Often Overlooked Financing Investment Property Gotchas
When financing investment properties most investors make the same mistakes. This is important and it is the most common situation beginner real estate investors get themselves in.
The scenario beginner real estate investors fall into is very common and goes like this: beginner real estate investors go out and get pre-approved by their mortgage broker for an investment property mortgage in Canada. With the pre-approval, these beginners are told to go out and purchase their first investment property. It’s an exciting feeling to begin the wealth journey, real estate is a proven vehicle to build wealth!
The next step these beginner real estate investors do is find a real estate agent that knows something about investing in real estate. Weeks pass trying to the perfect property and finally a purchase is made.
Then it happens…
Closing day approaches and the mortgage broker rings with bad news, often sounding like this: “Hey, I’ve got some updates. Apparently I can’t actually get that mortgage program that we spoke of a few weeks ago. Don’t worry, you will still be able to purchase the investment property, but you’ll need to put down 10% instead of 5% and the interest rate on the mortgage is going to be 7.8% instead of 5.9%.”
This is where the problems begin. All of a sudden, these beginner real estate investors need to magically come up with more cash, or their return on investment will change drastically, which in turn means their monthly cash flow on the property will go from a positive to a negative. Let the scrambling begin!
These beginner real estate investors run to call their real estate agent, who will likely not have many options. Flustered, these beginner real estate investors call around and try to find another broker. However, this new broker doesn’t have enough time before closing to save the beginner real estate investor. Running out of options, these beginner real estate investors feel forced to turn to the Bank of Mom and Dad.
Financing Investment Properties - The Questions To Ask To Get the Critical Financing Details
Here’s what you should know about financing investment properties...
-
First off, always ask your friendly neighborhood mortgage broker how many investment properties they have actually closed on. You are looking for experience. Let someone else work with a beginner mortgage broker. Not you, it’s not worth your time or your money.
-
Second, ask the mortgage broker to send you the fine print.
Ask for the details of the mortgage program for financing investment properties. Check that the interest rate on the mortgage program doesn't have any clauses about increasing the interest rate based on your down payment amount.
Some brokers offer mortgage programs without fully understanding the program themselves. You should know that these mortgages for financing investment properties are hyped and sold to the brokers just like anything else...with salespeople and marketing flyers. Some of the marketing material may highlight a certain interest rate. But the fine print may state that your credit score must be above 650 AND the down payment must be 15% to qualify, not 10% as you anticipated.
Now to be clear, there's probably no malicious intent in these situations. There’s fine print in every deal, whether it be a car purchase or a commercial lease or financing investment properties. However, if your banker or mortgage broker hasn’t been through any investment mortgages, they may be totally unaware of these critical points. So, take it upon yourself and ask them to email or fax you the details of the mortgage program.
-
Lastly, know your credit score. You can pull your credit score from Transunion or Equifax and it will not affect your score. When you pull your credit score yourself it's called a 'soft pull'. Your credit score plays an integral part in getting any mortgage and its amazing how many people don’t know their own score. You may think you have perfect credit, but maybe you forgot to pay a $20 VISA card bill 6 months ago and your score drops from 660 to 610 and you now no longer qualify.
Real Estate Investing is a real business. Treat it as such. Know your broker’s background, know the details of financing investment properties, know your credit score, ask questions! It will save last minute panic attacks two days before closing.
You can focus on making money instead of spending more of your own. Now go forth and take some action!
If you are thinking of becoming a real estate investor yourself, or you are already an investor and would like to leverage your current investment(s) into more properties, or you are looking to sell one or more of your investment properties, or as per this article, you have questions about financing an investment property, give me a call at 905-683-7800 and I’ll be more than happy to answer any and all of your questions…AND help you on the journey to building wealth through real estate investment!
Thanks For Reading Today’s BLOG!
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
Homesellers - Find Out What Homes in Your Neighbourhood are Selling For! You can receive a FREE computerized printout of ALL recent Home Sales and Current Listings in your neighbourhood. Click here!
Best Buy Hotlist - You can receive a FREE list of the 10 Best Buys in your
specific price range sent to you at No COST or OBLIGATION.
Click here!
Your Home Sold Guaranteed or I'll Buy It!* No Gimmicks! For a Free Special Report that Details my Guaranteed Sale Program, visit: www.BriansGuaranteedSaleProgram.com.
Remember, your referrals change lives! We donate a portion of our income on every home sale to a great worthy cause like SickKids Hospital. To find out more visit: www.ReferForSickKids.com.
If you or anyone you know is considering making a move in the next little while, give me a call or pass on my number ... 905-683-7800 (Office) or 905-426-7484 (Direct).
#FinancingInvestmentProperty #InvestmentProperty #BeginnerInvestorGuide #Investmentpropertyguide #investmentguide #spacerental #realestateinvestment #PropertyInvestment2024 #RealEstateBusiness