How Much Down Payment do you Need?
To answer this question, the first thing we need to know is whether the property residential or commercial.
Residential (1-4 units): You need to have a least 20% down to purchase a residential rental property. It’s possible to purchase an owner occupied, “second home” with as little as 5% down, as long as your initial intention is to live in the property (you or a family member). After the purchasing the property, if your circumstances change and you decide you want to rent out the property, that’s OK, as long as your original intention was to live in the property. In qualifying for financing on a “second home”, you need to be to have enough income to qualify for the mortgage on your own, without any rental income. If you do purchase a second home with the intention of living in it, and later decide to rent it out, obviously you should report any rental income as you are required to pay tax on it.
Commercial rental properties fall into multiple categories including multi residential (5 units or more), office, retail and industrial.
With Multi residential you usually need at least 25% down. Even though CMHC has a program where you can purchase with as little as 15% down, they will usually value your property at less than what you are paying for it, so you’ll still end up needing at least 25% down.
For other types of commercial properties, the down payment will usually range between 25-35%, depending on the rent and the quality of the tenants. The lenders will want to know that the rents will more than cover your mortgage payments plus operating expenses. Different lenders have different coverage requirements. Also, it will be viewed more favorably if you have stronger the tenants; for example, Shoppers Drug Mart is considered a more valuable tenant than Ma and Pa’s donuts.
For mortgage solutions, call me today. I look forward to hearing from you.
David Grossman, MBA
Loan Central Canada/Real Mortgage Associates Lic #10464