Investment and Vacation properties are possible for many average Canadians
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Real estate has been one of the most attractive investment categories in BC for the past decade and more. The appeals of investment property are many: building extra equity, a cash flow boost, a place to call your own on holidays that can double as a nest egg, and more.
If you're considering an investment in real estate, it helps to get your financing options in place to be able to make a strong offer. Using your current equity is an easy way to make the down payment, or even the entire purchase. Depending on your situation, there are solutions even if you do not have an existing line of credit on your home or the cash to make the down payment.
An investment or rental property is one where you intend to sign a tenant to a lease and use the rent to pay for most or all of your carrying costs. This is mostly hands off once you have the tenant in place and you may not hear from them from months and just collect rent. The rent is normally determined by the market in the area and the relationship is governed by the Tenancy Act.
A vacation rental is a bit different. This might be a 2nd home for your holidays that you do vacation rentals (VRBO, AirBNB, Home Away, etc.) when you’re not using it. It may also be a full time rental. These stays tend to be short term of not often more than 2 weeks. The nightly rate is much higher and the management is more hands on. You have more say in the “house rules” than with a long term tenant.
In both cases, many owners choose to use a management company. This is common but not required.
In both cases, you can use the equity in your main home as a down payment. For a conventional rental investment property, you’ll likely need 20% down as well as closing costs. You can use a portion of the fair market rent or signed lease to offset the mortgage and afford more home. How much you can use varies.
If you purchase a property as a vacation home you can put down as little as 5% plus closing costs. However, you won’t be allowed to use the income from the property to qualify for the loan without a lease. You will need to show the lender that you can afford the payments with no rental income. The mortgage rules are quite similar to buying your principle residence.
There are other types of property you might consider as well. These include fractional ownership, acreage/rural, out of country, mobile homes/trailers, and more. While these may qualify for mortgages stand alone, you will probably get a better rate buying them with your existing equity.