Buying Rental Property – A Solid Investment

In the majority of cases, buying rental property turns out to be a good decision. There are some other factors involved, but land typically goes up in value the longer you hold onto it. If you’re buying a house to rent out, the rent will pay for the mortgage and the house will increase in value at the same time.

Should You Buy A Rental Property?

Buying a rental property in Canada can seem like a risk on the outside, but when you take a step back and look at how many people are needing to rent homes, you’ll quickly see the risk level minimized. Rental housing will always be required, and buying an investment property can put a roof over someone’s head while allowing you to pay off the mortgage on that property.

When you’re looking into buying a rental property, a mortgage lender will use this in their debt servicing ratios when they are doing their calculations. The two scenarios that can provide you with rental income are when it’s a rental property that’s occupied by the owner, and a rental property that’s not occupied by the owner.

With rental properties that are occupied by the owner, the owner will be living in the home and another tenant will be living elsewhere in the home, such as a separate suite or in the basement. In a case like this, the down payment the homeowner will have to make will be the same as a regular home purchase. This situation is ideal for those that don’t mind a tenant living on the same property as them. The extra income will help pay off the mortgage, and you’ll be able to secure other mortgages elsewhere because of that extra rental income.

Rental properties that aren’t occupied by the owner are rental properties where only the tenant lives on the premises. This might be a condominium, a house, or a multi-unit property, like a duplex or fourplex. The down payments for dedicated rental properties are a little bit different than owner-occupied rental properties. You’ll typically have to pay a down payment of around 20%. This means you’ll have to qualify for more than one mortgage at the same time if you’re not living in the rental property. All of the rental income generated from a rental house can assist you in making payments.

How Does It All Work?

With a rental property that’s not occupied by an owner, mortgage lenders will use a rental worksheet to calculate all of the associated costs throughout the entire year. Some of the various costs involved are:

  • Maintenance
  • Taxes
  • Heating
  • Monthly mortgage payments
  • If a unit is vacant

These costs are subtracted away from the total of all of the rental income that the rental property creates. If there’s a profit at the end of the calculation, then it will be included with your income. If there is a deficit at the end of the calculation, then it will be seen as a cost that’s added to the total debt. All of these different factors can get a little more difficult to comprehend when you have a bunch of rental properties in your portfolio, but it’s a good way to look at the broader picture of things.

Your mortgage lender will use a careful estimation as to how much the rent amount might be for the rental property. Once the rental property is rented out, you can get proof of that on the tenancy agreement or signed lease.

Buying an investment property in Canada can be a wise way to create some more income for yourself. Dealing with tenant issues can become a concern for some, but in the grand scheme of things, your mortgage will be paid off faster and your investment portfolio will have another addition to it.


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