Are You Considering Purchasing a Second Home in Mississauga?
The market conditions are definitely in your favour if you're thinking about buying a piece of real estate in Mississauga as an investment property. The resale housing market has seen a tremendous amount of activity from first-time buyers in the past year, so it's also a perfect time for existing homeowners to invest in secondary residential properties.
With the interest rates at a record-low and significantly lower Mississauga real estate prices, it's hard to go wrong - unless, of course you can't financially make the investment. Keep in mind that if you intend to rent out the second property, you'll also have to handle the maintenance costs and be prepared to deal with tenants.
Leverage
Investing in a second home is an attractive option because it gives you even more leverage than you have with your principal residence. Leverage is when a relatively small amount of your money controls a much larger asset - like a property.
The more leveraged you are, the greater the financial return on your down payment is if the value of your property increases. Not very many other investments can be purchased with such a small percentage of your own money.
Let's say you purchase a second property for $100,000, with a $15,000 down payment, and during the first year that you own it, the property increases by a value of three per cent for a $3,000 gain. As a result, the return on your down payment of $15,000 is 20 per cent - $3,000 divided by $15,000.
Other Investments
By comparison, let's say you were to purchase a term investment of $100,000 (in cash) for one year and it increased by $8,000 over the course of the first year. Since it cost you $100,000 in cash to buy it, the return on your investment is only eight per cent before taxes. This is how leveraging can be a powerful tool in making your money work for you.
Getting Financing
You should be aware that many lenders place non-owner occupied deals in the high-risk category and, in a lot of cases it will be hard to find lenders who will not finance rental units at all - or only finance them if they are insured. Obviously, lenders will want to know whether the property will carry itself, for instance, is the rent itself enough to cover the morgage payment.
Don't assume that a rental income of $750 per month will carry a mortgage payment of $750 per month. Only a percentage of the rent is used to pay the mortgage; and the rest has to cover expenses, maintenance, taxes and vacancy. It is best to know this information before getting into a situation like this so that your interests in the property are aligned, and you don't become disillusioned when it becomes so much more than expected.
Costs
The cost of obtaining a mortgage on a non-owner occupied property can be higher than the cost of obtaining a mortgage on an owner-occupied property (for legal and appraisal fees) where a multiple unit - such as a duplex or triplex is involved.
Rental property interest rates charges might also be higher because some lenders view these properties as being a higher risk. Renting your property is a great deal of responsibility as well because not only do you have to maintain your principal residence, you will have to maintain the new rental property, and you'll be responsible for finding tenants who you trust and feel comfortable with.
If you'd like more information about purchasing a second property,
please give me a call, (905) 828-3434.
Source: Ontario Real Estate Association
With the interest rates at a record-low and significantly lower Mississauga real estate prices, it's hard to go wrong - unless, of course you can't financially make the investment. Keep in mind that if you intend to rent out the second property, you'll also have to handle the maintenance costs and be prepared to deal with tenants.
Leverage
Investing in a second home is an attractive option because it gives you even more leverage than you have with your principal residence. Leverage is when a relatively small amount of your money controls a much larger asset - like a property.
The more leveraged you are, the greater the financial return on your down payment is if the value of your property increases. Not very many other investments can be purchased with such a small percentage of your own money.
Let's say you purchase a second property for $100,000, with a $15,000 down payment, and during the first year that you own it, the property increases by a value of three per cent for a $3,000 gain. As a result, the return on your down payment of $15,000 is 20 per cent - $3,000 divided by $15,000.
Other Investments
By comparison, let's say you were to purchase a term investment of $100,000 (in cash) for one year and it increased by $8,000 over the course of the first year. Since it cost you $100,000 in cash to buy it, the return on your investment is only eight per cent before taxes. This is how leveraging can be a powerful tool in making your money work for you.
Getting Financing
You should be aware that many lenders place non-owner occupied deals in the high-risk category and, in a lot of cases it will be hard to find lenders who will not finance rental units at all - or only finance them if they are insured. Obviously, lenders will want to know whether the property will carry itself, for instance, is the rent itself enough to cover the morgage payment.
Don't assume that a rental income of $750 per month will carry a mortgage payment of $750 per month. Only a percentage of the rent is used to pay the mortgage; and the rest has to cover expenses, maintenance, taxes and vacancy. It is best to know this information before getting into a situation like this so that your interests in the property are aligned, and you don't become disillusioned when it becomes so much more than expected.
Costs
The cost of obtaining a mortgage on a non-owner occupied property can be higher than the cost of obtaining a mortgage on an owner-occupied property (for legal and appraisal fees) where a multiple unit - such as a duplex or triplex is involved.
Rental property interest rates charges might also be higher because some lenders view these properties as being a higher risk. Renting your property is a great deal of responsibility as well because not only do you have to maintain your principal residence, you will have to maintain the new rental property, and you'll be responsible for finding tenants who you trust and feel comfortable with.
If you'd like more information about purchasing a second property,
please give me a call, (905) 828-3434.
Source: Ontario Real Estate Association
posted by Mississauga Real Estate Agent - Damir Strk at
4:18 PM
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