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Discussion Starter #1 (Edited)
Hey everyone!

My wife and I have been thinking about buying a rental property. Does anyone know if its possible to put less then 20% down on rental property? We're looking to buy a cheap house ($100,000 - $150,000) to rent out.

We have a mortgage on our principle residence with about $80,000 in equity. My first thought was to possibly get a small HELOC for down payment then slowly pay it down (I think interest would be tax deductible?), but our current mortgage holder doesn't offer HELOCS.

My second idea was possibly refinancing principle mortgage to put towards income property.

Is buying an income property with borrowed money even advisable? Or should you always have the 20% down? We do have money for emergencies and other investments, it would just be nice to not have to go into them and feel strapped if something were to go wrong.

Also, is there anything else I need to think about before buying a rental property? What I have currently done is calculated the purchase price, closing costs, reno costs, and 12 months of mortgage/taxes payments, and then calculated 12 months of rent payments.
I then divided this number to get a rough return on investment in first year. This is obviously assuming it is rented 12 months, I'm not sure what vacancy rate I should use to be conservative. I am also not sure what buffer I should give for repairs, and what interest rate I should use.

Any tips greatly appreciated as we get started on this journey.

Thanks!
 

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I do recall that the Maximum loan-to-value on a non-owner occupied Rental was 80%.
for people who did not want to invest the remaining 20% from their own funds, they would look to borrow against their principal residence. ex. On a 200,000 rental Property, take out a 160,000 mortgage against the Rental. Borrow the remaining 40,000 against your principal residence. I seem to recall that there may be a minimum down payment which needs to come from your own resources though. Every lender will have slightly different guidelines.

we use a 4% vacancy rate in our calculation for debt-servicing.
don’t forget To consider annual property insurance, property taxes, annual maintenance. The bank I was with used fairly low numbers to estimate these figures on rentals, whereas when I saw tax Returns for people with existing rentals, these figures were materially larger.

as an aside, friends with rental properties Are starting to see lower rents. I fear the Worst of the economic consequences of covid have not happened yet. I personally would not be making any substantial investments in one area while covid is around.
 

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For the most part, you need 20% down. Some banks/mortgage brokers offer Up to 95% financing On a rental. The best possible scenario is to buy the property outright, refurbish it, and then refinance it. This scenario allows you to get 100% financing or more.

check out www.easysafemoney.com and the book that’s there. It will tell you everything you need to know to follow this strategy and be a landlord. Another book is brrrr. Same strategy, American perspective as opposed to a Canadian one in the first book.

as for your question about should you finance it, leverage is how you make money In real estate.
 

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You can't buy a rental property without putting at least 20%. Anyone that has done otherwise has 'cheated' their lender by stating they were buying a secondary property to live in.

You can borrow the 20% from your principal residence and that would indeed be tax deductible. However, you can only refinance up to 80% loan to value so ensure your $80k equity is factored in as such.
 
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