• Buying A Rental Property: Here Are Some Helpful Tips

    February 16, 2020
  • buying a rental propertyBuying A Rental Property: Here Are Some Helpful Tips

    If you are thinking about buying a rental property, here are some things to consider.

    If you already have a home or you are buying one where you will also live, have you considered renting a portion of the home out? This is a very good way to make rental income. You need to live somewhere. Why not have somebody else pay the mortgage?

    When buying a rental property that is not owner occupied, you need to put at least 20% down. Why? Because if you put less than 20% down, it needs to be insured by CMHC. The purpose of CMHC is to help Canadians become homeowners so they’re not in the business of insuring rental/investment properties that are not owner occupied.

    Where are you getting the 20% down? If you are buying a rental property in the GTA, you’re probably looking at a purchase price of upwards of $400K. 20% of $400K is $80K. Not a lot of people have $80K lying around. Consider leveraging your owner occupied home to purchase the rental. That is: refinance your home to extract the equity and put it towards the down payment. For example, if you live in a $500K home and have a $200K mortgage on it, provided that you can qualify, you can refinance up to 80% of the value of your home. In this case, that would be $400K. That means that you could potentially increase the mortgage on your existing home from $200K to $400K thereby extracting $200K of equity. That’s more than your needed down payment.

    Something to consider about rentals, some banks will charge a premium on the rate. So you may consider refinancing the maximum amount on your owner occupied home at the lower rate, and minimizing the mortgage on the rental at the higher rate.

    If you are thinking of buying a student rental, think again! Banks don’t like student rentals; probably because they tend to get trashed and the banks don’t like the risk. When buying a rental property that is a student rental, it is pretty obvious to the banks. The 10 rooms usually gives it away! It’s not impossible to finance a student rental, but it is more difficult.

    Sean Howard is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Sean, he can be reached at 905-574-9200 #216. Alternatively, you can contact Sean here.

    If you would like to apply for a mortgage online, please followthis link.

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