The pros and cons of the CMHC’s MLI Select program
Investing in a multifamily real estate project has been a goal of mine ever since I took my first crash course in real estate investing in 2006, 18 years ago! As a Realtor®, I’ve long seen the value of using real estate as an investment tool for building long-term wealth.
At the same time, working in a historic Calgary real estate market that’s seen unprecedented increases in home prices push homeownership out of reach for many Calgarian families, I recognize the growing need for affordable housing.
For this month’s blog, I’ve written a pros and cons style recap based on my recent experience investing in multifamily real estate with the Multi-Unit Mortgage Loan Insurance Select program (MLI Select) — a capitalistic approach to incentivize investors to build more affordable housing.
What is MLI Select?
More than just a mouthful, the Multi-Unit Mortgage Insurance Select program is an affordable housing initiative designed to incentivize investors to build rental housing units across Canada through attractive financing options.
In other words, MLI Select makes it easier — and more cost-effective — for investors to borrow money if they commit to building affordable homes.
How do they do this? Great question. Among other things, the program offers:
- 50-year amortization periods - extended repayment periods mean lower monthly payments, making it easier to manage and generate positive cash flow.
- Competitive fixed interest rates - fiscally attractive and predictable rates provide stability for investors in a volatile interest rate environment.
- 95% loan-to-value (LTV) — a fancy way of saying you only need to put down 5% equity, meaning minimal capital I invested into the project.
Projects must be a minimum of five units, with two primary commitments: that 25% of units in the project must be rented below market rates, and rent increases are capped at the Consumer Price Index (CPI).
The Upside
From a big-picture perspective, MLI Select is a market-based approach to addressing Canada’s housing crisis — essentially kick-starting the supply of affordable homes by encouraging developers and investors to build rental units, which are sorely needed not just in Calgary but all over the country.
In addition to helping meet demand, a market-based approach also lowers the burden on municipal and other levels of government to address the crisis solely through government housing projects funded by precious tax dollars.
From the investor's perspective, there’s no denying the appeal of financing conditions that can help you turn minimum equity into maximum opportunity.
With only 5% equity required, investors can take on a cash-flow-producing asset without tying up too much capital in the long term. Plus, financing terms allow investors to fund the construction process without taking on the mortgage costs until completion.
MLI Select also features a point system that combines insurance incentives with affordability, energy efficiency, and accessibility commitments. So, the more commitments you make, the more points you earn, and the more attractive the financing conditions.
The Downside
While MLI Select does appear to be working as a bonafide tool for stimulating affordable housing with a promising return for investors, it’s not for the faint of heart - especially if you’re a comparatively small fish playing in a big pond.
More difficult challenges smaller or mid-level investors must navigate are slow construction draws and longer project timelines, which means you have to use much of your own upfront capital to pay contractors and construction costs while waiting for financing to come through.
Combine that with rising administration costs for brokers and permit fees and time spent negotiating and jumping through bureaucratic hoops, and you’re looking at a long-term commitment that’s both time—and cash—intensive.
There are also restrictions on selling. Investors cannot sell during the mortgage term and must wait until renewal periods. This limits flexibility if market conditions change or you need to sell the asset due to some unplanned or unforeseen scenario.
For all these reasons, qualifying for MLI Select is no walk in the park either, with personal net worth requirements, experience in construction and property management stipulations and personal guarantees mandatory on loans.
Would I do it again?
Regardless of whether it’s investing in a rental home or a more extensive project like this one, I try to approach all investments with a balance of openness and caution.
In today’s market, I would have some reservations about starting a new project when inventory levels are rising and land prices are at all-time highs in Calgary. However, I’ve also learned that taking risks during uncertain times can pay off—as it did for me this time around.
The key to success in real estate is finding the right opportunity. And while I wouldn’t rush into another project, I’ll be actively looking for the next deal that has the potential to be as rewarding as this one.
In conclusion, the MLI Select program opened the door to multifamily real estate ownership for me. It wasn’t an easy process, but it was worth it. If you’re willing to navigate the challenges, the rewards are there to be had.
Want to speak to one of our team members more about this topic? Send us an email or give us a call. We’d be happy to chat with you.
