Buying an investment property is an option many Canadians have considered over the last few years to diversify their investments. Arranging financing for an investment/rental property can be complex depending on the applicant's employment situation (salaried, hourly or self employed). The most effective way to get the mortgage approved is to have the rental property looked upon as a business. What does that mean? There are lenders who require a 1.1 to 1.2 DCR (debt coverage ratio) to approve the mortgage financing. Debt coverage ratio is the ratio of net operating income (rental income - vacancy - repairs & maintenance - management fee (if applicable) - property taxes - insurance - condo fees (if applicable)) to monthly mortgage payment. If that ratio is 1.1 to 1.2 (depending on lender) then the mortgage would be approved.
The conventional method of GDS/TDS (gross debt service ration / total debt service ratio) is usually maximized after the applicant owns more than 2 rental properties based on the revised government guidelines which went into effect April 19, 2010. Also, the GDS/TDS might not work if the applicant has a car loan and some outstanding debts.
Please contact me if you are contemplating buying an investment property (single family home or a multi-plex) and to get access to my cash flow, cash on cash return, ROI and property analyzer worksheets.