# HELOC for rental property



## King Tut (May 3, 2009)

I am looking to buy my first rental property. I know that there is a minimum 20% down payment, and I want to know whether I can use my HELOC for the down payment.
Any ideas from this great community please?


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## Dana (Nov 17, 2009)

The technical answer is yes you can. Your lender is going to look for your downpayment to come from non-borrowed funds, so if you have assets to back up your downpayment, but choose to fund the downpayment from your HELOC at closing you will be approved. We have done this before. We have been in situations where we needed to sell securities to fund the downpayment and the timing was such that we weren't prepared to sell or were only prepared to sell a portion of our assets, so we have used our HELOC to bridge the gap. 

Using the HELOC is also a common stategy for investors who are using their rental property as a cash dam.


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## King Tut (May 3, 2009)

Thank you Dana.

I am totally new to this, and would appreciate any insights on lessons learned that I should keep in mind. Things in areas such as Tax, residence home appraisal, financing, tenants, whether I should have my wife as co-buyer etc..


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## Dana (Nov 17, 2009)

Where to begin...

There is so much to consider when investing in a rental property. If you can ask more specific questions, you will get more specific (and more useful) answers. 

My strongest recommendation is that you surround yourself with competent, experienced professionals whom you trust: a RE agent who specializes in investment properties in the area you are looking, a mortgage broker who specializes in mortgages for investment property, a good RE lawyer and a good home inspector. 

Are you in Ontario? You may wish to seek the advice of a rental consultant who knows your target area, the LTB laws in the province and how to find tenants. I suggest you read www.landlordrescue.ca.


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## King Tut (May 3, 2009)

One of my main concerns is how to ensure a positive cash flow


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## Cal (Jun 17, 2009)

King Tut said:


> One of my main concerns is how to ensure a positive cash flow


In what regard? Are you concerned about your potential interest rate, purchase price, the ability to keep the property rented....?

If it is really a stretch to make it work...then maybe you should wait for a better opportunity.


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## Dana (Nov 17, 2009)

My husband (aka "the spreadsheet whisperer") has created a great spreadsheet that will help you determine quickly whether a house is worth your time. I suggest you do the math before you view the property. 

PM me and I will send you the spreadsheet.


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## King Tut (May 3, 2009)

I am still exploring the potential. Doing the leg work as to what type of property, what I can afford, etc....
My mortgage broker is saying he can get me prime + 0.5 (this would be a second mortgage as the first is for my primary residence).
I am looking to buy the property in the GTA in an area close to amenities and the subway to make it more rentable


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## Dana (Nov 17, 2009)

I happen to like duplexes/triplexes because it reduces vacancy risk - i.e. how likely is it that all units will be vacant at the same time. It also gives me multiple doors at one location (less travelling and easier time management). That being said, I know investors who avoid multis because they do not want to get involved in tenant disputes. 

I also like each unit to be separately metered for gas and hydro so that the tenants can be responsible for putting utilities in their own name. If you pay utilities and your tenant decides to stop paying rent, you cannot stop providing utilities. This also acts as a level one vetting of potential tenants as the tenants who know they do not qualify to have utilities in their own name will either try to negotiate an inclusive rent amount or will not waste your time pursuing the unit. 

The rules in Ontario around tenants paying for electricity in units that are heated by electricity have changed in the past few months. This rule does not apply to me, so I have not familiarized myself with it, but you may want to check it out.


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## marina628 (Dec 14, 2010)

We own five single family homes, one tenant has been us four years now and actually wanted to sign 3 year lease last time their lease came up.
We considered buying bungalows with separate units in lower level but I did not want headaches of tenants fighting .If this is a rental property and registered as such you can no longer go for variable rate mortgages.It has to be a locked in term ,we found this out with the last house we bought.


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## colossk (May 11, 2011)

marina628 said:


> If this is a rental property and registered as such you can no longer go for variable rate mortgages.


