Whether you are new to the real estate industry or a long-time investor, the topic of financing your income property is always relevant. You should consider every financing option available when you decide you want to invest in real estate. How to finance your property? What options are there? Thankfully, there are many, and each has advantages and disadvantages. You must look at both sides of the coin to determine which methods would work best for you. Here are your options:
The Classic Method
This is the best option, and often the simplest, when you have a good credit score and can make a low down payment. This option allows you to finance up to 95% of a duplex and 90% of a triplex or a quadruplex as an owner-occupant. You can turn to the Canada Mortgage and Housing Corporation (CMHC) for mortgage loan insurance. If you have a bigger down payment (20%), you can finance 80% of the remaining amount with no additional fees. These funds can come from various sources, such as savings, withdrawal from an RRSP (HPB), proceeds from selling shares or another real estate property, etc.
This method consists of using the funds you have gotten from other real estate assets (house, condo, or income property) to make the down payment on another property. You can refinance up to 80% of the new market value of one of your properties (according to the appraisal) minus what you have left to pay. Investors usually use this method to increase the number of properties they own.
This method is popular among people who want to start investing in real estate but do not have the funds. You use your family and friends’ funds to build capital for your down payment. Of course, they would have to trust you. You will reimburse them using the income you make from your rental property.
You can involve a partner or partners if you are considering purchasing larger properties or if you lack the funds or certain skills. For example, one partner could have the knowledge but not the funds, or they could have great hands-on skills to do maintenance work.
In short, there are many ways to finance a property other than the ones we mentioned; simply remember to be creative. Indeed, by strictly using the classic method, it will be harder to acquire multiple properties. Still, do not forget to keep room for maneuver to make sure that you can pay for unexpected events.
To summarize, do not be scared to ask for information! In the worst-case scenario, it will be a “no,” and you will move on to the next one…