Buying a rental property

Buying an investment property can be a daunting process and is different than buying your primary home.

You may feel unsure of all the steps and what you should be looking for (cash flow, exit strategy synergy, profit, return on investment and more.)

Organizing your financing is always the first step for any property purchase and you may be worried about qualifying for financing and these could be some of your concerns.

  • You are a new investor and you don’t where to start
  • You are self-employed, so your income on paper is low
  • You haven’t filed your income taxes for a while
  • Your current real estate investment portfolio is too large
  • You have limited liquid assets and you need access to cash
  • Poor credit or blemishes in the past
  • Concerned about property management
  • Interested in Rent to Own but you have no potential clients and tenant buyers
  • Concerned about qualifying tenants so that you minimize delinquency in rent
  • Little or no down payment available

The first step should always be to get your financing in order by knowing exactly what you qualify for and how many properties you can purchase — knowing this means you can go property hunting with confidence as well as execute on any potential opportunities that might come your way.

By being confident that you are pre-approved means that you can negotiate with leverage when you find the perfect investment opportunity and also be comfortable in the knowledge that you have aligned your mortgage financing to maximize cash and profit.

Ensure that you are working with an expert who will complete a full analysis of your current situation and understands your future plans for real estate investing.

The last thing you want to happen is to find yourself running into a financing ‘wall’ because your current lender has restrictions on the number of investment properties you can own or a maximum number of doors that they will finance.

Your financing review should include the following understanding that a lender is going to first review you as the borrower and will look at the following:

  • Your Credit Rating: In order to qualify for the best options and rates you will require a higher credit score. However, there are lenders that will provide financing for lower credit scores but the rates will be higher and there could be fees.
  • Sufficient Income: Are your debt services ratios in line with qualifying within lender guidelines.
  • Proof of Down Payment, Closing Costs and Liquid Assets: You can’t purchase a rental property with a minimal down payment and a 20 per cent down payment is required. Lenders must see that you have sufficient liquid resources to not only cover the down payment and closing costs but you must also have some savings as a ‘fall back’ position in case there are emergency repairs required on the property or to cover possible tenant vacancies.

Once you have found a suitable property then a lender will review the property including its market value, condition, positive cash flow, etc. and recommendations for suitable financing can then be made by your financing expert to ensure that your acquisition and exit strategies are aligned with the right mortgage financing.

Please give me a call at 888-561-2679 or email [email protected] if you would like to discuss opportunities for purchasing a rental property.

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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