During his 40-year career as a residential mortgage broker, Nick Douce, a fixture on the Arab show circuit, has seen his share of dreamers.
Many of them think they can leave the city and live off the land, boarding or breeding horses on a picturesque acreage in the Horse Capital of B.C.
While Nick, owner of the Paragon Mortgage Group, has built a booming business as a go-to guy who can make real estate deals happen, he is also proud of the ones he’s talked people out of.
“I always try to give people good advice before they buy. I live with and work with both sides of the horse business and, as much as I love horses, I believe it is a sunset industry,” he said.
“I try to tell people who want to buy a horse property and develop a horse business it is not a hobby, that it’s a lifestyle that takes a lot of money and a lot of hard, physical work.”
The first concept would-be horse property buyers should absorb is a simple phrase: “a house and five acres.”
Nick explains that lenders will only approve loans based on the appraised value of a house and five acres.
Even if a horse property is a screaming deal, with 10 rolling acres and a gorgeous barn and indoor arena, lenders don’t care. As far as the bean counters at the bank are concerned, outbuildings and larger parcels have no value.
“So I can finance up to 95 per cent of the value of a house and five acres. The difference between that value and the purchase price, well, the buyers have to come up with the extra money,” he said.
If you’re thinking of building your dream barn and indoor arena on an undeveloped acreage, Nick has more advice.
“Be aware that the day you finish the arena it loses half its value. Indoor arenas make a property harder to sell, kind of like an indoor swimming pool. You won’t get recoup your investment when you sell.”
Nick starts waving red flags at horse crazy city folk — even those with pre-approved mortgages — who put offers on horse properties with operating boarding or breeding businesses and then come running when their lenders back out of the deal.
“As soon as lenders hear hay, horses, sheep or cattle it becomes the purchase of an agro-business.
“For residential lenders, a working farm is the kiss of death,” said Nick.
Buying a property with farm tax status usually means dealing with commercial, not residential lenders.
And it can mean the purchaser has to pay HST, higher interest rates, and come up with a 50 per cent down payment. Agro businesses are hard to buy, and also hard to sell.
“Buying a working farm is not as easy as buying a house and acreage. Lenders will want to see a business plan, will want to know that the buyer has relevant industry experience.
In addition to requiring a large down payment and charging higher interest rates, the brokerage fees are higher for commercial loans.”
Lenders are hyper-cautious about horse industry loans for a reason: many of them fail.
“The average person stays in horses around five years. It’s an intense, physically difficult lifestyle, and both husband and wife have to want it.
“You can be trapped by horses, unable to travel and with no money to travel, even if you have the time. Boarding horses means you have to be there all the time, and there’s no money in it.
“But horses are a wonderful lifestyle, if you are willing and able to sustain it,” he said.
Anne Patterson is a local freelance writer and horse enthusiast. Contact her at
accidentalrider@yahoo.com.
