# Minimum equity for rentals



## Jocose (Nov 12, 2012)

Is it correct that I can't legally rent a place out if I have less than 25% equity in it?

It doesn't make much sense, since I can buy a rental place with 20% down with a bank knowing it'll be a rental. However my colleague insisted, those are banks' rules (Alberta).

My search on the Internet didn't help and my mortgage documents are far from me.
Does anyone know anything about such rules?
Thanks


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## gt_23 (Jan 18, 2014)

You can buy a rental with 20% down. A lot of FIs are fine with this if it is <=4 units.

I'm finding out right now, that some FIs have a problem refinancing to 80% LTV (they want to go to 75%) for a rental, regardless of whether you bought it as or converted it to a rental.

However, my broker is confident he has lenders that will refi to 80% and TD will put a heloc on top to 80%.


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## marina628 (Dec 14, 2010)

The 2nd use to be 20% down and once you got to 4+ it was 35% down at least my own experience with TD.


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## Just a Guy (Mar 27, 2012)

Since the real value of a property is unknown until you sell it, everything else is just a guess/opinion as to the value of a property. 

Banks won't usually lend more than 65-80% on a rental, but you can finance them other ways much higher. 

There are no laws that prevent a place from being rented at higher LTVs. The government doesn't care.


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## birdman (Feb 12, 2013)

Just a Guy is correct in that from a legal perspective L/V ratios have nothing to do with renting a house.


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## Rusty O'Toole (Feb 1, 2012)

I have had rentals with NO equity, more than once. Meaning I financed out, or had mortgages totaling more than I paid for the place.

Technically I suppose I had equity since the properties appraised for more than I had paid for them. The point is, there is no such law.

I know one investor who bought a $200,000 property for nothing down using some creative financing. His lawyer couldn't believe it. He knew he needed $2000 cash and didn't have it. He asked the investor where the $2000 came from and he said "from the rent". He had rented the place and collected first and last month's rent before he closed. So the lawyer asked why the tenants didn't buy the place and he told him, they didn't have a down payment , all they had was the rent.

The lawyer was a bit puzzled, but the deal closed on schedule.


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## Rusty O'Toole (Feb 1, 2012)

It could be some banks have such a rule about lending, but you don't have to borrow from them. There are other lenders with different rules. This kind of thing comes up all the time. Every bank has different rules, you don't have to understand them, you only have to figure out which bank will do the deal you want to do. A smart mortgage broker is a help.


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## Just a Guy (Mar 27, 2012)

The other thing to point out is these rules change all the time...

Right now banks are all about reported, taxable income, net worth plays a minor if non_existent role. Next week, that may change...

Sometimes they'll have a limit of 65% max LTV, next month it could be 80%. Then they'll have things like a heloc is maxed out at 65% (as the Feds now require) but, if you lock in a portion, you can still get 80%. 

That's why you need to keep asking when the banks say "no", their criteria is a moving target.


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## Jocose (Nov 12, 2012)

Thanks a lot for your answers guys!


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