# Down payment for rental



## rymac69 (Aug 22, 2012)

Hello everyone.

I have what i hope is a simple question for you, but i have been beating my head trying to figure this out. I will be buying a rental unit. Now here is my situation. I own my primary house out right, and i have a 390k line of credit available because of it. The unortunate part is i ont have the 20% down for the rental.

What is the smarter move?

Buy the rental with my line, keep it like that for a year or two then maybe try and get a mortgage on it after an appraisal.

Mortgage my main residence and byt rental cash?

Put the 20% by taking it from my line of credit?

Another question for all of the above is are all they all tax write offs?

could i write off the interest from my line if i buy the rental outright

could i write of the interest for my rental if i baught the rental under a mortgage on my primary house?

lastely could i write off the interest that i would pay on my line of credit for the downpayment and the mortgage?

thanks in advance.


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## Cal (Jun 17, 2009)

You can claim any interest that is paid for investment purposes.

Also you may want to discuss with an accountant which scenario is best for you in your individual situation, as well as inquiring as to what the various rates would be in your scenarios from the lender. Your accountant may be able to shed some light on other claimable expenses in regards to a rental property.

Also there are other related threads on this topic on this forum as well.

All the best!


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## Sampson (Apr 3, 2009)

Borrow money for you down payment using which ever vehicle (LOC or mortgage on primary residence) gives you the lowest interest rate.

Either way, you will be able to deduct the interest against income from the venture.


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## Causalien (Apr 4, 2009)

Subject is of interest to me. Is it easier to evict a tenant with a monthly contract? Can I increase the rent by as much as I want? That's what I heard from visiting tenants about what their landlord do to them with a monthly contract. Not sure if it's legally right.


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## Just a Guy (Mar 27, 2012)

Use the LOC for the downpayment, get a mortgage for the rest. An LOC appears on your credit report, the mortgage doesn't.

As for rent increases, it depends on the province, some have rent control, others don't. Most landlords would never increase the rent monthly unless they were trying to get rid of tenants.


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## Sampson (Apr 3, 2009)

Just a Guy said:


> Use the LOC for the downpayment, get a mortgage for the rest. An LOC appears on your credit report, the mortgage doesn't.


Why would this matter? I would assume the OP has a decent credit history if they have already paid off the entire value of their first home and have been carrying and approved for a LOC of $390k.

I don't know many people who have or can get LOCs, secured or not that can rival the lowest interest rates of a mortgage.


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## Just a Guy (Mar 27, 2012)

Sampson, it depends on how many properties you want to buy this way and how many other credit vehicles you want. Getting more credit is harder if you have a large unpaid LOC on your rating vs. a bunch of mortgages that don't. LOCs are great for downpayments, but if you use it up, what other easy source of OPM is there to continue?

As for interest rates, TD's heloc let's you lock in portions of your LOC, at mortgage rates, which will match their lowest rates.

I may sound like a broken record, but for subjects like this, I'd say people need to talk to the guy who runs www.easysafemoney.com, he's literally written the book on this.


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## andrewf (Mar 1, 2010)

Seems to me that the obvious thing is to take a mortgage on the primary residence for the total purchase price of the rental property and use the proceeds to buy the other property in cash. This will likely have the lowest rate of interest, and carries least risk to the OP's credit rating.


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## cardhu (May 26, 2009)

Your best bet is likely to pay cash for the rental place, by drawing equity out of your current home. You will rarely (if ever) be offered as good an interest rate on a rental property, than you would on your own residence. (ie. BNS is currently offering 3.05% for 5yr closed mortgage).

I would approach it this way … determine whether your HELOC can be segmented into multiple sub-accounts … most banks have a product available that does this … at BNS its called the Scotia Total Equity Plan (STEP) … at BMO its called the Readiline … at RBC its called the Homeline Plan … in all cases, there is only a single approval, for an overall “master” credit limit, and you can carve that overall limit down into separate and discrete parcels, including multiple HELOC subaccounts, and loans that look and feel exactly like a regular mortgage (although strictly speaking, they aren’t) … for example, with a $390k ceiling, you could take out a $250k “mortgage”, and carve up the remaining available credit into 3 separate HELOC accounts of, say, $50k, $50k, and $40k … or whatever strikes you as the most useful combination. 

If your current HELOC can’t be carved up this way, then I’d see about converting it to one that can. 

If it were me, I’d use the HELOC initially, for flexibility as to amount and timing, and then immediately go in an convert some or all of that amount to a “mortgage”, to fix the interest rate . 

BTW, this kind of product is also great for maintaining separation between deductible debts and non-deductible.


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## GTA Mortgage (Aug 29, 2012)

I have seen many real estate investors utilize either technique, it depends on your personal preference. Some like to leverage and would use the HELOC (especially if your rate is low and you can claim the interest...just talk to your accountant regarding this). Others would simply invest the 20% down payment you have in savings and obtain a simple mortgage for the rental property.


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## Lephturn (Aug 31, 2009)

cardhu said:


> BNS is currently offering 3.05% for 5yr closed mortgage


Nice - I don't see it right now though. I see them at 3.99% for 5 year fixed closed.

The 2 year fixed closed at 2.69 is pretty sweet.

Damned government pressuring the banks - I will be replacing a prime - .90 5 year variable - currently paying 2.1%. :upset:


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## cardhu (May 26, 2009)

Lephturn said:


> Nice - I don't see it right now though. I see them at 3.99% for 5 year fixed closed.


Yeah, I noticed it wasn’t reflected in their posted rates, although the 2-yr, 2.69% rate (that’s the other one they mentioned to me) was ... posted rates often differ from what they’re willing to do ... this was verbal conversation, though I got the distinct impression it was a standard, off-the-shelf offering to anyone who walked through the door ... I got that impression because that’s all I did to prompt the comment ... I wasn’t there to borrow money.

If your renewal is coming up imminently, you might want to walk through their door & lock something down.


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