Investment Properties- an Alernative to RSPs

Over the last few years, relatively weak stock markets
(compared to the late 90's) along with continued global
economic uncertainty have changed the way many
Canadians are investing their hard earned dollars. More
and more Canadians are venturing into the rental property
market, some swayed by the real estate appreciation that
we've seen over the last few years. Others want to add
real estate to their investment mix to better diversify their
investment portfolios.

Approximately 25 per cent of the condominium units built
in Canada will be used as rental apartments. Additional
investment is occurring in multi-unit residential properties
such as duplexes, triplexes, and fourplexes, as well as
single-family detached housing. Canadians are looking to
have the rent from these investments at least cover their
costs and, over the long term, gain a reasonable return on
their investment.

Consider Your Mortgage and Financing Needs Carefully

Investors who consider adding real estate assets are often
confused about their mortgage financing options. Since the
Bank Act allows only up to 75 per cent of the value of a
property to be in uninsured financing, many investors who
put 15 per cent down use an insured mortgage for the difference.
The cost of the insurance premium can be as high as 4.5 per
cent, which can translate into a $10,000 cost on a $225,000
mortgage. Even so, not all investors can meet the strict
requirements that go along with an insured mortgage on
rental property.

These requirements include having a relatively high net worth
and demonstrating that you can carry the mortgage payments
in addition to your other debts without factoring in all of the
rental income you will receive. This certainly doesn't leave
room for many Canadians who want an investment property.

Another option if you have a good amount of equity in your
principal residence is to take some of that equity out, typically
through a line of credit, to get a big enough downpayment that
then may qualify you for a regular first mortgage.

Financing Made Easy

To simplify the process, you can also now consider
those lenders who have mortgage products specifically
designed for small investors who own or are purchasing
a residential investment property. Canadian investors
can now access up to $500,000 without costly mortgage
insurance premiums, or leveraging the equity in their
principal home. Up to 85 per cent financing inclusive of
applicable fees is available for single family units or up
to a fourplex located in major urban centres. Properties
on well and septic systems located in a town or
subdivision can also qualify. Typically, 75 per cent
financing is available for condominium units and all
properties must generate a positive cash flow.

Perhaps now more Canadians can heed the wisdom offered
by many financial professionals and diversify, diversify,
diversify by including real estate in their investment portfolios.

About the Author

Donna has worked in the financial services industry for over 20 years. As a mortgage consultant she is able to offer her clients financing options not available through banks. Her specialty is dealing with clients who have impaired credit and people looking for commercial financing. If your lender has turned you down, don't hesitate to contact Donna at www.donnasmortgages.com.

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