February 9, 2018
Mortgage Matters: Foundation for a money maker
By Kevin Lutz
Whether you intend to generate regular rental income or invest in a longer-term real estate opportunity, there are many things to consider when purchasing an investment property. This type of transaction can include:
• Acquiring a rental portfolio of one or more properties to build income and equity;
• Purchasing a property for your child;
• Converting your current home to a rental property and purchasing another property to move into.
Most lenders have specific lending programs that can help you purchase a residential investment property, so getting advice and ultimately pre-approved from a mortgage specialist is a good place to start.
Qualifying for financing for an investment property purchase is different than qualifying to purchase your primary residence. Aside from having a good credit history, you must demonstrate that your property generates sufficient rental income and you must have enough non-rental income to meet the obligations of the mortgage. Your lender will ask for your most recent Notice of Assessment and current lease agreements and/or an opinion of market rent of the property that will be financed for investment purposes. Additional documentation may also be required.
Crunch the numbers
Purchasing a property to rent or turning your home into a rental property could be a good financial move for you for several reasons:
• You’ll generate regular rental income while continuing to pay down debt and earn equity in your home.
• You’ll diversify your investments, which may reduce your overall risk.
• You could potentially see an increase in the value of your home (capital appreciation).
Do some calculations to estimate your monthly cash flow if you choose to rent out your house. Keep in mind that you may not generate a positive cash flow right away, but you may be able to achieve this through renovations, rent and capital appreciation.
Engage professionals for advice and support
A real estate agent or property manager can help you screen potential renters, run background checks, set rental rates, etc. You may also want to engage an accountant or lawyer to prepare any legal and tax documents, draft tenant leases and provide advice and support.
Consider your potential risk and costs
Are you prepared to cover two mortgages in the event your rental property sits vacant for any length of time? How much can you charge for monthly rent? Would the rent be able to cover expenses of the investment property (maintenance, utilities, mortgage, etc.)?What are the tax/capital gains implications of renting out your home? What are the likely repairs and costs of turning your home into a rental property and can you cover those expenses?
Be aware of the time commitment
Are you ready to be a landlord and take on all the responsibilities that come with owning a rental property? Managing tenants and dealing with ongoing maintenance and repairs can also be highly time consuming. If you don’t have the time or interest in managing the property, tenants and maintenance needs, consider hiring a professional property management company.
To learn more, check out the Canada Mortgage and Housing Corporation website,
Kevin Lutz is RBC Regional Sales Manager,