# Investment Property w/ 5% Down



## Mike32110 (Oct 4, 2011)

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.


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## Berubeland (Sep 6, 2009)

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.


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## Mike32110 (Oct 4, 2011)

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!


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## Just a Guy (Mar 27, 2012)

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.


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## MundellSells (Apr 14, 2012)

HI Mike,

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?

Mark


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## Mike32110 (Oct 4, 2011)

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?


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## Cal (Jun 17, 2009)

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?


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## kcowan (Jul 1, 2010)

Mike32110 said:


> 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?


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.


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## Just a Guy (Mar 27, 2012)

Mike32110 said:


> 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?


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.

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.


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## donaldmc (Feb 27, 2012)

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!!


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## marina628 (Dec 14, 2010)

If you go to another bank you may get away with it by saying the 1st home is investment but if you go to same back they definitely will want 20% equity on a 2nd home.It really is disturbing to see somebody who just took on a big debt thinking about 5% down on a 2nd home.I recommend you get through your first year then revisit this idea.


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## the-royal-mail (Dec 11, 2009)

This is a terrible idea. Why are you buying 1-2 houses when you have $55K of debt? Why are you not paying your debts first, saving for rainy day, saving for 20% DP and THEN buying a house? Seems to me that's the better way to go. Right now it looks to me like you are taking on a liability that you cannot afford. I have a feeling the bank won't go for this.


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## HaroldCrump (Jun 10, 2009)

the-royal-mail said:


> This is a terrible idea. Why are you buying 1-2 houses when you have $55K of debt?


Once upon a time, there was a rich man who had many luxurious assets - houses, boats, cottages, fancy cars, etc.
All bought using money borrowed from the bank.
He owed the banks billions, the loans secured by the properties he bought.

One day, he was on TV being interviewed on his "investment strategy".
The TV anchor asked him, with a slight note of disgust in his voice : "_Sir, you owe billions to the bank in loans, how do you even sleep?_"

The man said calmly : "_Oh, I have no trouble sleeping. I sleep very well, thank you._"

Then he leaned forward and said : "_But I wonder how the manager of the bank can get any sleep._"


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## kcowan (Jul 1, 2010)

Harold
Was that guy Donald Trump?


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## Montrealer (Sep 13, 2010)

For investment properties:

- 20% down if your NOT going to live in the property
- 10% down if you ARE going to live in the property


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## GOB (Feb 15, 2011)

Why do you think owning property in this type of market is a safer way to invest than a boatload of other options? Especially with 5% down and mortgage rates bound to rise in the near future?


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## Causalien (Apr 4, 2009)

Last year, we got an influx of people who want to buy a property and rent it out. 
This year we got an influx of people who wants to buy as many properties as possible with only 5% down. AND people who want to flip.
Who the heck is spewing what the heck to people? 
I am very curious, where did you get this thought? Was it a RE agent? Media? Family?


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## Cal (Jun 17, 2009)

http://www.theglobeandmail.com/glob...-that-down-payment-fund-first/article2421366/


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## Sherlock (Apr 18, 2010)

GOB said:


> Why do you think owning property in this type of market is a safer way to invest than a boatload of other options? Especially with 5% down and mortgage rates bound to rise in the near future?


Because stocks are highly risky but real estate ALWAYS goes up, they aren't making any more land you know... </sarcasm>


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## Berubeland (Sep 6, 2009)

I know I feel really cramped in Canada because there's like 3.75 people per square kilometer of land http://www.tradingeconomics.com/canada/population-density-people-per-sq-km-wb-data.html


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## Sherlock (Apr 18, 2010)

But I thought Canada consisted of just the GTA? Are you telling me that there are other parts of Canada where one can move to?


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## Just a Guy (Mar 27, 2012)

Nope, that point has been firmly established in other threads. You also can't have a high net worth, can't like books that others don't (even if they haven't read them), and couldn't possibly even think of making an unapproved investment. 

If you do, you're obviously a liar, someone who's trying to sell something or both.


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## the-royal-mail (Dec 11, 2009)

Stats about average volume of people per KM across the entire country are meaningless. Most of this country is rural area, permafrost and forest. I do agree that there seems to be a prevailing attitude in business and govt that all office workers must all fight for $640K properties in cities that occupy land mass the size of a postage stamp. It's especially ridiculous when you witness firsthand all the rural decay that has occurred in hundreds of smaller towns in this country due to these absurd policies.


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## Sherlock (Apr 18, 2010)

Maybe I'm crazy, but I believe we're on the verge of a turnaround, due to increased acceptance of telecommuting. At my company there are several individuals just in my department who work from home and only come in to the office a few times a year. With a webcam and a mic, they can be just as involved in any meeting as someone physically in the room. A decade ago this wasn't allowed. As more companies give up on the antiquated idea that an employee is not as productive unless they're physically present in the office, and more companies allow telecommuting (the companies that refuse will find it more difficult to attract and retain good people) more people will choose to live in smaller towns and those towns will see a revival.


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## kcowan (Jul 1, 2010)

Telecommuting has been around for 20 years in various forms. The greatest resistance was in large companies like banks and insurance companies and in small companies. But I don't see it influencing real estate values. Instead, it is mass transit (like GO transit) that has increased values along its routes.

When we moved out of Wellington and Bay in 1990, we had to leave some commuter stations there for the employees who relied on the GO system. For mandatory face-to-face meetings, we compensated them for travel for the costs in getting from the commuter station to HQ in Markham.


