Tips when buying a rental or income property

CLIENT TIPS FOR FINANCING RENTAL PROPERTY:

• Plan ahead by preparing your team: get advice from a mortgage broker, accountant, lawyer, real estate agent and property manager. Your Axiom Broker can provide referrals to these industry professionals.
• Consider and discuss your plans with your team. (eg. is this rental purchase a one off, or do you plan to build a portfolio of rentals?)
• Consider the amount and source of down payment you have available for your purchase, you will require a minimum 20%. You may have more options available to you for financing if you have a 25% down payment.
• You may want to consider longer amortization for debt servicing (a few lenders still offer 30 year amortizations on conventional financing).

DOCUMENTATION CONSIDERATIONS:

• A lease agreement for the property you are purchasing may be required by the financial institution.
• Current valid leases will be required for all rental properties you own.
• Current mortgage statements and any secured line of credit statements will be required for all properties you own.
• Current property tax statements for all properties you own.
• Complete T1 Generals including a Statement of Rental Income to confirm rental income for any existing rental properties.

OTHER CONSIDERATIONS:

Many financial institutions are:

• Limiting the number of rental properties they will finance for one client.
• Adding interest rate premiums to rental property mortgages.
• Requesting larger down payment or rate premiums based on the type of property you are purchasing as a rental (eg. condo is less attractive to a lender than a house, metropolitan area more attractive than small town).

TIPS AND RESOURCES:

• Rentfaster.ca (Edmonton and Calgary rental listing) a source for lease agreements and rental price comparisons.
• Advertise for rent at the top end of the price range. This usually attracts a higher quality tenant leading to less frustration as a landlord.
• Tell insurance company that it is a rental. You may be able to insure the rental income.
• Keep reserve fund for vacancy and/or repairs.
• Set the payment on the 15th, and collect rent on the 1st. This gives you a timing buffer.
• There may be grants available from your municipality when you add a suite. Consider using purchase plus improvements loan to convert/create a suite.
• Keep a record of property value when you change use of the property from residence to rental for tax purposes. (eg. capital gains tax is payable on increases in value on rental property, but not on residential property).