Purchasing an investment property is a very popular choice for many Canadians, and it has been an excellent strategy for investors in British Columbia because of our high demand real estate market. Real estate investments are generally less volatile than the stock markets, plus there is a tangible benefit to real estate, meaning it is capable of being touched.
The average price of a home for sale on the Canadian real estate market has increased every year since 1998. A typical real estate investment can easily produce a return of 15% to 20% on property appreciation and mortgage paydown alone. There could also be a cash flow component that you would receive each month.
Most investors prefer to start off purchasing condos and single family homes because of the lower price of entry, but if one has analyzed the cost and can take on an increased risk, multiplex units can offer higher returns. Depending on the number of units in an investment property, and whether any of those units will be owner occupied, will determine the type of mortgage that can be offered, the maximum amortization available, and the size of down payment required.
For non-owner occupied investment properties, the minimum down payment is 20%. However, if the owner plans to reside in one of the units, the down payment can be as low as 5% - 10% depending on the total number of units in the property. If you plan to rent out your existing home and purchase a new owner occupied property, the minimum down payment on the new purchase would be 5%. Lenders will offer their best interest rates for investment property mortgages, but in most cases will add a premium surcharge to that rate.
Each lender offers a different approach to using rental income on a mortgage application. Some lenders will let us use a higher percentage of the rental income than others to help you qualify on a new mortgage. Property taxes and heating expenses on a rental property may need to be included on the application depending on the lender. You can see why it is very important to work with a mortgage broker as we know the pros and cons of each lender in the market place.
There are a few different ways to use rental income on a mortgage application. We can provide current lease agreements for a rental property, which in most cases need to be supported by bank statements to confirm rental deposits. If the property is not yet rented out, we will need to order a market rent analysis from a real estate appraiser. The appraisal company would supply us with a letter of economic rent stating their opinion of fair market rent for the property, we can then use this amount of rental income on the mortgage application.
We will work with you and run your numbers to determine that everything fits within your current budget and to make sure you are feeling comfortable, we can then lock in an interest rate for up to 120 days.
Once you find the right home, we immediately get to work so we can present you with the best mortgage options for your situation. We will discuss the pros and cons of each lender to help you make the decision that is right for you. We will guide you through the entire process, from accepted contract all the way to the conveyancing and closing of your mortgage.