Building a rental property

cmjxj

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Registered
Oct 8, 2007
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#1
Hello all, I`m new to this site, and fairly new to RE investing. I recently read Don Campbell`s 97 tips book which led me here. I`m hoping to get some of your opinions on my situation. Appreciate any insight you can provide.
I plan on building a rental property starting in the spring (St John`s, NL). This will be a standard two apartment in a good location (above 6 on the scorecard). Starting from scratch, there will be many mistakes and lessons learned from doing it this way. That is why I`m trying to plan now, well in advance to ensure all angles are covered.
Does anyone have similar experiences they could share? I see a lot of advantages doing is this way, I would qualify for GST rebates and so on. In addition, new homes in good areas have a great track record for resale after a couple of years.
When discussing mortgages and down payments with the bank, they will clearly want ~20% down payment if it is going to be a rental unit. The problem is that I don`t have that cash available at my finger tips. I could explain that I want this house for personal use, and then convert it to a rental, however, that is unethical and probably illegal. Can a no down payment method be used when purchasing a rental unit? Is this an ideal option? What options are there?
I currently own a rental unit, for the last 4 years it has maintained a positve cash flow. I currently have ~$20 in equity. Should I use the equity in my personal home or rental unit to come up with a DP for the new property?

Again, appreciate your comments
 

jarrettvaughan

Inspired Forum Member
REIN Member
Sep 18, 2007
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Vancouver, BC
#2
QUOTE (cmjxj @ Oct 8 2007, 10:06 AM) Hello all, I`m new to this site, and fairly new to RE investing. I recently read Don Campbell`s 97 tips book which led me here. I`m hoping to get some of your opinions on my situation. Appreciate any insight you can provide.
I plan on building a rental property starting in the spring (St John`s, NL). This will be a standard two apartment in a good location (above 6 on the scorecard). Starting from scratch, there will be many mistakes and lessons learned from doing it this way. That is why I`m trying to plan now, well in advance to ensure all angles are covered.
Does anyone have similar experiences they could share? I see a lot of advantages doing is this way, I would qualify for GST rebates and so on. In addition, new homes in good areas have a great track record for resale after a couple of years.
When discussing mortgages and down payments with the bank, they will clearly want ~20% down payment if it is going to be a rental unit. The problem is that I don`t have that cash available at my finger tips. I could explain that I want this house for personal use, and then convert it to a rental, however, that is unethical and probably illegal. Can a no down payment method be used when purchasing a rental unit? Is this an ideal option? What options are there?
I currently own a rental unit, for the last 4 years it has maintained a positve cash flow. I currently have ~$20 in equity. Should I use the equity in my personal home or rental unit to come up with a DP for the new property?

Again, appreciate your comments

In my experience, the minimum down for a rental property is 20%. I would recomend that you use your equity for the down payment or search out a JV. Both these options are ethical and honest which will avoid any legal complication in the future and leave you with a clear conscience.
 

PeterKinchMortgageTeam

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Registered
Sep 11, 2007
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#3
QUOTE (cmjxj @ Oct 8 2007, 10:06 AM) Hello all, I`m new to this site, and fairly new to RE investing. I recently read Don Campbell`s 97 tips book which led me here. I`m hoping to get some of your opinions on my situation. Appreciate any insight you can provide.
I plan on building a rental property starting in the spring (St John`s, NL). This will be a standard two apartment in a good location (above 6 on the scorecard). Starting from scratch, there will be many mistakes and lessons learned from doing it this way. That is why I`m trying to plan now, well in advance to ensure all angles are covered.
Does anyone have similar experiences they could share? I see a lot of advantages doing is this way, I would qualify for GST rebates and so on. In addition, new homes in good areas have a great track record for resale after a couple of years.
When discussing mortgages and down payments with the bank, they will clearly want ~20% down payment if it is going to be a rental unit. The problem is that I don`t have that cash available at my finger tips. I could explain that I want this house for personal use, and then convert it to a rental, however, that is unethical and probably illegal. Can a no down payment method be used when purchasing a rental unit? Is this an ideal option? What options are there?
I currently own a rental unit, for the last 4 years it has maintained a positve cash flow. I currently have ~$20 in equity. Should I use the equity in my personal home or rental unit to come up with a DP for the new property?

Again, appreciate your comments

Hello, unfortunately you will not have a lot of options for financing the construction of a rental property. In BC, there are a few `private` lenders that will consider such a project, and even fewer lenders in Alberta. I`m not sure about the St. John`s area. As far as the downpayment, many lenders will allow up to 80% LTV but that is either for a purchase or a resale. It may be possible to find a private lender that will go to 15% or 20% down, but the interest rate and the fees will probably be quite extensive and challendge the feasiblility of the project. I would highly recommend researching your options.

You are correct, that this would be easier if it was your primary residence, and you are also correct that declaring this property is your residence would also be unethical and illegal. As far as which property to take the equity from, it`s a difficult question to answer without knowing the whole story.

Good luck.

Rob Macdonald
Canadian Mortgage Team