Owning a revenue property can be a lucrative investment. For many, gone are the days where you could work the steady 9-5 and come out ahead of the game financially. Owning a second property is an appealing option for a number of people. Not only are you building equity year over year, but if you do it right, your tenants will be paying the majority of your carrying costs. As the market in Edmonton continues to favour buyers, and those with the financial acumen to capitalize on opportunity, the question boils down to, “where do I sign?”
Financial institutions will vary slightly with requirements to qualify for revenue properties, but here are a few important key points to consider:
Canadians no longer have the option to finance as high ratio with minimal down payment. You can expect to hear the minimum
required down payment to be 20% of your purchase price. Down payment funds often come from your savings account but other sources
can be accepted such as gifted money, secured loans, or tax free savings accounts (TFSAs).
Unlike financing your primary residence, revenue properties carry additional risk. Financial institutions will limit the extend
of your mortgage up to 25 years.
Solely using your employment salary can sometimes prove to be limiting when carrying multiple properties. Market rents are
considered ‘potential income’ when completed by an appraiser. Knowing what the market rate for rent is in your desired investment
location not only helps to determine the feasibility of financing a second property, it also allows you to plan for future renters.
Another important topic commonly overlooked when taking on a secondary property is renovation costs to get the home “rent ready.” When buying an older home or looking to transform a basement into a legal rental suite, ensure to include construction costs (quoted by a profession) with your financing application. Up to 80% of renovation costs can be included in your mortgage amount.
It’s recommended you speak to your Mortgage Specialist to be pre-qualified for a purchase amount before shopping the market. With budget in hand, using a real estate team like COMMUNITY can help make your dreams of becoming a real estate mogul a reality.
Contributed by: Breanna Wickens | Mobile Mortgage Specialist, ATB Financial
p. 780-918-0732 e. email@example.com