Many of us dream of owning income properties at some point in our lives. The sad thing is how few of us end up doing it!
You hear landlords moaning about troubles they have with tenants or maintenance and repair costs from time to time. What they neglect to mention is the cheques that keep coming in, month after month, to pay the mortgage and cover the expenses. They also don’t mention the impact on their wealth over time as each rental property property appreciates over the years.
The return on investment from a well chosen rental property investment can be high and stable compared to many other investment opportunities. An rental property investment has the potential to earn you money in three ways:
- First, the regular mortgage payments on the the property will gradually amortize the debt, giving you an ever increasing equity in the property - assuming it at least maintains its initial value.
- Second, the rental income on the property will rise with inflation and hopefully exceed the mortgage payments and expenses from day one. This will provide you with an additional income stream.
- Finally, if the property appreciates at an average rate of even 3-5% per year over time, you could achieve a significant capital gain on your investment.
As far as mortgage financing is concerned, there are new guidelines for rental property mortgages that make it possible to buy 1-4 unit rental properties with just 5-10% down if you live in one of the units (we usually refer to an owner occupied property with income units as an "income property". If you are buying a straight rental investment property the new CMHC guidelies require you to put at least 20% down.
Surprisingly, the easiest time to finance the purchase of a rental propery may be in conjunction with a refinance on your current home or a move to a new one. The capital you free up in the process is sometimes sufficient to be used for downpayments on more than one property. Best of all the rental income from the new property can be used to help you qualify for the mortgage! So, if you can scrape together the downpayment, buying a rental property is easier to finance than you might expect.
If you are going to take the leap into rental properties, it's important to understand that rental property ownership is more like a small business than an investment. You have to be prepared to be involved to some extent. Take the time to study the art of property management. Nevertheless, for investors who know what they are doing, property ownership is more like an enjoyable hobby than a second job. Also, don't be afraid to look at places that are a little further afield. If the rental income is strong it can often cover the cost of a professional local property manager.
The first step toward realizing the dream of owning a rental property is to ask your RateMiser Mortgage Advisor to help you assess your financing options. Together you can develop a game plan make your dream come true.
For more information read The New Normal in Real Estate Investing blog.