This is incorrect, we came across this issue as well but the rules vary from lendor to lendor. Some will let you do variable, some won't on a rental property. Just find a lendor who will


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## King Tut (May 3, 2009)

I did check with my Mortgage broker, and he confirmed that I can go for a variable mortgage.


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## kubatron (Jan 17, 2011)

what is a lendor?

anyways yeah marina, that's totally wrong. sorry.


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## GeniusBoy27 (Jun 11, 2010)

You have to qualify under the five year fixed, but you can have a variable rate mortgage.

Having a cash flow positive property sounds great in theory, but if it was easy like that, everyone would do it. It's hard especially in high cost, low rent areas such as the GTA. Not impossible, if you're willing to go out a distance, but in the core, highly unlikely. 

But like Dana, if you have a spreadsheet that can determine the cut off point when it's profitable or you're willing to make a risk then it's worthwhile.

Moneygal had a wonderful post about why you buy a rental property a while back if you're not cash flow positive. For example, you're hoping that property values increase, etc ... see if you can find the post in this section.


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## andrewf (Mar 1, 2010)

Well, there's a Income Statement and then there's the Statement of Cash Flows. It's one thing to be making a notional profit by assuming price appreciation in the house, reducing debt owed. Cash flow is just as, or more important, unless you have plenty of cash at your disposal.


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## marina628 (Dec 14, 2010)

Well maybe because I have 5 investment properties we cannot do variable.I do know this is TD Bank lending criteria at least it has been for last 18 months on my last two deals.


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## King Tut (May 3, 2009)

GeniusBoy27 said:


> You have to qualify under the five year fixed, but you can have a variable rate mortgage.


I confirm Genius Boy's comment. My mortgage broker said that lenders would qualify me under their 3 or 5 year fixed rate, then lend on a variable rate 
if I so wish.


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## King Tut (May 3, 2009)

GeniusBoy27 said:


> Moneygal had a wonderful post about why you buy a rental property a while back if you're not cash flow positive. For example, you're hoping that property values increase, etc ... see if you can find the post in this section.


I would appreciate it if you would please guide me as to where to find this post. My gut feeling is that cash positive may not be siginificant, or it may be even slightly cash negative. It all depends on the specific property. In all cases, it is a long term route to wealth because as you mentioned, you are hoping the property value will increase. You are also accumulating equity in the rental property from the principal portion of the mortgage payment, and you are getting some tax deductions as well.


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## Four Pillars (Apr 5, 2009)

King Tut said:


> I would appreciate it if you would please guide me as to where to find this post. My gut feeling is that cash positive may not be siginificant, or it may be even slightly cash negative. It all depends on the specific property. In all cases, it is a long term route to wealth because as you mentioned, you are hoping the property value will increase. You are also accumulating equity in the rental property from the principal portion of the mortgage payment, and you are getting some tax deductions as well.


Is it this one?

http://canadianmoneyforum.com/showpost.php?p=28984&postcount=20


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## Dana (Nov 17, 2009)

King Tut said:


> My gut feeling is that cash positive may not be siginificant, or it may be even slightly cash negative. It all depends on the specific property.


Personally, I would never buy a property that is not self sufficient (and that includes non-cash outlays like vacancy allowance and management fee and maintenance allowance). I look for cash flow positive and any increase in captial value above and beyond the reduction of the mortgage is gravy.

Granted, it is harder to find a property that cash flows and sometimes you may be priced out of the market all together, but I stand firm by my criteria and won't settle. Sometimes to find cash flow positive, you have to be willing to look outside your target area, look at a different type of dwelling or look for private sales with motivated sellers. 

Why would you be satisfied to put money into this investment every month? Are you uber bullish on real estate?


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## andrewf (Mar 1, 2010)

If your preferred lender will not offer you a variable rate, you can go with 1 year fixed, which pretty closely approximates variable.


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## marina628 (Dec 14, 2010)

Yes I would probably do that with next property,just the 5 year rates were very good when we closed last two.I did so many deals in last 2 years i need to count on fingers and toes .Just going to relax for the next year on RE investing and turn my attention elsewhere.


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