How Much Do I Need To Put Down To Buy A Rental Property?
If you are looking to buy a rental property, now is a good time to act. With returns on investments at an all-time low, real estate investment is a plausible alternative that can provide a much higher return.
Luckily, investing in real estate does not require large sums of money to get started. Rental properties may provide what your struggling mutual funds and GICs cannot: a steady, decent return on your investment.
Rental Property Down Payment
Investment properties are an excellent way to create income. If you want to finance a rental property with a mortgage, you will need to come up with at least 20% of the down payment. There are many benefits to this, such as:
- With 20% down you can apply for a conventional mortgage, meaning you do not have to pay the added cost of mortgage insurance.
- If you also have a good credit score, you may be able to lower your monthly payments while you are renting out the property as some lenders may extend the amortization up to 30 or 35 years.
- Renters help to pay off the mortgage and the interest portion of the payments is a valid deduction when tax time rolls around.
- Any money you spend on the property for improvement or maintenance may be used as a tax deduction, plus administrative and management costs.
Sourcing the Funds for My Down Payment
Instead of sitting on a nest egg that is not performing to its’ potential. Rental properties can be used to produce passive income that meets, or more often exceeds, your existing investments. Premium interest rates are available for clients with a good credit history. Also, even those with less than pristine credit may reap the benefits of investment property. A qualified mortgage broker from mortgages.ca, can help you find the sources you need for funds to buy a rental property. We also have access to many useful resources to help you along the way.
What Qualifies as an Investment Property?
There are many types of properties that may qualify as an investment property. Self-contained units in properly zoned areas may qualify for fixed, variable and adjustable rate mortgages. The maximum number of units normally permitted is four.
- Properties to be used for time-shares
- Vacation rentals
- Shared ownership units
Policies vary from lender, so it is important that you discuss your needs with a qualified realtor and your mortgage broker to find out what is available. There are actually four different ways that lenders can calculate your debt ratios and different lenders have different limits. Suffice it to say, a competent mortgage adviser will know which lenders have borrower-friendly policies.
Whether you wish to purchase a newly constructed unit covered by the New Home Warranty Program or an existing property. Either property must be in a marketable area with at least 25 years of economic life remaining. Understandably, lenders want to make sure that the property is worthy of an investment. Therefore, older buildings will likely not qualify.
Conclusion
If you are looking to buy a rental property as a means of wealth creation. Please talk to one of our qualified mortgage specialists about what is right for you. Your credit, net worth and existing financial situation should be reviewed to find the best product and rate.
Be one of the smart people who realize that there are better ways to build wealth than the traditional methods. Lastly, real estate may be the alternative you’ve been looking for to produce the returns you would like to see on your hard-earned money.