# Buying second condo, can I do this?



## robert99a (May 23, 2009)

In 2007, I bought a condo worth 175,000. I have 61,000 left to pay on it. So that makes 114,000 equity on it. 

I would like to buy a second condo but keep the one I own already. The new condo is worth 215,000. I have about 15,000 in savings for closing costs, but no money for downpayment. Can I use the equity in my first condo as downpayment for the second one? 

Assuming I can, then my situation would look like this:

My current mortgage of 61,000 would increase by 215,000 to 276,000. According to an online calculator, that's $725 payment by-weekly for 25 years. I already pay more than that now so I could make the payments. I already know I could pay taxes and condo fees.

Would a bank allow this or am I completly ridiculous even thinking about doing such a thing? 

The way I see it, if I sold my condo, I would get 175,000. After paying my mortgage, I would be left with 114,000. And if I wanted to buy a house worth 390,000 (175,000 (condo 1) + 215,000 (condo 2)) with a 114,000 downpayment (29%), I would have no problem. My two condos together... it's pretty much the same situation (numbers wise). But maybe banks see this differently........

Thanks


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## mrcheap (Apr 4, 2009)

I can't think of any reason why you couldn't do what you're thinking, assuming your income would support the payments (you have a lot of equity in your condo). Call a mortgage broker (or your bank), lay out your situation and see what they'll offer you for pre-approval (and what options are as the best way to "tap your equity").

A better question might be "should you do this", but given that you haven't said why you want to own a second condo or where you live (or asked that) I'll refrain from answering.

(aw heck - can't resist. In your shoes and with what little I know, I wouldn't buy a second condo)


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## grimace (Feb 20, 2010)

Shouldn't be a problem but a few planning issues to consider. You should set up a HELOC now, before you apply for the mortgage. You should be able to get 80% LTV on your current condo which would mean you would have about (80% of 175000 = 140000 - 61000 = 79000) 79000 of cash. You then withdraw 75000 and put it in your bank account. Once this is done you can then go see about a mortgage on the new condo -it seams like a subtle difference but the bank doesn't like you to borrow the down payment. If you have it in your accont and owe an equivalent amount they look at it differently.


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

Sounds like a shell game to me. 
If you have the chance to get out and take your money to your new condo, do it. Keep it simple. Having two condos sounds incredibly wasteful in terms of fees and taxes. But maybe there's more to the story. Why have two at once?

Also, do you have an emergency savings plan in place? That will be critical if you want two properties to your name.


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## Four Pillars (Apr 5, 2009)

robert99a said:


> Would a bank allow this or am I completly ridiculous even thinking about doing such a thing?


Why don't you ask one?


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## andrewf (Mar 1, 2010)

grimace said:


> Shouldn't be a problem but a few planning issues to consider. You should set up a HELOC now, before you apply for the mortgage. You should be able to get 80% LTV on your current condo which would mean you would have about (80% of 175000 = 140000 - 61000 = 79000) 79000 of cash. You then withdraw 75000 and put it in your bank account. Once this is done you can then go see about a mortgage on the new condo -it seams like a subtle difference but the bank doesn't like you to borrow the down payment. If you have it in your accont and owe an equivalent amount they look at it differently.


Also, if you do this then the entire purchase price of the investment property can be a tax deductible investment loan. Then start cash damming and use the rental income from the new property to eliminate your non-deductible principle residence mortgage at an accelerated rate.

Of course, don't let taxation issues wag the investment dog. Make sure the property you are looking to purchase makes financial sense.


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

http://www.canadianmoneyforum.com/showthread.php?t=8860


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## Cal (Jun 17, 2009)

You didn't post it, but we can only assume that you will use the 2nd condo as a rental?

It appears that you should have enough equity in your primary res to do this.


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## robert99a (May 23, 2009)

Thanks for your replies. If you guys think this is possible then I will call my bank and start the process.

Thanks again.


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## kubatron (Jan 17, 2011)

even better, call a broker who will call a few banks for you.


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## OhGreatGuru (May 24, 2009)

If your present condo is your principle residence, and will remain so, there may be tax issues involved. In principle you are not supposed to be able to borrow money against your principal residence, invest it in an income property, and then deduct the interest as an expense on the income property. I believe there may be schemes to get around this, but I am not familiar with them.

If these are both income properties, it doesn't matter from a tax point of view.

Maybe I'm missing something, but borrowing the down payment against your first property means you don't really have the downpayment saved, you have just added to your debt load, which in turn should affect your mortgage eligiblity. Also, I seem to recall from other threads that the lending rules for investment properties are different than for owner-occupied residences. So maybe visiting a mortgage broker would be a good first stop.


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## andrewf (Mar 1, 2010)

^ I think you're mistaken. CRA cares about what the money is used for (investment or consumption), not what the loan is secured against.


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## Berubeland (Sep 6, 2009)

It's not really a question of CAN you, but rather SHOULD you...

The answer in my mind is no. I work for and answer frantic and desperate calls from owners like you every single day.

If you can't afford the down payment, you can't afford a bad tenant most of whom are looking for novices like you to prey on. 

I'm here to tell you that the chances of finding a cash flowing condo in this market is almost nil, and after letting your tenant "pay your mortgage" for 5 years and putting in extra money for maintenance fees which always go up, and 2-3 renos as you switch tenants, you'll be lucky if you can pay real estate fees if you decide to sell. 

There are 29,000 condos coming on line this year alone, some of them in buildings that are owned 70% by specuvestors just like you. As soon as the building closes all those condos will be for rent, in a race to the bottom as people who have paid all those occupancy fees become desperate to rent. 

Unless you have deep freeking pockets don't do it, and even if you were rich as Midas, I would still tell you what a bad investment condos are right now.


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

^ That post by Berube needs to be framed and mounted and made mandatory reading for all new posters in the RE section of this forum. Right on.

Just because you CAN do something, doesn't mean that you should.


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## OhGreatGuru (May 24, 2009)

andrewf said:


> ^ I think you're mistaken. CRA cares about what the money is used for (investment or consumption), not what the loan is secured against.


I disagree. Mortgage interest on your principal residence is not supposed to be tax deductible in Canada. But you get a Principal Residence Exemption on Capital Gains. To me, refinancing your home and deducting the interest circumvents this rule. I am aware there are schemes around on how to do this legally, but people are just inviting a crackdown by CRA which might have unexpected consequences.


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## andrewf (Mar 1, 2010)

Are you familiar with the whole Smith Manouevre thing? It is essentially borrowing on your principle residence to invest, with the investment loan being tax deductible.


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## Charles Dickinson (Aug 10, 2011)

It is better to take an action than assuming, you should go to your bank and ask about your concerns, but I think its possible that you can do what you are planning to do.


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## diharv (Apr 19, 2011)

Berubeland said:


> It's not really a question of CAN you, but rather SHOULD you...
> 
> The answer in my mind is no. I work for and answer frantic and desperate calls from owners like you every single day.
> 
> ...


I could not agree more. In my mind at this time investing in condos is too risky . If you want the detached sell the condo and get the house. Just don't be a speculator!


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

Berubeland said:


> It's not really a question of CAN you, but rather SHOULD you...
> 
> The answer in my mind is no. I work for and answer frantic and desperate calls from owners like you every single day.
> 
> ...



I *love* this post! It oughta be mandatory reading for all newbies posting in the RE section of this forum. Too bad we can't pin just this one post.


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## Square Root (Jan 30, 2010)

Great post Berubeland. I totally agree. Now is not the time to be investing in condos or other residential real estate for that matter. i am currently in Arizona and if you want to see deparate people trying to rent or sell beautiful homes this is the place. real estate is great when prices are going up but things can turn quickly. Very illiquid asset so you must have deep pockets or you could be forced into selling for a loss.


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## canadianbanks (Jun 5, 2009)

I wouldn't buy a rental condo at this point, because I expect condos in major Canadian cities to take a 20-30% haircut in the next 2 years. Having positive cash flow even with those low rates is almost impossible, so you are just looking at capital loss for the next few years and all the trouble of being landlord...


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## kcowan (Jul 1, 2010)

The problem with Berubeland's contributions is that she is a voice in the wilderness and cannot be heard above all the realtors and developers. People tend to be influenced by the chaff and cannot detect the wheat!

Just look at all the ads in the daily and weekend paper!


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## marina628 (Dec 14, 2010)

The falling glass in Toronto scares me among other things , I won't be buying condos anywhere too risky IMO


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## Berubeland (Sep 6, 2009)

kcowan said:


> The problem with Berubeland's contributions is that she is a voice in the wilderness and cannot be heard above all the realtors and developers. People tend to be influenced by the chaff and cannot detect the wheat!
> 
> Just look at all the ads in the daily and weekend paper!


The real problem with Berubeland's contributions is that convincing owners not to buy or encourage them to sell when they have a non cash flowing property is bad for business. 

I am known as a dream stealer and negative attitude person in some circles. I'm also apparently jealous of success and not doing well. 

In any case I don't really regard myself as as some kind of genius for saying that if you embark on a business venture it should have a reasonable expectation of making a profit, what ever that business is. 

In real estate the business model is collecting rents and making a profit off that. It's a housing services business and the customers are our tenants. The house is just where we put our business. When you sell the house you are out of business. 

What other business has a business plan that goes like this? Buy an expensive piece of equipment to start a business, make payments for years, losing money all the way, sell the equipment to make your profit. None I can think of. 

This is just common sense.


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## kcowan (Jul 1, 2010)

Berubeland said:


> The real problem with Berubeland's contributions is that convincing owners not to buy or encourage them to sell when they have a non cash flowing property is bad for business.


Agreed. That is what makes your position even more credible.

(How did the challenge go on your web presence? Did it get resolved favourably?)


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## Berubeland (Sep 6, 2009)

kcowan;97974
(How did the challenge go on your web presence? Did it get resolved favourably?)[/QUOTE said:


> Well kcowan after doing a little corporate research it turns out the money partner behind the whole deal is Patrick Francey VP of REIN. It's an amazing coincidence.
> 
> So far I'm paying lawyers but I did find a reasonably priced one and he's a nice guy. It's such a long process with tons of back and forth. Trademark law of any kind is not really a good space for small businesses. If we get to Federal court, it'll be hard to afford the lawyer although it is spaced out. So you give the lawyer a couple thousand bucks wait a few months give him another couple thousand and so on. The last thing I did mostly myself.
> 
> I have a few tricks up my sleeve thought. I'm getting increasingly upset with these folks.


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## kcowan (Jul 1, 2010)

Berubeland said:


> Well kcowan after doing a little corporate research it turns out the money partner behind the whole deal is Patrick Francey VP of REIN. It's an amazing coincidence...


I see how you took them apart on your blog.
Missed the thread back in April because it was a topic of little interest to me (and during tax time).


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## RichmondMan (Jan 31, 2011)

I think don´t hesitate in this moment! The current prognosis says about not well disposed situations on the real estate market in all the world. The soundest markets as North America, Europe, and Australia indicate that the average value of homes declined in the second quarter of 2011 compared to the same period last year. On the our market, Good affordability supported by very low interest rates continued to keep the sales up. I´m really exciting from it.


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

^ Let me guess, someone from the RE industry?


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