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## HaroldCrump (Jun 10, 2009)

The quality of A/V equipment and the transmission quality is getting better by the day.
And a lower cost with each passing year.
A good quality video conferencing equipment, along with high speed F/O leased lines, delivers near movie-theatre quality conference capability.

Nearly 10 years ago, I did some contract work for IATA out of their Montreal office and they used to have dedicated A/V conferecing with their worldwide offices, but primarily Geneva.
The quality was excellent (for that time) and I remember thinking they must be paying an arm and leg for it.

The same (or better) quality is now available at a fraction of the cost.


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## Berubeland (Sep 6, 2009)

Personally I think that this is a technology that is not yet ripe. The reason is trust. Some people are perfectly able to discipline themselves to work regardless if people are watching them or not. Others not so much. 

There are programs that can be put on a computer to check what people are doing at any time. But if you can telecommute why not move your job overseas where people work for $3 per day and are grateful?


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## Jay (May 9, 2012)

As someone who works in the telecommunications industry, and in a job where I get to monitor and influence how many teams are working - I actually see a long term trend away from "telecommuting". Even the most technologically advanced companies are finding that the most advanced A/V equipment does not replace face to face communication. If anything, the trend is towards people working physically much more closely together - even in the same room in some cases. Newer technology companies are forming around closely linked co-located teams - and larger incumbents are actively looking at how they can collapse themselves into fewer sites (and fewer telecommuters). That's not to say that there isn't a need for telecommuting equipment or that dispersed teams can't be effective - just that co-located teams are more effective. I would actually view companies that are encouraging telecommuting as behind the times...no doubt they will eventually reverse themselves. I think there will always be a strong desire to be close (or an easy commute) to work. Having said that, work may not be downtown (it isn't in my case).


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## Sherlock (Apr 18, 2010)

Berubeland said:


> But if you can telecommute why not move your job overseas where people work for $3 per day and are grateful?


Language barriers, cultural issues, time zone difference, and most importantly, quality. Many companies tried it 10-15 years ago when outsourcing was all the rage, and most of them regretted it as the atrocious quality of work was not worth the savings. It is certainly possible to hire very good people from the third world, but if they are very good then they are in demand which means they can command salaries almost as high as people in the west. The ones who are willing to work for peanuts are not any good.

As for the trust issue, either someone is getting their work done and producing good quality work and meeting deadlines, or they're not. You don't need to watch them every minute to know whether they're doing good work. I mean, look at any job where the person does not get monitored by his boss every minute, for example a taxi driver. The taxi driver's boss doesn't watch him every minute, but that doesnt' mean he can't evaluate his work, he just needs to look at whether he's bringing in a sufficient amount of profits.


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## Sherlock (Apr 18, 2010)

Jay said:


> I would actually view companies that are encouraging telecommuting as behind the times...no doubt they will eventually reverse themselves.


What do you base this opinion on? All the latest statistics indicate that telecommuting is on the rise, and as a software developer I can definitely confirm that to be my own personal observation as well. And the companies that are leaders in telecommuting are companies like Apple, Ebay, Amazon, and IBM, these are certainly not companies that are behind the time.


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## Jay (May 9, 2012)

Sherlock said:


> What do you base this opinion on? All the latest statistics indicate that telecommuting is on the rise, and as a software developer I can definitely confirm that to be my own personal observation as well. And the companies that are leaders in telecommuting are companies like Apple, Ebay, Amazon, and IBM, these are certainly not companies that are behind the time.


I am basing that on the fact that companies that previously embraced telecommuting the most, are starting to recognize that distributed individuals and teams are much less effective than co-located teams and groups due to the co-ordination and handover costs. While telecommuting may be on the rise overall - the companies that were the early adopters (Ironically the companies who develop most of the teleworking technologies), are the same ones trying to moving away from it. I work for one of the world's largest telecom companies in a group that specifically looks at how development teams/organizations work (including how companies such as IBM and Apple operate), and most large software companies - if they're not already there, are trying to move towards more co-located teams. Part of this comes from watching smaller competitors accomplish a lot more, with a lot less... with small co-located teams. The other part comes from looking at a century of managerial science and the cost/waste/delay associated with dispersed teams.

That's not to say that we won't always have some teleworking, distributed teams, etc. - or that it isn't possible to develop good software distributed (eg most open-source projects). Working from home is a nice _occasional_ perk... It's just to say that teams are more effective when they are physically working very close together - ideally in the same room, and companies are recognizing this. No communications tool will ever beat teams working face to face at a whiteboard, and most of the current tools don't come close. While we do have some developers who work in other cities, away from their teams, they are primarily being retained for their legacy knowledge - I would not feel very secure in my job if I was always teleworking. In fact, I would even call persistent teleworking a career limiting move in most companies (it pays to show your face in person).

Those are actually the same reasons why most outsourcing projects fail. I've worked with teams in Canada, England, India and China, and the primary reason they fail is not the quality of the software developers (there are good/bad developers all over the world - regardless of salary), but the difficulties in trying to co-ordinate and communicate. Outsourced projects can work reasonably well if they are completely contained project teams - not requiring synchronization across time zones, but most large companies do stupid things like keep the high-level engineering team onshore, and try to outsource the coding or testing offshore - a recipe for disaster. The other problem with outsourcing, is most onshore workers are not willing to go live in India for 6 months/year to support their teams there - which is what is really necessary to make an offshore team successful. I've seen numerous situations where both the onshore and offshore teams thought the others were idiots - when the problems boiled down to infrequent/poor communications. Once you price all of the co-ordination/communication costs/errors/delays into your outsourced project, it usually would have been cheaper to just start and finish the project onshore.


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