Questions about buying second property

[MooseHead]

So I purchased a duplex (closed June 17th) and all is going well. I am renovating the upstairs unit and hope to have it rented by August (September at the latest).



I had enough saved up for 20% down but my broker advised me to go with 5% down as I did not own any real estate. I thought I would need 20% since although I planned to live there for a while during renos, I ultimately purchased the property for investment purposes.



I've been living at the property since I took ownership but I don't intend to live there longer than I have to. I managed to complete the renos much faster than anticipated. Having only put 5% down, I now have enough saved for another property and this time I am looking at a single family home for myself (closer to work). My broker mentioned that I could likely get away with putting 5% down as well on this second property.



My question is - If possible, should I only be putting another 5% down on my SFH? Am I better off putting 20% down and arranging for a readvanceable mortgage? I believe my broker mentioned I could always set up the readvanceable mortgage once I had enough equity built up in the house but I will have to double check.



Cheers,



MH

 

[DarrylFlint]

I'm certainly no expert, but it sounds like you are coming dangerously close to playing in the grey area. Even the language you used..."My broker mentioned that I could likely get away with putting 5% down..." would suggest that you already know you are coming close to the edge of what is right. In my humble opinion it might actually be time to look for a new broker. Anyhow, that's just my opinion.

Regards,

Darryl

 

[Thomas Beyer]

[quote user=MooseHead] I could likely get away with putting 5% down


5% down is possible only for your primary residence.



Some people get away with stealing apples from Safeway, some even raping women ..



The rules are clear.



Govern your actions accordingly.

 

[bizaro86]

I'm a big believer in following the rules, and it sounds like your first purchase was definitely in a grey area with respect to financing.



However, if you are actually planning to live in the new property as your personal residence for a significant period of time, I would put 5% down, as that is within the rules. It's too late to go back and follow the rules on the first property, but I would second the recommendation that you find a broker who isn't trying to get away with stuff.



Regards,



Michael

 

[TodorYordanov]

Are you being 100 % truthful of your intentions and communicate them to your mortgage broker, lawyer and real estate agent?

Do they strike you as honest professionals?



You can't know everything and most often will rely on experts and professionals to do "what they know best".



For added protection, if you are not sure, ask: " Is this legal, allowed, possible...?", like you did here.



To my best knowledge you cannot buy an investments property with 5% down.

 

[acurAspec]

you CAN buy a property with 5% down... and if his mortgage broker is telling him that he can.. why wouldn't he follow his suggestion? I am sure the broker knows his situation as he worked with him during the last close. Either way, if he manages to get him approved with 5% down, that's great! If the monthly numbers work with 5% down, i would do it too... Isn't the trick to say you are moving out of your current property and into a different primary residence?-- however you will need 20% or 25% (not sure on the exact percentage) equity in the first property to get the mortgage on the second one...



so if you wanted to buy the third property down the road, you will have to make sure there is enough equity int he first two before you can get approved for more...



just my two cents



Sasha

 

[MooseHead]

Thanks for the replies guys, I appreciate the honest answers. I just want to clarify that when I said I could get away with 5% down on my SFH it was in regards to having good enough credit, income, $$ in savings, etc. Not that I could get away with being dishonest.



I don't want to be anywhere near the grey area but realize my situation is certainly in that area although my intentions were never to bend the rules. Buying the duplex, I had planned to put 20% down but was advised by my banker and realtor that 5% is sufficient since I will be living there. My "broker" is not a broker but rather a mortgage specialist with Scotiabank to clarify.



Now I own a duplex and I am living in the upper unit. I'd like to have it rented and moved out by September. The initial plan was to be there for 6 months - year or so completing renovations and having a place to stay near work. I've just transfered to a different work location 45 minutes away from my duplex so I've been working my butt off doing renos after work hoping to get them completed sooner so that I can get it rented.





This next property will be my personal residence. I am wondering what makes more sense financially. Put 5% down and save the rest of my $$ for future investments or put 20% down and set up a LOC to use for investments.

 

[Mecheng]

YES, you CAN buy a property with 5% down, just as long as it isn't an investment property.

As of April 2010 all investment properties require 20% (or more) downpayment.

Please remember, ignorance of the law is not an excuse for breaking it.



As for the OP your purchase of the duplex with 5% may be legal as you are living in it currently. (gray area)

As for how long you must stay there or how much equity must be in the property before you apply this "trick" of switching primary residents, I don't know, but hopefully that doesn't sound like good advise to you.

 

[RobMacdonald]

I would recommend putting 5% down on your next purchase provided it is intended to be your principal residence. If you put down 20%, you can set up a readvancable LOC after you create some equity below the 80% level. So if you put down 20%, you won't have any equity for future investments for some time.



On the first purchase, this property was going to be your principal residence, so although it is approaching the gray area, I don't think you'll have any problems.



You would be best to look for another lender, other than Scotiabank, for your next purchase. As part of your long term plans to buy investment properties, Scotiabank has the best policy for clients that have 4+ rental properties. Once you get to 4 or more properties, a number of lenders drop out of the picture. You next purchase, plus #3 and #4 should be with mortgage lenders that have a max property policy.



Generally, the big banks are better for properties 5 and onward as they have no limit to the number of properties you own. If you'd like assistance with creating a long term plan, I'd be happy to help.

 

[MooseHead]

[quote user=RobMacdonald]I would recommend putting 5% down on your next purchase provided it is intended to be your principal residence. If you put down 20%, you can set up a readvancable LOC after you create some equity below the 80% level. So if you put down 20%, you won't have any equity for future investments for some time.



On the first purchase, this property was going to be your principal residence, so although it is approaching the gray area, I don't think you'll have any problems.



You would be best to look for another lender, other than Scotiabank, for your next purchase. As part of your long term plans to buy investment properties, Scotiabank has the best policy for clients that have 4+ rental properties. Once you get to 4 or more properties, a number of lenders drop out of the picture. You next purchase, plus #3 and #4 should be with mortgage lenders that have a max property policy.

Generally, the big banks are better for properties 5 and onward as they have no limit to the number of properties you own. If you'd like assistance with creating a long term plan, I'd be happy to help.


Hi Rob, I would certainly be up for chatting about a financial gameplan for my real estate investments. I just finished reading the Canadian Real Estate Action Plan by Peter Kinch and really want to start planning ahead so I don't end up at any road blocks in the future.



cheers,



Chris