Donna Lewczuk is the owner of Donna's Mortgages, http://www.donnasmortgages.com . She has worked in the financial services industry for over 21 years, with most of those years involved in the mortgage field.
Over the last few years, relatively weak stock markets (compared to the late 90's) along with continued global economic uncertainty have changed the way many Canadians are investing their hard earned dollars. More and more Canadians are venturing into the rental property market, some swayed by the real estate appreciation that we've seen in recent years. Others want to add real estate to their investment mix to better diversify their investment portfolios.
Condos and Multi-Units
Approximately 25 per cent of the condominium units built in Canada will be used as rental apartments. Additional investment is occurring in multi-unit residential properties such as duplexes, triplexes, and fourplexes, as well as single-family detached housing. Canadians are looking to have the rent from these investments at least cover their costs and, over the long term, gain a reasonable return on their investment.
Consider Your Mortgage and Financing Needs Carefully
Investors who consider adding real estate assets are often confused about their mortgage financing options. Since the Bank Act allows only up to 80 per cent of the value of a property to be conventional financing, many investors who put less than 20 per cent down use an insured mortgage for the difference. The cost of the insurance premium can be as high as 6.50 per cent on a property with 1-2 units, which can translate into a $14625 cost on a $225,000 mortgage. Also, not all investors can meet the strict requirements that go along with an insured mortgage on rental property.
These requirements include demonstrating that you can carry the mortgage payments in addition to your other debts without factoring in all of the rental income you will receive. This certainly doesn't leave room for many Canadians who want an investment property.
Another option if you have a good amount of equity in your principal residence is to take some of that equity out, typically through a line of credit, to get a big enough down payment that then may qualify you for a regular first mortgage.
Financing Made Easy
To simplify the process, you can also now consider those lenders who have mortgage products specifically designed for small investors who own or are purchasing a residential investment property. Up to 95 per cent financing inclusive of applicable fees is available for single family units or up to a fourplex located in major urban centres. Properties on well and septic systems located in a town or subdivision can also qualify. Typically, 75 per cent financing is available for condominium units and all properties must generate a positive cash flow.
Perhaps now more Canadians can heed the wisdom offered by many financial professionals and diversify, diversify, diversify by including real estate in their investment portfolios.
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