property investment loan canada
March 23, 2022 11:52 am Published by Leave your thoughts

Property investments refer to the properties that people buy for the purpose of renting them out or reselling them.

Rental properties are a great idea to earn some income while simultaneously paying off an investment property mortgage. There are a lot of people who aren’t quite ready to own a property and opt to rent instead.

Canada generally has good market conditions. But with the housing prices on the rise, this might cause buyers to hold off on buying properties and focus on renting in the meantime.

Hop on this opportunity and start investing in properties yourself. Here are the different types of property investment loans and how to know if you can qualify for them.

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Types of Property Investment Loans

Bank Loans or Mortgages

The most common type is the good old bank loan or mortgage. It’s usually the least complicated and most secure way.

Banks and lenders tend to have strict requirements when it comes to property investment loans. But once you qualify, you just have to focus on meeting those monthly payments.

Home Equity Loans

Home equity loans are also popular. Most banks offer up to 80% of your home’s equity. You won’t have to worry about the money for a down payment with this type of loan.

Just make sure you have a good credit score to get approved for a home equity loan.

Private Loans

You can opt for a private loan from someone close to you. If you have a friend or a family member that could finance your property investment for you, it might be worth a try.

They might be able to give you lower interest rates. They could also be more considerate of your situation.

To avoid matters from getting complicated, it would be a good idea to sign a contract with clear terms and conditions for the loan. You can ask help from a lawyer and real estate agent to make sure everything would be covered in the contract.

How to Qualify for a Property Investment Loan

Prepare Your Documents

Applying for a property investment loan doesn’t have to be stressful as long as you’re well-prepared.

Before even applying for one, make sure you have your documents ready with you. Lenders will have different requirements, so it would be good to ask around first for what might be required of you.

Prepare your IDs and have photocopies ready. If you have existing debts, prepare the documents for them as well.

You’d probably also need your payslips and other proof of employment. You might be asked to provide documents if you have other sources of income, so just have them ready.

Check Your Credit Score

Another important thing to check before applying for a loan on a property investment is your credit score.

A good credit score gets your application approved more easily. Lenders tend to look at your credit score to decide whether to approve your loan application or not. They could also base your loan terms on your credit score to make sure you can comply with them.

Make sure you always pay your bills on time. This is the defining factor of your credit score. Be careful in going over your credit limit as well. Lenders wouldn’t want someone who borrows more than they can actually handle.

Secure Your Down Payment

Property investment loans are different from housing loans. Lenders tend to demand a higher down payment for these. The usual down payment is 20%. But sometimes, the required down payment for property investments is 30–40%.

Secure your budget even before you apply for a loan. If you don’t have a good credit score, it might help if you have enough money to pay for at least the first few months of your loan. Set your money aside and make sure to only use it for loan payments and nothing else.

What You Can Do With a Property Investment

Some people buy a cheap fixer-upper home and renovate it. This is called house flipping. And it could give you a higher profit for the property when you resell it.

Others also buy a property and put it up for rent. Rental properties are an easier way to pay off an investment property mortgage. The tenants will basically be the ones paying off your mortgage for you through the monthly rent.

In some cases, people buy a property and let it sit for a while. They do this so that the property increases in value on its own and sells for a higher price later on. Investors usually do this when the market is hot and house prices keep going up.

Just remember to consult a real estate agent so that you would know if a property investment would be right for you.

Why Invest in Real Estate?

real estate investment canada

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The best thing about investing in real estate is that land does not depreciate. Investing in real estate is also a good way to diversify your portfolio. As long as you do it the right way, it would be a good source of income.

Property investments do have some disadvantages, just like any other investment. If you’re worried about the risks, a smaller market like Airdrie might be a good starting point for your property investment.

Again, here’s how to qualify for an investment property loan in Canada:

  • Prepare the documents that might be required of you—IDs, debt documents, payslips, proof of employment, and documents for extra sources of income.
  • Make sure you maintain a good credit score. Pay your bills on time and don’t go over your credit limit.
  • Keep the money for your down payment safe. It might also be good to have enough money to pay off the first few months of your loan.

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This post was written by Derek Timmons

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