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Article Contributed by Donna Lewczuk
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Investment Properties- an Alernative to RSPs
Over the last few years, relatively weak stock markets (compared
to the late 90's) along with continued global economic
uncertainty have changed the way many Canadians are investing
their hard earned dollars. More and more Canadians are venturing
into the rental property market, some swayed by the real estate
appreciation that we've seen over the last few years. Others
want to add real estate to their investment mix to better
diversify their investment portfolios.
Approximately 25 per cent of the condominium units built in
Canada will be used as rental apartments. Additional investment
is occurring in multi-unit residential properties such as
duplexes, triplexes, and fourplexes, as well as single-family
detached housing. Canadians are looking to have the rent from
these investments at least cover their costs and, over the long
term, gain a reasonable return on their investment.
Consider Your Mortgage and Financing Needs Carefully
Investors who consider adding real estate assets are often
confused about their mortgage financing options. Since the Bank
Act allows only up to 75 per cent of the value of a property to
be in uninsured financing, many investors who put 15 per cent
down use an insured mortgage for the difference. The cost of the
insurance premium can be as high as 4.5 per cent, which can
translate into a $10,000 cost on a $225,000 mortgage. Even so,
not all investors can meet the strict requirements that go along
with an insured mortgage on rental property.
These requirements include having a relatively high net worth
and demonstrating that you can carry the mortgage payments in
addition to your other debts without factoring in all of the
rental income you will receive. This certainly doesn't leave
room for many Canadians who want an investment property.
Another option if you have a good amount of equity in your
principal residence is to take some of that equity out,
typically through a line of credit, to get a big enough
downpayment that then may qualify you for a regular first
mortgage.
Financing Made Easy
To simplify the process, you can also now consider those
lenders who have mortgage products specifically designed for
small investors who own or are purchasing a residential
investment property. Canadian investors can now access up to
$500,000 without costly mortgage insurance premiums, or
leveraging the equity in their principal home. Up to 85 per cent
financing inclusive of applicable fees is available for single
family units or up to a fourplex located in major urban centres.
Properties on well and septic systems located in a town or
subdivision can also qualify. Typically, 75 per cent financing
is available for condominium units and all properties must
generate a positive cash flow.
Perhaps now more Canadians can heed the wisdom offered by many
financial professionals and diversify, diversify, diversify by
including real estate in their investment portfolios.
About the author:
Donna has worked in the financial services industry for over 20
years. As a mortgage consultant she is able to offer her clients
financing options not available through banks. Her specialty is
dealing with clients who have impaired credit and people looking
for commercial financing. If your lender has turned you down,
don't hesitate to contact Donna at www.donnasmortgages.com.
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