Develop a steady passive income stream
If you invested in Ontario residential real estate in the past 20 years, chances are your property is worth substantially more than when you originally purchased it. You may have already owned your home for the past 5-10 years and seen your equity skyrocket. Perhaps you have even thought about how you can own a rental property to generate a steady passive income stream, or, wondered how you can better prepare yourself for retirement.
Residential real estate in Ontario has outperformed many other investments. This, along with an increasing demand for rentals in urban areas, makes buying an investment property a financially savvy move.
Leverage the existing equity in your home
As a homeowner, you’ve already built up equity in your home. An investment property mortgage leverages that equity, allowing you to purchase a rental property without putting down the cash. Using your existing home equity is a strategy that can be used to create a passive monthly income stream that covers the rental property mortgage and then some. This means that not only will your tenants completely cover your rental property, but with the right investment property mortgage, you’ll also be growing your wealth and increasing its value over time.
When you’re ready to take the next step towards your investment property purchase, we’re here to help. Our team of mortgage advisors specialize in investment property financing throughout Ontario. The best part is you can sit back and relax and while we handle all the “busy work.”
Frequently asked questions
What is an investment property?
An investment or rental property is a residential or commercial property that's leased or rented to a tenant over a set period of time. There are short-term rentals, like vacation rentals, and long-term ones, like those under a one-to-three-year lease.
Residential rental properties are one- to four-family homes, which include:
- single-family homes
- triplexes and
Types of commercial rental properties include:
- multifamily (apartment complexes)
- industrial (such as a warehouse or self-storage)
- office space
- retail space and
Residential rental properties are more accessible than commercial investments because they’re typically less expensive so less money is required up front, which means that it’s also easier to get financing. Owning and managing an investment property is an active form of real estate investing and can provide positive cash flow and added security for the future.
What is the buying process for an investment property?
First, your realtor will work with you to understand what type of rental may suit your needs and execute the purchase on your behalf. Before seeking out a real estate agent, determine where you want to invest (what is or will be in demand?) and what you want to invest in (the type of property: square footage, number of bedrooms, type of build, amenities and property type).
Second, If you can’t purchase the property all in cash, you’ll need financing. One way to finance an investment property with zero cash savings is by drawing on existing equity available in your home either through a home equity loan, HELOC or cash-out refinance. You may be eligible to borrow up to 80% of the home's equity value to use towards the purchase of a second home.
When it’s for financing a rental property, you’ll find that typical interest rates on a home equity line of credit runs around 3 to 4%, thus making them an affordable option to get started in leveraged real estate investing. However, you still have to be very careful when securing financing for a rental property. Speak to a mortgage professional about which solution will be the best for you.
Next, you may have to make some repairs or renovations to prepare the property for the market. Your property is then marketed, filled with tenants, and actively managed for any ongoing maintenance. How active or passive you are in the day-to-day management of the property is a personal choice. You may decide to manage the rental yourself or hire a property management company to manage it for you.
What is the minimum down payment on an investment property?
The minimum down payment for a rental income property is 20% if you are not occupying a unit in the property as your primary residence.
For up to a duplex while occupying one of the units, the minimum down payment is 5%.
For up to a 3-4 unit rental property while occupying one of the units, the minimum down payment is 10%. Rental income from the non-owner-occupied units can be used as a qualifying income on your mortgage application.
Why is the rate higher on rental properties?
It may come as a surprise that a rental property would yield a higher rate compared to your owner-occupied home. And, the reason is risk exposure. For instance, if you became ill, lost your job or couldn’t work for any reason, you would be less likely to bounce your rental property mortgage over the mortgage of your primary residence.
Most lenders have a 0.25-0.35% rate premium. However, we can amortize up to a 30 year period which yields a lower monthly mortgage payment than a 25 year amortization.
The first step is to calculate the available equity in your home that we can put towards growing your real estate portfolio, i.e. your net worth.
To calculate, we need a copy of your existing mortgage statement. We'll have one of our real estate experts complete comparable market analysis to confirm the value of your home.
It’s best to start the paperwork and underwriting process as soon you've identified an investment. Not every bank lends to individuals for investment properties so it’s important to secure a lender before the property is under contact.
But, don’t worry about that. All you need to do is click Get Started and we’ll handle the rest.
How can you use a second mortgage?