For the residential market, where investment properties can include a single family unit home, townhouse, duplex, basement apartment, condo and come from a conventional sales process or even power of sale process, the primary mortgage options fall into two groups.
On the institutional side, residential investment properties still fall under the Canada Mortgage and Housing Corporation (CMHC) for insured mortgages. Borrowers and properties that qualify for mortgage insurance can secure leverage of up 90% of the property value.
Mortgage insurance is an additional cost of financing, but it allows for a much higher level of potential leverage which may be required to make the deal work in the first place. Cash conservation tends to be very important in growing an investment portfolio, so as long as the property can cash flow repayment, an insured mortgage will minimize the cash outlay for down payment, potentially freeing up funds for other rental property investments.
The second group of mortgage options falls under the private mortgage category. While a private mortgage for rental property will likely provide lower potential leverage than an institutional mortgage, there are other benefits to consider.
With respect to leverage, private mortgages on rental properties tend to range between 65% and 75%. On average, the leverage will be closer to 65%. To get to the higher end of the range, the property would have to be very strong in terms of its valuation and resale potential.
Private mortgages are effectively bridge loans in that they will either be for a one year to two year period of time. There may be opportunity for renewal, but there will also be renewal fees incurred for term extensions.
Private rental property loans are more about speed to closing and less stringent mortgage qualifying. If you’re on a tight time line to close a deal you can’t afford to lose, then a private mortgage option may be your best approach to getting the deal done. Or, if you’re credit profile is not strong enough to qualify for institutional financing, a private deal may still make sense if the property can generate a positive cash flow after financing costs are factored in.
If you’re looking for a mortgage for rental property, I suggest that you give me a call so I can quickly assessment your situation and provide you with the best available options.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel