Investment Properties – Mortgage

My Mortgage Blog

Investment Properties

There are opportunities (tax deductible interest) and challenges (financing) that come with investment properties that are different than purchasing a primary residence.

Often the financial challenges with investment properties are related to how different lenders consider rental income.  Many lenders discount rental income by 50% and include 100% of rental liabilities (property tax, heat, condo fees etc.), which can make it difficult, if not impossible, for many to qualify for mortgages based on traditional debt service ratios.

Other lenders will allow the net rental income (income minus expense) to be added or subtracted from an applicant’s employment income.  Having good relationships with these lenders is critical to having financing available for real estate investors (thankfully we do;)

It is also worth noting that I have exclusive access to the only lenders in Canada where you can get approved for mortgages based on your net worth (not income).

Since mortgage regulations in Canada are based on expense to income ratios, it is often necessary to extend the amortization of existing mortgages, in order to lower the existing payments on existing mortgages.  This allow real estate investors to qualify for larger mortgages, improve cash flow on rental purchases, and access additional capital.

If you are retaining your residence as an investment property (rental) and moving on to your next home, it is important evaluate your current financing and look for opportunities to achieve the maximum leverage (i.e., 80% of the value).

If you (re)structure your current residential financing to maximize the leverage from the property before it becomes an investment property, the mortgage interest becomes tax deductible as soon as the property is occupied by tenants.

It is far better, far smoother, and likely less expensive to address the restructuring of the current residence financing well in advance of writing any offer to purchase in order to maximize tax deductibility of interest and to know exactly what can get approved.

If you are interested in looking at your personal numbers and considering buying an investment property, let’s have a detailed conversation and set out a step-by-step plan for the greatest financial benefit – this isn’t something that can be done retroactively.