2nd residence rules

[benho2006]

Hi Everyone,

I looked up CMHC rules and it allows the insurance of a mortgage on a 2nd residence, which got me thinking... what are the rules if any of obtaining a mortgage on a 2nd residence and using that residence as an investment property, ie rental. What happens when it comes time for disposing the property? Is there a capital gain since it is a residence? Has anyone ever tried to qualify for one and how difficult is it compared to getting a commercial mortgage for under 4units?

thanks.
ben

 

[GaryMcGowan]

QUOTE (benho2006 @ Mar 6 2010, 10:30 AM) Hi Everyone,

I looked up CMHC rules and it allows the insurance of a mortgage on a 2nd residence, which got me thinking... what are the rules if any of obtaining a mortgage on a 2nd residence and using that residence as an investment property, ie rental. What happens when it comes time for disposing the property? Is there a capital gain since it is a residence? Has anyone ever tried to qualify for one and how difficult is it compared to getting a commercial mortgage for under 4units?

thanks.
ben

That is mortgage fraud.
You can get CMHC financing on investment properties. Until April 19th you can put down as little as 5%. Not recommended though. Many people have used CMHC for their investment properties at 10% down. We will however be required to put more down after the 19th. I would talk to mortgage broker that is very accustomed to property investing. There are some real goods ones here on the forum. Email me if you would like a reference for one.
You get residential mortgages for properties that have 4 units and less. Commercial is for 6 units or more.
Yes this still can be capital gains on the equity if your plan is to hold it long term (CRA will decide though). You pay income tax on the surplus rental income.

Sounds like you are think creatively which is always a good thing. "Thinking outside the box" !!

 

[MikeMcCrae]

Gary is right to say it is a second property when it is a rental is fraud. There is enough money in this game to do it right and honest. Because of the new rules that are coming in next month 20% will be the standard down payment for rentals and many lenders have already changed their policy and require that much down now. Find good properties and take on a partner or two if you have to, to make it work. But never lie to your lenders. They are a big part of building your real estate business.

 

[benho2006]

QUOTE (MikeMcCrae @ Mar 7 2010, 06:59 PM) Gary is right to say it is a second property when it is a rental is fraud.

You can`t learn if you don`t ask but...

I`m not quite getting the fraud part. Please read this from CMHC.
http://www.cmhc-schl.gc.ca/en/hoficlincl/m...Second-Home.pdf

They are offering a financing product on a second home 1-4 unit owner occupied property (rental + live in). I`m still scratching my head on the fraud...
someone buys using this product... a few years down the road, when you want to buy another should the property be refinanced at that point as a full rental?

please share some example scenarios to avoid and then the right way of doing it.

thanks

 

[GarthChapman]

Ben, mortgage fraud is when you say you will do one thing and you really intend to do another. So if you say it is your 2nd home and it is financed as such, and you really use it as a rental property, that is mortgage fraud.

The changes due to be effective April 19 include this - "the CMHC Second Home product will only be available for one unit owner occupied properties."

Hope that clarifies,

 

[GaryMcGowan]

QUOTE (GarthChapman @ Mar 9 2010, 12:51 AM) Ben, mortgage fraud is when you say you will do one thing and you really intend to do another. So if you say it is your 2nd home and it is financed as such, and you really use it as a rental property, that is mortgage fraud.

The changes due to be effective April 19 include this - "the CMHC Second Home product will only be available for one unit owner occupied properties."

Hope that clarifies,

Thanks Garth, I could not of explained it better.

 

[benho2006]

QUOTE (GaryMcGowan @ Mar 9 2010, 11:57 AM) Thanks Garth, I could not of explained it better.

So what mortgage products are available at the end of term when you don`t want to sell the property but want to purchase another primary residence? Alternative scenario, you want to hold onto the property but need to move from say, vancouver to ottawa? What can one do to keep the property and not be committing fraud? the argument of `intent` aside, what are the options?

Thanks in advance to everyone following this thread. Please bear with me on these hypothetical scenarios, I think they provide great learning opportunities for doing things right from the start.

-ben

 

[aiden1983]

QUOTE (benho2006 @ Mar 11 2010, 03:16 PM)
So what mortgage products are available at the end of term when you don't want to sell the property but want to purchase another primary residence? Alternative scenario, you want to hold onto the property but need to move from say, vancouver to ottawa? What can one do to keep the property and not be committing fraud? the argument of 'intent' aside, what are the options?



Thanks in advance to everyone following this thread. Please bear with me on these hypothetical scenarios, I think they provide great learning opportunities for doing things right from the start.



-ben




You can own 2 places under CHMC as a PR. I am looking into doing exactly this as I am going to be working in Ft. Mac but my wife may be living in another city.

 

[MikeMcCrae]

The second home product is designed to be for you as a second residence. For example, you live in Edmonton and you want a house in Kelowna so you can get away and enjoy the beautiful weather. If your intention is to rent out your house in Kelowna and not live in it part time, then that would be fraud. If you did the comute thing for a couple of years then decided that this wasn`t working any more for what ever reason, (you changed jobs, or your family situation changed etc.) and you decided to rent it out, I can`t see you being faulted for that. What it really boils down to is, in the morning you get to wake up and look in the mirror. Who do you want to see? A person that lies and cheats to get what they want knowing full well that they have a very small likely hood of ever getting caught or do you want to be the person that tells the truth and does what is right even though no one but them will ever really know the truth. Just because you don`t get caught does not mean that you didn`t do wrong. The investment real estate game is trying. We need to be looking for new creative ways to accomplish our goals all the time. Resist crossing the line of morality and legality. There are legal and proper ways to get your goals accomplished. If you buy a property with the intention of it being a rental, say that you are buying a rental. If your life changes your situation down the road and things change, then things change. But be honest and don`t say yopur plan is something it is not.

 

[brad]

Just to toss my 2 cents into the ring here..........

I have heard of, and know a few individuals who have used the 2nd residence route to obtain financing with 5% down while avoiding the stiffer CMHC fees that are placed on rentals. I know a few of them who have done this with different lenders (ie: 1 with Scotia, 1 with TD, 1 with Firstline etc). It is a very dodgy world to get involved with, one that anyone who plans on being in this game should avoid, PERIOD.

Yes, you may very well "get away with it". But if you get flagged and someone looks into the fact that your mortgage broker happens to have a large % of his/her clients using this strategy, then what?

Do it right, sleep well, take your time, and build a nice solid foundation.

Try selling this questionable style of financing to a few joint venture prospects and I bet you start wondering why no one will invest with you.

Brad