Investing in property has long been a great way to diversify your portfolio and improve your long term returns.
Unfortunately, recent rule changes have changed the playing field for many potential real estate investors. While buyers used to be able to purchase an investment property with very little down and still receive a great rate, current hiccups in the market and changes to legislation are making it more difficult for investors to get in the game.
Today, investors looking to secure financing for any non-owner-occupied rental property are now required to put down one-fifth of the purchase price in order to secure a reasonable rate. While the days of cheap high-risk rental mortgages are long gone, that’s not to say that the market isn’t ripe for investment. If owning a rental property has always been an investment option, don’t give up hope. Instead, work with an experienced mortgage broker who can guide you through the ins and outs of investment financing.
Four Things to Remember When Investing in a Rental Property
If you’re serious about a rental property investment, remember the following three details:
#1 – Don’t Settle for Just Any Lender
Finding a lender on your own can be risky, especially when you’re looking for an investment property mortgage. This is because of the way lenders qualify rental property mortgage products. Rental property mortgage rates are often dependent on how much rental income the lender will recognize. This is calculated using a total debt ratio – a formula that is often unique to each lender. A mortgage broker who has experience with rental property financing will work with you to find a borrower-friendly lender, specifically ones that are open to negotiating underwriting exceptions.
#2 – Rates Aren’t the Only Thing Worth Researching
Many first time real estate investors make the mistake of jumping on the lowest rate right off the bat. While this may seem like a good idea at the time, it might not be the best long-term investment decision. This is because rental property mortgages with the lowest interest rates often come with the most restrictions. While flexible mortgages will cost you more, they’ll likely offer you one or more of the following options:
- Flexible rental income rules
- A line of credit with your rental mortgage
- Second mortgage options
- Lengthy amortization periods to maximize cash flow
- Flexible minimum net worth requirements
#3 – Take Things One Step at a Time
Many lenders frown upon investors owning and/or financing multiple rental properties. While it’s not explicitly prohibited, lenders don’t like to take on clients with risky portfolios. As such, if you’re planning to invest in multiple properties, take the time to find a broker that have experience working with clients who have 10 or more rentals. He or she will know which lenders are willing to work with you.
#4 – Plenty of Paperwork
When you sit down with your mortgage broker, remember to bring along some paperwork. Nowadays, lenders will often require rental property investors to have a signed lease or other proof of rental income prior to finalizing a deal. If possible, remember to bring along two years’ worth of tax returns as well. Your returns will show your net gain or loss on a property, which often makes it easier for a lender and your broker to qualify your application.
Invest in your future – invest in real estate. Contact a FamilyLending.ca mortgage broker today to learn more about the rules and regulations of investment property mortgages.