So, you are considering the acquisition of a second property! Congratulations on this exciting venture! This presents a fantastic opportunity to diversify your financial portfolio and establish long-term stability for the future. However, before you proceed with this purchase, there are several important factors to take into account.

Acquiring a property with the intention of renting it out entails distinct qualifying criteria and mortgage product options compared to conventional home purchases. Here are some key points to consider before delving into purchasing a rental property:

1. Minimum Down Payment
The minimum down payment required is typically 20% of the purchase price, and these funds must originate from your personal savings; you cannot utilize a monetary gift from another party.

2. Rental Income Qualification
Only a portion of the rental income can be used to qualify for the mortgage and determine the amount you can afford to borrow. Different lenders have varying policies regarding the percentage of rental income considered. Some may allow you to use 50% of the income in addition to yours, while others may permit up to 80% of the rental income while subtracting your expenses.

3. Interest Rates
Interest rates tend to be higher for mortgages on rental properties compared to those for owner-occupied homes. This premium can range from 0.10% to 0.20% on a regular 5-year fixed rate.

While rental income can be factored into the mortgage application to service the debt, certain lenders may impose a minimum liquid net worth requirement apart from the property. Additionally, if you decide to sell the property in the future, it will be subject to capital gains tax, a matter your accountant can assist you with.

Thinking about Airbnb?

With the burgeoning popularity of Airbnb, many Canadians are exploring the realm of short-term rentals as a means of earning extra income. While it can be a lucrative endeavour, there are several considerations to keep in mind:

• Check the Rules: Make sure you’re allowed to rent out your place short-term according to your neighbourhood or apartment complex rules.
• Get the Right Insurance: Talk to your insurance company to make sure you’re covered when you’re renting out your place.
• Talk to Your Bank: Ask your bank if running an Airbnb could affect your mortgage.
• Don’t Forget About Taxes: You’ll have to pay taxes on the money you make from Airbnb. You can talk to an accountant to help you understand how much you might owe.

Moreover, offering additional services as a host may classify your rental operation as a business, potentially affecting taxation and regulatory requirements.

If you’re ready to take the plunge and buy a second property, it’s a good idea to talk to someone who knows about mortgages. They can help you figure out the best way to reach your goals and find the right loan for you. Don’t hesitate to reach out to a Dominion Lending Centres mortgage expert. They can give you the guidance you need to make your dreams of owning a second property a reality.
Remember, buying a second property can be a big step, but with the right planning and advice, it can also be a great investment in your future.