New to Canada - investment property before principal residence?

[docbick]

Hi,

I would be grateful for some advice, please. I have recently moved to Canada from the United Kingdom. I have four properties in the Europe which I rent out and am looking to invest in property in Canada.

For various reasons, I am not in a rush to buy a principal residence in Canada. Very happy with the home we are renting. So I am thinking of buying (with a mortgage) an investment property before owning a home in Canada. How will this go down with lenders and is it even possible? I’m thinking a fairly vanilla investment to begin with – just a single let.

I’m lucky enough to have a decent salary from my main employment in Canada and did so in the UK before the move.

In the UK it would be possible to get a mortgage for an investment property before buying a home of your own, but it would restrict the potential lenders. Any idea how would Canadian lenders regard this?

Much appreciated, Andy

PS Apologies for cross-posting on two forums – finding my way to the views of other investors.

 

[kfort]

Canadian Banks are going to want 2 years of Canadian taxes before lending likely. That’s the big banks anyway. If it were me, I may combine the two, buy a great place with a basement suite and live in one part of it and rent the other. This would get you in at 5% down instead of 20% for a strictly investment property. Just my thoughts, also highly dependent on where you are planning on living / buying too!


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[docbick]

Canadian Banks are going to want 2 years of Canadian taxes before lending likely. That’s the big banks anyway. If it were me, I may combine the two, buy a great place with a basement suite and live in one part of it and rent the other. This would get you in at 5% down instead of 20% for a strictly investment property. Just my thoughts, also highly dependent on where you are planning on living / buying too!


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Thanks kfort. Yes, I shouldn't be surprised if they would want an established financial record in Canada before lending. Investing in another property in the UK in the interim is another possibility. Now I would have to get an expat mortgage with higher rates, but the numbers could still work with the right property.

I was interested in what you write about renting out a basement suite. Could you do this on a residential mortgage and hence 5% deposit?

Work has brought me to a part of Canada (Kingston) where the market looks to have been very hot last year, but not every basement converted to a different property, unlike what I read about parts of Toronto. Perhaps, this could be my first project.

 

[kfort]

For 5% down you’ll need to make it your primary residence (upstairs or down) or possibly find an extremely investor friendly lender who would allow a vtb up to 95% (I think 90% is max still but I’m not positive). Good news is that suited houses often cash flow quite well. I do 3 up 2 down double detached bilevel 1050-1250sqft houses on sub divisible lots.


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[Martin1968]

In general yes 2 years of history, however I moved here in September 1998, and bought a residential property to live in, in June 1999, within the year but needed to put 25% down to make it happen. (In Alberta and with ATB) Had steady employment that first year which helped qualifying.
So yes you should try it especially with good income however expect a higher down payment. Not sure if 5% will qualify you within the year.
Agreed on Kris strategy for suited prop, live in it, rent out partially and then move on to next and rent out whole property and repeat.

 

[Thomas Beyer]

Forget smaller residential houses in your case. Buy a commercial asset as the asset qualifies not you !! Mobile home park, multi family bldg, office bldg, strip mall, hotel, industrial bldg etc


Thomas Beyer
Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca

 

[docbick]

Forget smaller residential houses in your case. Buy a commercial asset as the asset qualifies not you !! Mobile home park, multi family bldg, office bldg, strip mall, hotel, industrial bldg etc


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This would be another novelty for me as I didn't invest in this asset class in the UK, but prima facie I see your argument. May I ask what sort of downpayment is typically minimum for a building with - let's say - four apartments?

 

[Martin1968]

Forget smaller residential houses in your case. Buy a commercial asset as the asset qualifies not you !! Mobile home park, multi family bldg, office bldg, strip mall, hotel, industrial bldg etc


Sent from my iPhone using myREINspace

Sure why not. Depends on how deep your pockets are though.

 

[Martin1968]

This would be another novelty for me as I didn't invest in this asset class in the UK, but prima facie I see your argument. May I ask what sort of downpayment is typically minimum for a building with - let's say - four apartments?

Every asset class comes with its own set of rules regarding down payments etc. Besides that you would really want to educate yourself as to what else is required for asset class other then residential.
Residential is generally most straight forward.
Downpayment and financing on buildings with max 4 apartments in it fall under residential mortgages, so you would still need to finance and qualify under personal income. In general it’s 20% down unless you invest in smaller centres which requires 25% minimum.

 

[Thomas Beyer]

This would be another novelty for me as I didn't invest in this asset class in the UK, but prima facie I see your argument. May I ask what sort of downpayment is typically minimum for a building with - let's say - four apartments?

Commercial assets usually require a minimum of 25%. DCR matters more (debt coverage ratio) ie building NOI divided over mortgage payment, usually 1.25 or 1.3 to 1.5 for smaller centres or more risky asset classes.


Thomas Beyer
Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca