Investment properties are a great way to create wealth all across Canada. Our experienced mortgage broker Eva Neufeld knows all of the exciting pitfalls and benefits to finance these types of properties. She is a seasoned investor herself and shares her wealth of knowledge monthly with a group of Edmonton investors.
Mortgage Tailors are on your side. We’re here to handle the details and help you develop a plan to reach your property goals in the most cost-effective way.
Things to Consider
1. Location: That old saying location, location, location is so important when it comes to purchasing any property, let alone an investment property. Owning a property by transit, shopping, schools, and a great area helps in two ways; a better tenant profile and easier to rent.
2. The extras: Extra costs associated with investment properties such as maintenance, possibly property management and insurance costs.
3. Tax Implications: Understanding how taxes are calculated on an investment property is key and so is having an amazing accountant on your power team.
An investment property is also being increasingly viewed as a pension plan for the future, particularly since so many Canadians are not covered by workplace plans. Over the long term, an investment property can be a great source of retirement funds. Rental income typically pays for most or all of the expenses and property appreciation has often outperformed stocks and bonds over the long term, couple that with mortgage pay down and cashflow. It’s a great way to build some wealth.
Downpayment does vary on an investment property as you are required to have a minimum 20% down payment or more and it must be from your own savings and not gifted or borrowed. Many lenders also look to ensure a borrower can debt service the payment which is why lenders look at how they calculate the rent collected to help you qualify. Most lenders allow only 50% of the rents collected to help you debt service the new mortgage while some use a debt coverage ratio.
The requirement for debt coverage ratio varies from one lending institution to another. Some institutions will use rental offset for qualifying purposes, while other lending institutions will use 1.10% debt coverage ratio.
The rental offset is when a lending institution uses 70-80% of the rental income and offsets it against the P.I.T. Only the shortfall will be included in the Debt Ratio. If there is a rental surplus this will be added to the client’s income. Assume a rental property with P.I.T. of $1432 and a rental income of $2000. We will take 70% of the $2000 income ($1400) and deduct that from P.I.T. ($1432). We will only add the $32 shortfall to the Debt Ratio.
Knowing which lender has the best qualifying criteria makes all the difference in what your purchase price can be, whether you can qualify for another property or when you cap out.
Some lenders even want to see you have a certain minimum net worth for each property you own.
As you can see, investment real estate is very complicated, and trying to decipher things on your own can be very intimidating. Why not let a seasoned investor like Eva Neufeld help you achieve your investment goals.
Buying an investment property is rapidly becoming the preferred investing method in recent times. Since real estate values usually rise as time passes, it is considered a secure option to invest in. Nonetheless, to enjoy a profitable investment there are certain factors that you need to be considered before buying an investment property.
Decide on whether you are going to hold on to the property for an increase in real estate value before selling or are you going to make profits within a few months by renovating the property and flipping it. Financing these different types of investment properties is very different. Each type of these investments comes with certain outcomes that require expertise and knowledge.
Our team stands on an incredible foundation of experience, which can make all the difference when it comes to saving you money. As experts in our field, we’re dedicated to continuing our education and staying current with the market’s latest offers and products. Through constant learning, we can better meet your needs, work towards your goals, and guide you through the process.
Think Mortgage Tailors, and discover a truly different mortgage experience.
See what others have to say about Mortgage Tailors:
I met Eva at a Collaborate Real estate mixer, I have been investing in residential real estate for over 25 years and I consider myself a pretty savvy investor but Eva opened my eyes to many different options and strategies when it comes to financing she is extremely knowledgeable not only as a broker but also as a landlord as she too is an investor, I would defiantly recommend Eva to anyone looking to purchase a home or build a passive income through real estate.