Rental Real Estate Investing - Some Financing Tips to Consider Before You Make Your Move

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Rental Real Estate investing is riddled with hurdles and unanswered questions around financing.

When one bank denies your investment property mortgage request another mysteriously approves you.

In Canada, there's an obvious need for better service in this area. As an investor in Canada, you are left to figure out rental real estate investing financing, mortgage insurance, property insurance and property taxes on your own.

It can be daunting, especially for your first time. And just when you don't think it can get any worse try and find a bank or mortgage broker or financial planner that will help you lay down a 5-10 year plan that maps out how you can buy more than 4 or 5 investment properties in Canada.

Unless you are willing to put 20-25% down on each investment property not many people have answers for you.

We've mapped out some information on investment property mortgages as a guide for you here.

We've mapped out some information on rental real estate investing financing as a guide for you here.

And you can find some "gotchas" around rental real estate investing here.

Here are some additional Rental Real Estate Investing Tips

  1. Hunt for a mortgage broker, a banker or a financial planner with actual real estate financing experience. Someone with experience will not only streamline the mortgage process but they will also be able to give some guidance. For example, if you're looking to get a 5% down investment property mortgage there are mortgage insurance fees that need to be accounted for in how you structure your investment. Some of these fees are high and you don't want to be surprised by them on the day of closing.

  2. And more importantly, some mortgage programs in Canada will allow you to "offset" other rental real estate mortgages if you have valid leases for them. This is a HUGE advantage in qualifying for more properties because your debt ratio calculations don't suffer from previous rental real estate mortgages you've acquired.

  3. It's always a good idea to look into the property tax rates in the area so you get an idea of how much you're going to pay. Most cities and towns will have them posted right on their website. You can also usually see prior year's rates and get an idea of how fast they are trending up. Here's what the page looks like for Oakville, Ontario, Canada.

  4. Try to develop a relationship with at least one bank and one mortgage broker. I don't believe most Canadians know this but not all banks will have access to the best investment property mortgages and not all mortgage brokers will have access to all of the available mortgage products on the market. For example, banks at the national level will typically not deal with Student Rental properties, but at the "branch" level you may find them more willing to finance them. Both mortgage specialists directly from the bank and good mortgage brokers are extremely valuable to you. Once you find a good one treat them with care. We've been saved many times by the sharp eye and experience of these contacts.

  5. One day a bank may have no decent real estate investment financing mortgages and the very next they may have a 10% down open mortgage at the best interest rate possible. Make sure you are getting the latest information. Real Estate investment financing products change almost monthly at every Canadian bank. Be on the lookout.

  6. Before you commit to your rental real estate investing financing get in touch with your insurance company. I've seen insurance companies distance themselves from certain investment properties. If you don't have insurance on the property before closing the real estate investment financing will fall apart. You don't want to be left scrambling for insurance the day before closing. Try to find an insurance agent who is aggressively building his business. Some agents that have are established don't want to deal with a "one off" rental property and will either brush you off or force you to switch ALL your properties to them. This is not necessary. If you are being forced to do this - keep looking!

  7. This next tip really isn't about the real estate investment financing itself. It's more about the source of the advice you're getting. After a mortgage broker or real estate professional knows that you're excited about rental real estate investing you may find them emailing you little flyers outlining the details of what they believe is a good real estate investment. And because it's coming from a professional you may be tempted to believe their opinion. When these deals cross our desks we're often shocked. The prices are too high, the rents are unrealistic and the exit plan doesn't exist. Take advice from actual investors only.

  8. If part of your investing plan involves possibly selling the property before the term of the mortgage is up make sure you check out the penalties you'll have to pay to break the mortgage early. It'll usually be about 3 months interest and you'll want to factor that into your numbers. Some real estate investment financing will waive most of the penalty if you move the mortgage from one property to another within a certain time frame.

And there you have it. Some of our rental real estate investing financing favorites.

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