Rental Properties

Also known as Investment Property, rentals can consist of apartments, condos, single family, suited homes and multi-family.  The world of rental property lending has changed dramatically over the past few years.

Since April 19th 2010, Canadians are required to have at least a 20% down payment on a rental property purchase.  You can however convert your current home to a rental property and purchase a new home with as little as 5% down.  This is a strategy we encourage to help grow your investment portfolio sooner.  There are intricacies with this process, please contact us for clarification.

Highlights:

Fixed, Variable and Adjustable Rate Mortgages                         
Best rates in most cases
Extended Amortizations: up to 35-years

Basically, if you have 20% to put down, have good credit and income, you also qualify for a 35 year amortization.  This is key for maximum cash flow and because interest is tax deductible the extended amortization typically brings many benefits.

Net Worth

The requirement for a minimum net worth varies from one lending institution to another. Most lending institutions do not have a minimum net worth, however some require that you have a minimum $100,000 net worth per rental property.

Debt Coverage Ratio

The requirement for debt coverage ratio varies from one lending institution to another.  Some institutions will use rental off set for qualifying purposes, while other lending institutions will use 1.00 -1.10% debt coverage ratio.

1.10% debt coverage ratio is arrived at by dividing the Net Operating Income by the Debt Service.

Rental off set is when a lending institution uses 50-80% of the rental income and off sets 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.

In other cases lenders will only allow 50% of the rental income to be added to the client’s income, but it must offset the qualification of 100% of the related debt of the rental property.  

It is best to contact our office to understand your options and the qualification process.