Lots of information, lots of questions!

by Brad
(Saskatoon, SK)

I just read over your real estate investing for beginners page and signed up to get sent your free information. There is a few questions i have for you.

You said, "And if you had the original 25% to put down on the property wouldn't it make sense to buy two properties instead of one?"

That sounds like an excellent idea in theory, but from my limited experience thus far in the real estate world is that for a rental property in Canada banks want at least 20% down to avoid the CMHC insurance. I found that if you claim, "i am going to live there!" you can get around it and pay only 5% down. The con to doing that though is that you cant claim any potential revenue from that property as income counted towards your mortgage qualification, and can you get in trouble for this?

I also have a question about the "homes buying homes" concept that you raised. I know that it is possible to use equity in one house as a down payment for a second house, but again it comes back to the bank giving the loan's. Yes you can use the equity but generally banks will only let you borrow up to the point that you have 20% equity left in the first house. That poses a huge issue if you only put 5% down to begin with, am i missing something?

Another interesting thing i read recently was buying properties under a business instead of through yourself, to separate yourself from liabilities and in my case to keep rental income, and personal income separate What is your opinion on that, is it relevant in Canada? and what are (if any) the differences when trying to get a mortgage?

I realize I have covered A LOT of topics here, but i would really appreciate your feed back!

Comments for Lots of information, lots of questions!

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Nov 27, 2012
RE: Lots of Information, lots of questions...
by: Tom Karadza

Thanks for the questions ... and your'e right we could spend days on them!

1. Mortgage rules have changed since we wrote that article - you're right about the 20% minimum. However, CMHC is not the only game in town and often mortgage brokers have other options available to investors. Here's an example, last year TD Financial Services had a 10% down program that was available to investors ... now, if you went into a TD Canada Trust branch they would have no knowledge of it. It was only available via mortgage brokers. This offering from TD Financial Services has now gone away as well. But my point is that there are usually other options available to you other than CMHC. Spend some time to get to know some good mortgage brokers in your area - they can be very valuable to you.

2. You're not missing anything on your next question. It takes time to do this. And different properties move at different appreciation rates. We've had one property that took ten years to gain 100K in equity. Another that took 3. My personal opinion is to get into the market and survive it. Find a property that carries itself and take action. You have many lessons to learn along the real estate journey and the safest route to us is finding a property that has more income than expenses and going after it. You can adjust your course and approach as you go.

3. We're not lawyers or accountants so get the proper advice on this one. But for ourselves we wouldn't recommend using corporations as you start. Getting $2 Million insurance coverage will typically be more than enough (again, get proper advice here). The overhead and work to start with corporations is often not worth it. We would wait until you have a few properties and the net income from them can pay for all the overhead of using corporations (setting them up, corporate tax returns, corporate phone numbers, business banking fees etc.)

Hope that helps!!


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