Welcome to the October issue of my monthly newsletter!
This month’s edition looks at getting a mortgage for an investment property any why the banks offer different rates. Please let me know if you have any questions or feedback regarding anything outlined below.
Thanks again for your continued support and referrals!
The art of leveraging
For some people, just owning one property and having a single mortgage is enough to handle. But for others, home ownership can be a gateway to owning multiple investment properties. You might be thinking: there’s no way I can turn the value of my modest home into a real estate empire. Ok, maybe not an empire, but you can take the equity of your home and, with the right investment, get a return far greater than a stock portfolio.
Most people are trained to stay out of debt and don’t want to consider using the equity in their home to buy an investment property. But they haven’t realized the art of leveraging.
If you’re using equity from your primary residence to buy an investment property, keep in mind that the interest you’re using is tax deductible. Consider that you’re also buying an appreciating asset, and if you compare a real estate portfolio with a stock portfolio, there is no comparison.
Who is a good candidate? You might be surprised to learn you don’t need to make six figures to get into the game.
Essentially, you just have to be someone who wants to be a little smarter with their down payment.
Before you go down that road, there are some quick things you need to know.
With investment properties, the minimum down payment will jump to 20 or 25 per cent from five percent. Rental income from the property can be used to debt service the mortgage application, while some lenders will have a minimum liquid net worth requirement outside of the property.
Most lenders also limit the number of mortgages in a portfolio. Usually, after five mortgages, you’ll be considered a commercial file. However, a mortgage broker can work with other lenders to increase the number of investment properties.
Typically, when you’re considering a mortgage, you’re looking at the rate. But the rate is less important compared to your cash flow and future equity position. If it all sounds like a bit much, consulting a mortgage professional with an understanding of investment financing is the best way to start.
Most people who get into investment real estate think they’ll only end up buying one property, but that’s not usually the case. A broker will prep you for a 10-year plan of purchasing property and position you accordingly. A broker will also have a good understanding of the alt-side of lending and how you can benefit from that type of financing.
A mortgage broker with the right experience and understanding of financing rental properties can be an invaluable resource.
Does the bank have your back?
If your mortgage is coming up for renewal, you’re probably keeping a close eye on rates. But it can be a little bewildering to see the banks offering a bunch of different rates.
If you’re left wondering why, the short answer may be a little harsh. The banks offer different rates because they can, and consumers are brainwashed to believe the banks have their best interest in mind.
So what can you do to get the best rate? To start, know that the bank does not have your best interest in mind. Then, reach out to a mortgage broker for help.
A mortgage broker has no bias opinion on what lender they’re going to use. A reputable broker only thinks about your best interest when deciding where to put the mortgage and has multiple lenders to choose from who compete for your business.
If you’re about to embark on the renewal process, you might want to try this approach. Tell your bank you’re working with a top mortgage broker and you intend to call them back every day to get their best five-year fixed and variable rate.
If your mortgage broker can’t beat that rate, you’ll likely be advised to stay there. However, most of the time, your broker will be able to get you a better rate, just based on the number of different lenders in which they have access.
You’ll likely go back to your bank, who may match the new lower rate, but you should ask yourself an important question: If they really valued your relationship, why didn’t they just offer you that rate in the first place?
With a bit of homework and a mortgage broker, nine out of 10 times you will get you a better rate.
Lastly, you need to keep in mind a mortgage is more than just a rate. You need to consider the personality of your mortgage, and certain aspect like the penalties to break the mortgage and if it’s portable. These are things a mortgage broker can help you figure out.
Fall Lawn Care:
What you do for your lawn during the fall will have a great impact on what your lawn will look like next spring. There are four simple steps you can take to help ensure your lawn will be healthy, green and the envy of the neighbourhood next year:
Aerate. This means to puncture your lawn with small holes throughout to allow the fertilizer, sunlight, water and important nutrients that grass needs to grow deep within the ground;
Fertilize. Basically this means feed your lawn before it goes to sleep for the winter;
Overseed. This is when you spread new grass seed all over your existing lawn with a spreader; and
Mow. In November, mow your lawn one more time as short as you can without scalping your lawn. This will help all the other steps above work better.