Rental Property Investment

In so many ways we’ve become a nation of investors. Equities and equity mutual funds may not be as popular as they were in the late 90’s and in 2000, but we’ve certainly become accustomed to the idea that we’ll need to help provide for our own retirement.

Canadians certainly didn’t abandon the stock markets during the last downturn, but the bumpy ride of the past few years has caused many investors to consider new ways to diversify their portfolios. “Thank
goodness,” we think, “that our house has at least been appreciating!” In fact, if you’re like most Canadian homeowners, your house was probably
your best-performing asset of the last few years.

Many of us have now started reading the real estate news along with the stock charts! For Canadians with good credit and good income, a rental property can be an outstanding investment. Approximately 25% of all new condos being built in Canada are expected to be rental apartments. And
other multi-unit properties – duplexes, triplexes and four-plexes – are also expected to provide housing for renters.

Investors look to have the rent from these investments at least cover their costs and provide a reasonable investment return over the long term.
“But it’s impossible,” you think. Mortgage insurance is required when there is less than a 25% down-payment that requires you to have a relatively high net worth and prove that you can carry the mortgage payments on a rental property on your own – without factoring in any rental income.

And if you do qualify for an insured mortgage on a rental property, the cost can be as high as 4.5%, which can translate into a $10,000 cost on a $225,000 mortgage. Or you need to have a good amount of equity in your principal residence to take out in order to get a big enough down-payment that qualifies you for a regular first mortgage. This certainly doesn’t leave room for many Canadians who want an investment property.

It’s true that – not long ago – the rental business seemed to belong to a group of very affluent investors, but some innovative new mortgage options are putting rental properties within reach of more Canadians. Investors can now access up to $600,000 to purchase a rental property – without costly mortgage insurance premiums, and without leveraging the equity in their principal residence.

The best mortgages will provide up to 85% financing for single family units or up to a four-plex in major urban centres. For a condo, 75% financing is
available. In all cases, of course, the property is expected to generate a positive cash flow. A rental property can be a great addition to an
investment portfolio. And if you’re excited about the low rates on your home mortgage, consider that a mortgage on a rental property actually goes one better: like all investments, the interest on the loan to purchase a rental property is tax-deductible.

Like any investment, rental property isn’t an investment that you should jump into without doing your homework first. Consider your own aptitude for
managing a real estate investment, and then talk to an independent mortgage professional about your mortgage options! Consider tucking a rental property
into your investment portfolio.