Consider adding a rental property to your investment portfolio

For Canadians with good credit and good income, a rental property can be a solid long term investment. Approximately 25% of all new condos being built in Canada are expected to be rental apartments. Other multi-unit properties – duplexes, triplexes and four-plexes – are also expected to provide housing for renters. Investors look to have the rent from these investments at least cover their costs and provide a reasonable investment return over the long term. “But it’s impossible,” you think. Mortgage insurance is required when there is less than a 20% down payment. And you
are required you to have a relatively high net worth and prove that you can carry the mortgage payments on a rental property on your own – without factoring in any rental income. And if you do qualify for an insured mortgage on a rental property, you may find the cost of qualifying too high.

Alternatively, you need to have a good amount of equity in your principal residence to take out in order to get a big enough down payment that qualifies you for a regular first mortgage. This certainly doesn’t leave room for many Canadians who want an investment property. It’s true that – not long ago – the rental business seemed to belong to a group of very affluent investors, but some innovative mortgage options are putting rental properties within reach of more Canadians. These
mortgages can in some cases upon qualification provide up to 95% financing for single family or duplex units or 90% financing for 3plex to a four-plex units. In all cases, of course, the property is expected to generate a positive cash flow.

A rental property can be a great addition to an investment portfolio. And if you’re excited about the low rates on your home mortgage, consider that a mortgage on a rental property actually goes one better: like all investments, the interest on the loan to purchase a rental property is tax-deductible. Like any investment, rental property isn’t an investment that you should jump into without doing your homework first.

Consider your own aptitude for managing a real estate investment, and then talk
to an independent mortgage professional about your mortgage options.