# Borrowing to buy rental property?



## FinancialFreedom (Aug 18, 2015)

Hey everyone!

My wife and I have been thinking about buying a rental property. Does anyone know if its possible to put less then 20% down on rental property? We're looking to buy a cheap house ($100,000 - $150,000) to rent out.

We have a mortgage on our principle residence with about $80,000 in equity. My first thought was to possibly get a small HELOC for down payment then slowly pay it down (I think interest would be tax deductible?), but our current mortgage holder doesn't offer HELOCS.

My second idea was possibly refinancing principle mortgage to put towards income property.

Is buying an income property with borrowed money even advisable? Or should you always have the 20% down? We do have money for emergencies and other investments, it would just be nice to not have to go into them and feel strapped if something were to go wrong.

Also, is there anything else I need to think about before buying a rental property? What I have currently done is calculated the purchase price, closing costs, reno costs, and 12 months of mortgage/taxes payments, and then calculated 12 months of rent payments.
I then divided this number to get a rough return on investment in first year. This is obviously assuming it is rented 12 months, I'm not sure what vacancy rate I should use to be conservative. I am also not sure what buffer I should give for repairs, and what interest rate I should use.

Any tips greatly appreciated as we get started on this journey.

Thanks!


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## Money172375 (Jun 29, 2018)

I do recall that the Maximum loan-to-value on a non-owner occupied Rental was 80%.
for people who did not want to invest the remaining 20% from their own funds, they would look to borrow against their principal residence. ex. On a 200,000 rental Property, take out a 160,000 mortgage against the Rental. Borrow the remaining 40,000 against your principal residence. I seem to recall that there may be a minimum down payment which needs to come from your own resources though. Every lender will have slightly different guidelines.

we use a 4% vacancy rate in our calculation for debt-servicing.
don’t forget To consider annual property insurance, property taxes, annual maintenance. The bank I was with used fairly low numbers to estimate these figures on rentals, whereas when I saw tax Returns for people with existing rentals, these figures were materially larger.

as an aside, friends with rental properties Are starting to see lower rents. I fear the Worst of the economic consequences of covid have not happened yet. I personally would not be making any substantial investments in one area while covid is around.


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## Just a Guy (Mar 27, 2012)

For the most part, you need 20% down. Some banks/mortgage brokers offer Up to 95% financing On a rental. The best possible scenario is to buy the property outright, refurbish it, and then refinance it. This scenario allows you to get 100% financing or more.

check out www.easysafemoney.com and the book that’s there. It will tell you everything you need to know to follow this strategy and be a landlord. Another book is brrrr. Same strategy, American perspective as opposed to a Canadian one in the first book.

as for your question about should you finance it, leverage is how you make money In real estate.


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## Mortgage u/w (Feb 6, 2014)

You can't buy a rental property without putting at least 20%. Anyone that has done otherwise has 'cheated' their lender by stating they were buying a secondary property to live in. 

You can borrow the 20% from your principal residence and that would indeed be tax deductible. However, you can only refinance up to 80% loan to value so ensure your $80k equity is factored in as such.


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## digitalatlas (Jun 6, 2015)

Some lenders only give you 65% if you don't have a tenancy agreement, which, when you're starting out, you probably don't unless you're lucky enough to have someone agree to rent from you even before you own the place.

Also, the bank will probably appraise the place, and it may be lower than you expect and possibly lower than the most recent market price. Which means you need to come up with more cash.


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## Sleeponit100 (Jan 4, 2014)

digitalatlas said:


> Some lenders only give you 65% if you don't have a tenancy agreement, which, when you're starting out, you probably don't unless you're lucky enough to have someone agree to rent from you even before you own the place.
> 
> Also, the bank will probably appraise the place, and it may be lower than you expect and possibly lower than the most recent market price. Which means you need to come up with more cash.


That's the problem I had about 10 years ago, the bank mortgage broker wanted me to produce rental agreements for the house that we had not yet received financing for. WTF? He actually suggested we have a few friends pretend to be tenants and draw up rental agreements for the house we had not yet bought yet.
The bank then agreed to finance the purchase!! All those lectures we receive about the ethics and high standards mortgage brokers and realtors have is lot of BS. Plus a little extra horse*#&%.


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## digitalatlas (Jun 6, 2015)

Sleeponit100 said:


> That's the problem I had about 10 years ago, the bank mortgage broker wanted me to produce rental agreements for the house that we had not yet received financing for. WTF? He actually suggested we have a few friends pretend to be tenants and draw up rental agreements for the house we had not yet bought yet.
> The bank then agreed to finance the purchase!! All those lectures we receive about the ethics and high standards mortgage brokers and realtors have is lot of BS. Plus a little extra horse*#&%.


Yah actually the broker told me that I just needed to produce a lease agreement...implying that it didn't necessarily need to be current or (it seems) even real. I didn't go for it and stuck with get 65%.


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## Money172375 (Jun 29, 2018)

Policy at TD was that if there was a tenant, we needed to see a lease and some secondary proof....rent deposits, statement of rental activities from T1 

if there was no tenant, we could request an appraisal of the market rental amount.


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## Just a Guy (Mar 27, 2012)

When you get larger, and have a good reputation, you can develop a waiting list of tenants...I’ve bought several properties over the years where people have signed leases to occupy them before I had official ownership. It is possible to do without it being a scam.


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## Earl (Apr 5, 2016)

And how does that help OP now?


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## Just a Guy (Mar 27, 2012)

Oh, I don’t know...gives him something to aim for, knows that things can change in The future, knows that it’s possible todo even now.
how did your comment help earl?


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## Earl (Apr 5, 2016)

"gives him something to aim for" LOL please, your comment was nothing but a humblebrag that provided the OP with no information that he can use.


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## Just a Guy (Mar 27, 2012)

I bow to your far superior jealous-attacks, which are so full of useful information...


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## Earl (Apr 5, 2016)

Your reply wasn't helpful, deal with it.


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## Just a Guy (Mar 27, 2012)

none of your input has been either admit it.


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## Earl (Apr 5, 2016)

I never gave any input to the OP, you did.


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## Just a Guy (Mar 27, 2012)

So your comments are a total waste you’re saying. Just have a need to criticize others that you can’t control.


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## Earl (Apr 5, 2016)

Your comment was also a total waste considering it provided no actionable info to the original question.


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