Financing a Rental Property

The smart consumer: new to real estate, who has decided to become an investor has also decided a team of professionals to assist through the process, is also a smart investment. A simple internet search shows the investor that the rules of financing rental property change with the market. The 2009 trend is a buyers market as traditionally real estate is most profitable in a buy and hold scenario so you know that the seller feels the need to sell.

The government recognizes the need for the increase that the economy needs in moving real estate once the market slows. CMCH has changed its rules for allowing mortgaged insurance loans. These changes prove that unless you are in business, you may be caught in a mess and cost more than you can afford to pay. Who do you need on your team? The same people you needed for your primary residence and a financial planner.

Why a Financial Planner?

There are many tax deductions and possibilities for use of these benefits, so many that one would need to live the life, not just dabble or have a secondary interest, but a working relationship with lenders, other private financing possibilities and the knowledge to apply the skill in using the rental property for other paths to build personal financial security.

Most people interested in purchasing rental property already have a primary residence and the financial planner can advise the benefits of lines of credit with the equity in the home, or if the investor should work with the lender to finance a duplex to fourplex and live in one of the units. Having a primary residence, the investor probably has worked with a traditional lender or a broker in the past. Even investors who may obtain credit with a traditional bank lender should at least check into the services of a broker.

The Broker and Other Lenders:

The possibilities of creative financing are greater with a broker than a traditional lender. The broker has the knowledge of products and the companies that will lend to the investor who does not have perfect credit and help the investor to improve their credit to be more viable in the real estate market. The CMHC, GE and AIG have strict guidelines for insuring the mortgages over the 75% loan to value ratio, so getting a second mortgage is possible to avoid down-payments.

The easiest way to show a lender how serious you are about the loan and put your credit standing in a better position is to go ahead and find the down-payment. Check into using your RRSP for tax exempt withdrawals to assist with the down payment.

The Real Estate Agent:

Buying one home does not make us the professionals we would like to believe we are. The concerns for purchasing a rental property go beyond credit rating and who is going to lend the money. The agent is still the best in negotiating the purchase price and ensuring that property is appraised, filing the proper paperwork and they have access to the appraisers, what areas are the best places to start and what areas to avoid. Financing a Rental Property is no better lemon in real estate than it is in purchasing a vehicle. A seller will probably have his own agent and therefore have a leg up on negotiations and may have been advised to cover problems cosmetically.

Appraisers and Inspectors:

You did not find your primary residence without knowing the true value and what was lurking under the paint and sheet rock. If you did you either learned better or were extremely lucky. The roulette wheel is not designed to benefit the gambler; the odds are not in your favor. If you desire good tenants you must have good property valued at the right price; otherwise they are going to go elsewhere. If you are in the market for the fixer upper to buy cheap and get more value later, the inspector can provide a list of repairs and may be able to recommend a reputable contractor to help with the work.

Lawyers:

The lawyer is the body guard for your financial planning experience. Like choosing a surgeon, get a second opinion. Having one greedy or dirty player on your team could lead to a laundry list of legal concern later on. The lenders may ask the borrower to sign declarations they would be living at the property. Knowing that the investor was not intending to live there and the investor may not only lose the property but, may also be brought up on criminal fraud charges and be sued for damages by the lender. If the contractor and inspectors are aware of your retained lawyer they are less likely to try fraud themselves. The lawyer is a good person to have at the table when the day comes to close on the property.

The variables for financing rental property are great and ever-changing and I imagine if you are searching for advice on the internet you are not aware of every variable and change. Get that team together AFTER research. The lender, agent, appraisers, brokers and etc should have references; checking the references is a must. This is your financial future don’t blow it on shady creditors and simple ignorance. Optimize the possibilities.

Thank you for taking your time to read this article. Your comments on this article will be highly appreciated. Please visit http://gurmittoor.blogspot.com to see Hundreds of Gurmit's articles.

Gurmit loves travelling, he has been to over 70 countries. He speaks fluent Cantonese, Polish, Hindi, Punjabi and English. Gurmit is an author, writer, insurance and mortgage expert. He frequently writes on various topics of interest to his readers. To get in touch with Gurmit Singh, please visit his website www.gurmitsingh.ca

Gurmit Singh is a licensed mortgage expert with Dominion Lending Centres Mortgage Villa.

Gurmit Singh, mba
Mortgage Expert
M08009905
Dominion Lending Centres Mortgage Villa (11574)
Email:gurmit@gurmitsingh.ca
Website: http://www.gurmitsingh.ca