As an investor you follow a different approach than the average home buyer and you are subject to a different set of rules. Where do you start when it comes to financing?
You should first consider your primary objective. For example, you may want your investment property to create an ongoing revenue stream by renting it for steady, monthly income. Or you may hope to benefit from rising home values if, for example, you plan to purchase a house, renovate it and resell it at a higher price.
What kind of property do you want?
Most, first-time investment property buyers tend to start with condos and single-family homes, however, multiplex units are generally more likely to be cash flow positive. With property, bigger is not always better because it likely means more taxes and more space to maintain — and the incremental rental income you’ll receive may not cover your additional expenses. You’ll also want to consider what types of properties are in demand for your purposes.
What is an ideal location?
To attract high-quality tenants, look for a property close to schools, hospitals, public transportation, businesses, retail, etc. Focus on neighbourhoods where demand for rental properties is strong and expected to remain so for the immediate future. Solid financial advice is also critical since buying an investment property means you should also consider financing methods. Most lenders have special programs to help purchase investment properties, but keep in mind that they are subject to different policies than if you were going to live in the home yourself.
What should I consider?
For investment properties, you will be required to make at least a 20% down payment. If you plan to buy an investment property, your primary residence may be a good place to start looking for financing. For example, if your home is worth more than your outstanding mortgage, you may be able to utilize some of the available equity. Depending on the amount of equity you have built up, you can borrow up to 80% of the value of your home to finance the purchase of an investment property.
Interest rates and qualification guidelines may be slightly different as well. A lender will be using rental income to help support the qualification for the mortgage.
Content provided by Naheem Ladha, naheem@mortgagesmatter.ca
