In real estate investing, it’s those that know the options, tips, and tricks that stand to realize the most success in finding and securing financing for their first deal.
So without further ado, let’s look at 7 expert tips to finance your first property investment.
1. Get over your fear of interest-only mortgages
For many, the dream is to pay down the mortgages on their investment properties so that they can retire with a nice stream of rental income and no worries about interest rates or the whims of lenders. And for that reason, lots of amateur investors opt for capital repayment mortgages: they know that if they make the payment every month, in 20 or 25 years they’ll own the property outright.
However, interest-only mortgages give you a lot more control over your investment and certainly don’t mean that you can’t pay off your mortgage in 20 years if that’s your plan. The lower monthly mortgage payment means you make more profit, and you have full control over what that profit is used for: it could be to pay off a chunk of your mortgage when your fixed term ends, or to invest in another property if the opportunity arises.
If you have multiple properties, interest-only also means that you can take the money you’re saving and target it at paying down just one of your mortgages. For future lending purposes, it’s more beneficial to have one property owned “free and clear” and another with 80% borrowing than it is to have two properties with 40% borrowing.
If you want an interest-only mortgage or your first mortgage approval, reach out to our team at AQRE Lending for independent, expert mortgage advice.
2. Use a separate bank account for your property
When you complete a tax return at the end of the year, you’ll need to report your property income and expenses separately from your other sources of income.
Whether you do this yourself or use a bookkeeper or accountant, it will make things much easier if you keep a separate current account for all your property transactions. Just make sure that rents come into this account, and use its debit card for any expenses you incur.
Keeping things separate will also make it easier for you to track the performance of your portfolio – both in terms of checking that rents have come in when they’re due, and in monitoring whether it’s making money overall.
If the balance of the account is always dwindling, you’ll know that something is wrong – but if it’s steadily creeping up, you’ll be adding to your cash buffer and will eventually be able to use it to buy another property!
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At least once a year, check the financing on all your properties to understand exactly where you stand.
Things change. For example, increases in property prices may mean that you could release some equity to invest elsewhere. And changes in interest rates may change the level of risk you’re willing to take in your investments.
So set a date in your diary every year where you book out a couple of hours to re-evaluate your financial position on your investment properties.
4. Make sure your mortgage broker is experienced with property investors
Many newbie property investors use the same mortgage broker they used for buying their own home, but that could be a big and costly mistake.
Most brokers are great at handling your residential mortgage application, but dealing with buy-to-let mortgages is a completely different ball game. There are so many hoops to jump through and obstacles to avoid – and using a broker who lacks experience could cause your deal to fall over.
If you’re buying below market value (which you should be), deals need to happen quickly: if your mortgage doesn’t move fast enough then you might lose the deal.
Make sure your broker has lots of experience working with investors. Ideally, they’ll do their own property investing too, (like the mortgage brokers at AQRE Lending!). A good question to ask is what percentage of their work is residential and what percentage is an investment. You want the majority of their work to be on the investment side.
To get pre-approved with an expert mortgage broker, reach out to our team at AQRE Lending, who have 10+ years of experience in property investing.
5. Spend time online, and set up property alerts
Both services allow you to set up sophisticated filters, and you can then choose to get new properties matching those filters sent to you on a daily or weekly basis.
Specify things like the price range and number of bedrooms, and get alerts for specific cities where you want to base your property investing business.
When doing your taxes, you don’t need to own an investment property before you can start accumulating expenses to offset the amount you pay the government. In fact, when you first start receiving rental income, you can claim any relevant expenses you incurred up to seven years before making your first investment.
These expenses could include travel and subsistence costs in the course of searching for your investment, as well as any professional memberships, tools and research materials.
7. Don’t think of an accountant as an expense
A good accountant will save you far more money than they cost you. Their knowledge of the allowances you can claim should see you paying less tax every year than you otherwise would – and in a more strategic capacity, they can make you aware of the tax implications of any major decisions you’re considering.
Try to work with an accountant who’s a property specialist, and ideally an investor too. This will allow them to better understand what you’re trying to accomplish, and ensure that they have experience of what tax strategies have been effective for their other clients.
Start Financing your Deal with AQRE Lending
Canadian mortgage requirements change often. Residency, citizenship, income, credit score, the type of real estate you want to buy, and many other factors affect the minimum down payment requirements.
Therefore, we recommend discussing your situation and needs with a mortgage professional like the expert mortgage brokers at AQRE Lending.
To get started, fill out AQRE Lending’s 1-minute application form and learn how much you could borrow today!