As home prices are on the unrelenting upward climb in Canada’s hottest metropolitan housing markets, multi-family rental properties have become a popular option to owning a home.
National Bank mortgage development manager, Rosanna D’Alessio, in a recent interview with Royal LePage Leading Edge, discussed the alternatives that real estate agents ought to inform would-be buyers before purchasing property for rental properties.
According to D’Alessio, “Some people like the tangible aspect of this investment. When you have other investments, real estate is a good way to diversify your assets. And for someone who is looking to buy a house on a tight budget, the rents will help pay back the mortgage.”
Nevertheless, “real estate isn’t for everyone. You have to like being a manager, you need to have a lot of patience with your tenants and you have to be available to fix any problems.”
D’Alessio believes that the most significant of these aspects are the down payment requirements.
“If you’re renting out all of the units, you need to make a minimum down payment of 20% of the building’s purchase price,” she said. “If you’re going to be an owner-occupant, you could lower the downpayment to 5% of a duplex’s purchase price with mortgage loan insurance. For a triplex or quadruplex, you’ll need to put down a minimum of 10%.”
Moreover, “initial fees include the welcome tax, notary fees, inspection costs and property tax adjustment, meaning the portion of the municipal and school taxes that the buyer is responsible for.”
“To cover these fees, Canadian mortgage loan insurers calculate a standard amount of 1.5% of a building’s purchase price,” D’Alessio maintained. “However, in the event of unforeseen circumstances, a number of financial institutions including National Bank recommend a cushion of 3.5% of the building’s purchase price in an easily accessible savings account or line of credit.”
The last but not least, agents ought to direct their clients to guarantee solid lines of communication with tenants.
“Include even the smallest details on your leases and make sure that everything is in writing,” D’Alessio said. “I also recommend scheduling [the] mortgage payments for the middle of the month in case rents are paid late.”