Along
with a several other minor debts, the
monthly payment to carry all of the
individual monthly payments exceeded
$1,200 per month.
And while they had only fallen behind on a
couple of those payments for one month, it
became clear that they were not going to
easily get out of this mess until they
looked hard and cold into what they were
facing.
When they applied for our Program, our
Credit Specialists quickly came up with a
sound plan for the couple.
Based on the equity still left in the
home, one of our participating mortgage lenders gave the couple
a conditional approval for a combination
Renovation/Debt Consolidation Loan.
At
this point, we sent our Project Manager to
view the work and report back to the
lender as to what type of work was being
proposed as well as the cost.
We
sent the lender the information, along with a potential cash-flow
analysis and how the rental income could
create a positive cash flow for the
couple.
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Note:
Potential Rental Income cannot be
officially calculated into any
debt-restructuring or debt-service
ratios, as there is no provision
for it as part of the banks' or
mortgage lenders' parameters.
However, it does provide a
substantial level of comfort to
our lenders when they know that
the job is going through our
program and that the level of work
will be performed at a
professional level.
They also (not officially)
acknowledge that the rental income
will put the client in a much more
comfortable position and will not
have any difficulty with the
monthly payments
In a "tight" credit
application, this can have a major
impact on the approval
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The
couple's application was approved, and the
job commenced.
The monthly payment, which represented a
mixture of Debt-Consolidation and the
Basement Finishing, totalled $465 pe month.
Two weeks prior to job completion, they
had already signed up a tenant for $1075
per month, with a deposit and last
month's rent paid up-front.
Now, instead of paying out $1200 per month
(which was pretty well just keeping them even with the
debt), they now
sit in an entirely different position..
where they have over $600 per month
positive cash flow, or $7200 per year
profit (income).
The
story gets even better.
The couple has set
up an RRSP where the $600 per
month income (positive cash flow
money) will be placed into a high-quality
mutual fund for long-term growth.
Their investment advisor has informed them
that, based on a12% growth in the mutual
fund (an average long-term rate of return
for most good-quality funds) the positive
cash flow from the basement rental has the
potential of turning into over $300,000!
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