Multi-unit building purchase: Is it right for you?

Many real estate gurus in the last 10 years have talked about achieving financial freedom through the purchase of rental property. Although there is some truth to this depending on your investment/return, you have to be sure that owning rental property is right for you. It isn't as glamourous as people think and is often hard work. I will discuss a few benefits, but also a few downfalls, of being a landlord. It isn't just about collecting the rent cheques.

One of the strongest benefits is that you can buy a multi-unit property for as little as 10% down for triplexes and fourplexes and as little as 15% for sixplexes and up. This enables the property owner to keep most of the cash in their pocket, while the rental income covers the mortgage. This allows time for the property to appreciate in value as well....a side benefit.

Another reason to get into real estate is to use it a passive income stream. Is it  SO passive, though? Many people underestimate factors such as repairs/vacancy. If you don't have a contingency fund for emergency expenditures, you could be in trouble. You must be ready to spend hundreds of dollars should something break in one of your apartments. What if your tenant stiffs you for three months’ rent and leaves? Do you know your rights? Since Quebec law generally favours the tenant, it is important to choose your tenants carefully.

Another factor which works against you can be the insurance premium. Let's say you have a $500,000 mortgage while putting the minimum 15% down and want the highest amortization to get the payment as low as possible. The premium added onto a mortgage like this would be almost $25,000, making your mortgage $525,000. If you are planning on holding onto a property as part of a portfolio, the benefit will likely outweigh the downside. If you are planning on reselling your property quickly, that $25,000 will obviously impact you more. You must consider as well that there are usually file-opening fees with the lender and CMHC fees when buying these types of properties. The CMHC will also want to make sure that they calculate whether the property you are buying is a good investment. If not, they will not insure the loan, which will in turn force you into a conventional loan that carries with it higher interest rates.

Multi-unit purchases typically take longer, but if done with the proper real estate agent/mortgage professional, they can be very fruitful. It is essential, however, to be aware of what it takes to buy one, so you don't end up with nasty surprises down the road that discourage you from completing the purchase.

If you have any questions about multi-unit purchasing, I will be happy to assist; Please visit my website to see how I can help you: Mortgageratesmontreal.com

Buying a home - What to expect in terms of your costs

Most of my clients are uneducated in terms of the costs involved when buying their first house. Many of them believe that once you have the down payment, you are all set. Not knowing these costs can frustrate buyers because they don’t realize that they are necessary in the buying process. In the next few paragraphs, I will outline a few of the costs associated with your purchase so you can be prepared.

 Building Inspector

 Most people try and find the cheapest building inspector they can find. Most building inspectors cost at least $300-350 depending on the size of the property. 

Some inspectors can cost over $500. What is important to remember is to not be penny-wise but pound foolish. If you pay an inspector $50 more, but he finds a defect in the house like a crack in the foundation, you will be more than happy to pay it. A crack in the foundation can lead to hundreds if not thousands of dollars of unwanted repairs, and even lawsuits to recoup the money for repairs.

Appraisal

Most of the time, a bank will cover the cost of the appraisal up front, while some ask you to pay for it and then reimburse you. Please make sure to get this information up front since different lending institutions work in different ways. Usually, an appraisal will cost $300, and most banks will cover it. If you are trying to get a loan through an alternative lender, the cost is always at the expense of the client.

Provincial sales tax on CMHC Premium

When you buy a home with less than 20% down, you have to pay an insurance premium. If you put 10% down, for example, on a purchase of $200,000 your mortgage will be $180,000. Once you add the 2% premium, the new mortgage amount will be $183,600 with the $3600 insurance premium.  There is a 9% provincial tax on the $3600, making the total amount $3924. This $324 of tax must be paid when the loan is at the notary. It cannot be added onto the loan.

Notarial Costs

When you secure a mortgage on a home, it must be registered with the land registry office by an accredited notary. This professional’s job is to make sure that they verify that the property’s new mortgage is registered properly, to verify that the title is clean, as well as verify the certificate of location. They make sure that the buyers have the proper documentation with them at the closing to make sure that the transaction goes smoothly. Typically, for a home purchase, a notary will cost anywhere between $1,050 and $1,400. Once again, it is important to use a notary that you trust is competent, because a bad notary can wreak havoc on an otherwise straight-forward transaction. If you refinance a property, the fees are usually cheaper, but it depends from one notary to the next.

As always, should you have any questions regarding costs, or the mortgage process in general, please let me know. Anything I can do to educate you, or make the process easier, it would be a pleasure.

www.mortgageratesmontreal.com

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