Investment Property w/ 5% Down
Hey guys, I just have a quick question. If I am buying a second property but am planning on moving INTO the property, and then renting out the place that I currently own, would I be able to get a mortgage with 5% down with the new place? I mean legally, of course.
Sorry if this has been asked before, I couldn't find it anywhere.
It's hard to say Mike but I have to ask if that's a good idea. Do these places both cash flow? Do you have 6 months of mortgage payments stashed away somewhere in case of a bad tenant?
I'm pretty sure that with the loosey goosey requirements they'll let you. But it's really a question of should you rather than can you.
Thanks for the feedback! Well just so you know, this is more of a future oriented question. I am JUST buying my first house right now, however, I thought I was going to be getting approved for a much larger mortgage, so I have an unexpected extra few grand. (I though I was getting a 450k, approved for 350k). I am going to be renting out the rooms in this new place to break even with my mortgage cost hopefully, but within 3-6 months I will easily have about 20,000+ for another downpayment. I also make about 82k/year without overtime, but realistically make closer to 120k. I have about 55k of student loans still outstanding, 12 in a LOC.
Another question on the same topic that I have: Does a bank use the city assessed value when determining a home equity LOC? I am looking at foreclosures that are usually listed at 15-30k below city assessed value, and am hoping to settle closer to 40k below, and within a few months take out a LOC against that equity to help fund a second down payment.
Again, my concern is that I am not getting approved for a mortgage that I REALLY deserve, since my guaranteed income is only 80k. Yet due to the nature of my job, overtime is mandatory and WILL occur that my minimum wage would really be 100k.
My plan was to rent out 3/4 rooms in my current house, live in the master. When I can afford another house (hopefully more in the 4-450k range), move into that one, and rent out the remaining rooms in the new house, plus the master suite in the old house. At this point in time, if 3/4 rooms in my current house are rented for 5-600/month, then that's 15-1800 that I would have as income against my $15-1600 mortgage, right?
Sorry for all the questions, and thanks again for your help!
I'm not sure why you'd want to, but you could. If you are moving into a place, you want the smallest mortgage you can get on it, since it's not tax-deductible. You want the highest mortgage possible on the rental (refinance your residence, buy the new place using the money to pay it down, use the cash flow to pay off the mortgage) and the lowest on your personal one.
If your credit is good, you can qualify for the mortgage. If you're credit is bad, you probably can't. I'd check out www.easysafemoney.com, it's got more info on buying houses.
Sounds like you have some great thoughts with respect to getting into a property, having it become self sustaining and then moving into another home.
There are several directions one can take when it comes to investing, whether it be student housing, multiple unit buildings, owner occupied units etc. Your strategy will depend on your ultimate plan, not just in the immediate future, but where you foresee your investment desires 18 months, 3years and even 5 years down the road.
5% down will limit you in some aspects.
I am curious... what city are you are looking to invest in?
Okay, thanks for the info. The reason why I would want to do this is so that I can buy as much property as soon as possible, since I feel it's a good and relatively safe way to invest. So what you are saying is the interest you pay on a rental property mortgage is tax deductable, but the interest you pay on your own house isn't?
I am just buying my first place now, so refinancing wouldn't make sense. Also, if I moved out of my current place and rented it out, then that would become a rental property anyway, right?
Usually the bank will do their own appraisal.
Personally I would ensure the first property is cash flow positive. And pay down your current debt prior to taking on more. But nothing wrong with thinking ahead.
What is your reasoning for feeling RE is a relatively safe way to invest?
Just beware that, with 5% down, you are paying for CMHC insurance on your mortgage. The moment you stop occupying the property, it is no longer considered insurable by the CMHC.
Originally Posted by Mike32110
Without knowing your numbers I can't comment on how "safe" an investment it is. Not all real estate is a good investment. In fact, with today's market, I'd say MOST properties AREN'T good investments. It also depends on how you're hoping your investment will grow...Capital Gains is a poor plan for example.
Originally Posted by Mike32110
To answer your questions though, any interest on money borrowed for clear investment purposes are tax deductible. Any interest for non-investment purposes is not. So, the mortgage on a rental is, the mortgage on your house isn't. If you pay down your house, and borrow money on it (say getting a HELOC, Home Equity Line Of Credit) and use that money to purchase another rental, then the interest on the HELOC is tax deductible (even though it's on your house).
As for moving out and it becoming a rental, you are correct. If you do this after a long time of ownership, you may trigger a capital gain or loss (if he value of the rental has changed since you bought it), but I'd talk to an accountant.
The rules also change based on the number of rentals you have. Where I live, once you own 3 or more units, you can write off other things as well (like tools, gas, etc.), again I'd hire an accountant to advise you...especially since their services will be tax deductible once you own several rentals.
Hmm..It's seems that you have a great plan, but i think 5% is not possible. Well as i have seen here in some comments, they have also an idea. I'm grateful that i found this great post here.Thanks!!