MLI: these three little letters mean nothing to the vast majority of us, but in this article we’re talking mainly to real estate investors, who know them well. If you’re a real estate investor and don’t know what the letters MLI stand for, or if you’d like to better understand how CMHC’s MLI Select program works, don’t touch a thing! Keep watching as we present a case study highlighting the ways and benefits of subscribing to CMHC’s MLI Select program!

First of all, if you’re not familiar with the program, we’ve produced a capsule in which we explain what the MLI Select program is (click here). It’s available on our website.

Here’s how it works: a real estate investor meets with his account manager to finance his project. We’re talking about a new 6-unit building with an estimated total construction cost of $1,475,000. With conventional financing, a qualifying interest rate of 6.25% and a debt coverage ratio of 1.15, the investor is able to obtain a maximum loan of $790,000 from his account manager. In other words, with conventional financing, he can benefit from a loan-to-value ratio of 54%. Since he’s looking for a way to reduce his financial contribution, his account manager strongly suggests he take advantage of the MLI Select program.

Together, they are looking at the affordability component of the MLI Select program, whose eligibility criterion is based on the median market income of tenants for at least 10 years. For a project to earn 100 affordability points, at least 25% of the units must be offered at no more than 30% of the applicable median income. In this case, for a 6-unit building, we arrive at 1.5 affordable units, which must be rounded up to 2 units. Given that the project is planned for the Sherbrooke region, the loss of annual income amounts to $14,040, which translates into an approximate loss of market value of $312,000!

At the sight of these figures, the investor takes the plunge. Instead, his account manager suggested that he consider energy efficiency. That’s when our customer, the real estate investor, contacted us.

To obtain the 100 points it covets in the energy efficiency section, our customer’s project must be 40% above the standards and requirements of the national energy code for buildings in terms of efficiency and reduction of greenhouse gases. Our mandate is therefore to carry out an energy simulation of the new building under construction or to be built, in order to establish the percentage improvement in energy savings compared to the reference building designed in accordance with Part 9 of the National Building Code.

Project improvements? Increased slab, rim joist, wall and attic insulation; installation of EnergyStar heat recovery ventilators and heat pumps for all units; and optimization of the plumbing system. The total cost of his work: around $25,000. And that even includes our services!

In summary, the initial cost of the project is reduced from $1,475,000 to approximately $1,530,000, and this includes the cost of the recommended energy-efficient work as well as the APH Select premium for actual gross income. In addition to benefiting from a 50-year amortization period, our customer’s qualifying interest rate drops from 6.25% to 4.65% and his debt coverage ratio from 1.15 to 1.10. As a result, his account manager is able to obtain a loan of $1,270,000 instead of the original $790,000. As a result, his loan-to-value ratio climbs from 54% to 83%, while his financial contribution falls from $685,000 to just $260,000. That’s a savings of $425,000!

So, if you too would like to take advantage of all the benefits that CMHC’s MLI Select program has to offer, contact us. Our specialists are here to find you the most advantageous and cost-effective ways to do so, all thanks to the energy efficiency component!