16 Nov

The Art of Leveraging.

Mortgage Tips

Posted by: Tyler Cowle

For some people, just owning one property and having a single mortgage is enough to handle. But there may be no better way to grow your net worth than real estate. You might not realize homeownership can be a gateway to owning multiple investment properties. You might be thinking: there’s no way I can turn the value of my modest home into a real estate empire. Ok, maybe not an empire, but you can take the equity of your home and, with the right investment, get a return far greater than a stock portfolio.

Most people are trained to stay out of debt and don’t want to consider using the equity in their home to buy an investment property. But they haven’t realized the art of leveraging.

If you’re using equity from your primary residence to buy an investment property, keep in mind that the interest you’re using is tax deductible. Consider you’re also buying an appreciating asset, and if you put a real estate portfolio to a stock portfolio side-by-side, they don’t compare. Who is a good candidate? You might be surprised to learn you don’t need to make six figures to get into the game.

Essentially, you just have to be someone who wants to be a little smarter with their down payment. Before you go down that road, there are some quick things you need to know.

With investment properties, the minimum down payment will jump to 20 or 25 per cent from five percent. Rental income from the property can be used to debt service the mortgage application, while some lenders will have a minimum liquid net worth requirement outside of the property.

TO MAKE SURE YOU’RE GETTING THE BEST OUT OF YOUR INVESTMENT PROPERTY, YOU MAY WANT TO CONSIDER THE FOLLOWING:

ARE THERE EMPLOYMENT OPPORTUNITIES IN THE AREA?

Statistics Canada (www.statcan.gc.ca) offers reliable and timely data on the latest trends in the real estate market. Also, keeping up with the news will help you hear if a large corporation may be moving into the area, with families soon to follow. Consider if the property is in a college town or near a military facility where there will always be a need for rental properties.

WHERE IS THE PROPERTY LOCATED?

Walk Score is a big attraction to most renters. What is the proximity to schools, hospitals, local transportation, grocery stores, etc.? Look for properties that are in a central location so that the demand will be greater. What are the average rental rates in the area? Your monthly rent is your bread and butter. Find out what the average rental rates are in the area by visiting Statistics Canada or the Canadian Rental Housing Index.

IS THE AREA SAFE?

Once again, Statistics Canada is your go-to source for crime stats in the area. Or visit the local police department to get it right from the source. Remember, in this day and age, renters do their homework too. They will get the same info and make their decisions based on what they find out.

ARE THERE ANY AMENITIES NEARBY?

Find out what amenities are nearby like free public transportation, a community pool or center, a large shopping center, a dog park, etc. The demand for certain amenities will vary based on the area. Remember that families will want different amenities than young professionals.

ARE THERE ANY PLANS FOR FUTURE DEVELOPMENT IN THE AREA?

Sometimes a simple drive-by will show you a lot about the area. Are there quite a few empty homes, condos, or store fronts? Does it look like there is a large boom in new construction? Often a neighborhood in the beginning steps of gentrification could result in both a faster and higher appreciation for investment properties.

IS THERE A HIGH NUMBER OF PROPERTIES ON THE MARKET?

Keep an eye out for market trends in the last couple of years. Review vacancy rates for the area (your realtor will have access to this info). Make sure to determine if you could carry the mortgage for a period of time in case no one rents from you.

Published by the DLC Marketing team!

5 Aug

Get the Scoop on Rental Properties

Mortgage Tips

Posted by: Tyler Cowle

You might be surprised to learn that you don’t need to be one of the uber rich or make six figures to have a second property.  You just need to have knowledge, determination and financial planning!

If you are purchasing a second property with the intention to rent, here are a few extra things to know:

  1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.
  2. Only a portion of the rental income can be used for qualifying and determining how much you can afford to borrow.  Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses.  This can have a much higher impact on how much you can afford.
  3. Interest rates typically have a premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in.  The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
  4. If you do eventually sell this property, do note that it will be subject to capital gains tax.  Your accountant will be able to help you with that aspect if you decide to sell in the future.

Prior to taking on a secondary property, you will need to have your down payment in order (whether from savings or home equity) based on the minimum requirements, and also have sufficient credit score to qualify.  In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry your existing mortgage and the new application.

If you are looking to purchase a rental property, give me a call before you start.  I would love to help review your financial situation, current mortgage and equity, and help you make a plan.  The keys to success are right around the corner with a little bit of expert advice!

Published by the DLC Marketing Team!