# Line of credit or mortgage



## jes2559 (Mar 17, 2012)

Question around the best route to finance a residential rental property. I am looking to purchase a duplex and was wondering if I should finance $175K on a line of credit at 3% with a monthly payment of $423 or go with a traditional mortgage which is approx $815? The LOC provides the benefit of a $400+ in additional cash flow, however no principal is paid off. 

Any advice would be appreciated.


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## phrenk (Mar 14, 2011)

What happens when the LOC rate goes up by 2%, 4% or 6% during the short term? You're stuck paying more interest and not paying any principal off vs. a mortgage which is fixed for 5 or 10 years with a predetermined amortization schedule. If the only way for you to buy a duplex is with a LOC in order to be cash flow positive, you might need to rethink that strategy. 

Get the mortgage, match the duration of your assets with the duration of your liabilities.


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## Cal (Jun 17, 2009)

Tough to provide a solid answer, as mentioned above. What is your potential cash flow impact of either situation? What is your strategy on the property? Short term, go w interest only option and flip property. Long term holding, you may want to pay down some of the capital. Are you buying the property at a reduced price? 

How long you want to hold the property makes a difference in your decision. Also, the location of the property, city, and the current and future market conditions.


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## jes2559 (Mar 17, 2012)

*Gifting*

Thanks for the advice.

The property is located near the Scarborough Bluffs and has a market value of aprox. $460k. I am in the lucky position of being able to buy it from my father for only $175k and would like to hold on to it for at least 5 years. Current rents combined are $2550 including utilities.


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## jes2559 (Mar 17, 2012)

*Any additional thoughts?*

Any additional advice would be appreciated.



jes2559 said:


> Thanks for the advice.
> 
> The property is located near the Scarborough Bluffs and has a market value of aprox. $460k. I am in the lucky position of being able to buy it from my father for only $175k and would like to hold on to it for at least 5 years. Current rents combined are $2550 including utilities.


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## Just a Guy (Mar 27, 2012)

*Do both*

Use the HELOC to pay the downpayment, and get a mortgage for the remainder. You may want to read "The Simple Solution to Canadian Real Estate Investing".


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