Being a landlord can be very satisfying and bring the most amount of frustration you have ever experienced all at the same time. The beautiful thing about owning rental properties is that you are building equity while your tenants are paying the mortgage for you.
Most people think that owning a rental property is easy and effortless. This could not be further from the truth. Remember, when you rented your home/apartment? If the furnace stopped working at 2am on the coldest day of the year, who did you call? What about if your tap broke off and sprayed water all over the kitchen and flooded the house while you were away for the weekend? Who did you call?
Now, don't let this scare you away from the wonderful opportunity of owning rental properties because these events are usually far and few between. As an owner of rental properties though, you need to think about these things and know how you are going to handle them. For example, are you going to allow your tenants to deal with the issue and then you reimburse them, or are you going to have a certain call list for them to call with approved tradespeople. There is a lot to think about when you own rental properties.
Single family rental properties
There are different types of rental properties. Single Family Rental Property simply means that the house, condo, apartment are built and equipped for you one family to live in them. The property types might include houses (including detached, semi-detached and townhomes) as well as apartment condos. The type of house is less important than the fact that there is one tenant for the property.
Renting by the room
Lenders do not like to see renting by the room. For example, let's say 3 people want to rent a room in a townhouse you own. You will need to rent the whole house to all three of them or have one person as the dedicated tenant and then the roommates can sublet from the tenant that pays the rent. Renting a basement that is not set up as a self-contained unit is looked at by the lenders as if you are renting a room.
Down payment required for single family rental properties
Lenders are constantly changing the requirements for rental properties, so it is important to call to see what the most up-to-date rules are. The minimum down payment required for a rental property is 20% down. However, with some lenders, they may require that the mortgage is insured with CMHC or Genworth if there is less than 25% down. There are some other lenders that will require a minimum of 35% down to avoid CMHC or Genworth.
What qualifies as rental income?
When you buy a single family rental property you can use the rental income that is generated from the property to help qualify for the mortgage. However, you can't use all of it! As a matter of fact, when applying for a mortgage, main-stream lenders will only allow you to use 50% of the rental income to qualify for the mortgage.
That said, there are alternative lenders that may allow you to use more than 50% of the rental income to qualify or may even allow for other calculations to be used like rental offset.
Non-subject rental properties...
A non-subject rental property is a property that is owned by the borrower that is NOT being mortgaged. These properties are handled differently depending on how long they have been owned. Ideally, we will be able to take the net profit/loss from that property and add it to your income or liabilities accordingly. This helps with the qualifications tremendously.
Choosing Jim Thornton for your next mortgage is the way to go!
It is best to contact me if you are considering the purchase of a rental property and I can help assist you in the calculations to figure out what you can qualify for. This is because there are so many variable that it is impossible to put all the information on a website. Call me toll free at 1-866-257-0158.