rental property mortgage

How To Increase Cash Flow In An Investment Property

In a hot Toronto real estate market where sellers are getting what they want (and sometime more), finding investment property opportunities requires a skill and having good team members.  In my search for a duplex or triplex, I focused on the Beach / Upper Beach area where the tenant profile is strong and potential for long term appreciation is in place.  We found a duplex that generated $2,500 monthly income, however it had potential for higher rents once the property was updated. Here is a video shot by my realtor, Andrei Angelkovski (, who specializes in investment properties in the Beach area, walking through the property and explaining the work to be done.  I'll be posting updates over time showing the progress and explaining why certain things were done.

Happy Investing!

To discuss your personal investment property goals and opportunities, please contact me.


2 Factors That Can Affect Your Home Value

Toronto and GTA's real estate values have increased significantly over the last 10 years.  The prices continue to increase as the global economy struggles to emerge out of the slowdown since late 2008.  There are 2 factors that can negatively affect the housing market in Toronto, GTA as well as Canada: Interest rate and/or unemployment spike.

1/ Interest Rate Spike

For the last 3 years, Canadian homeownerns and real estate investors have enjoyed historically low interest rates which have resulted in record sales and prices.  Interest rates have remained low to stimulate consumer spending and promote GDP growth.  As Canadians reach record debt levels (approximately $1.50 of debt to $1 earned), Canadians are running out of steam for further debt accumulation. Many Canadians have fixed mortgages in the 3.3%-3.8% and variable mortgages at the prime minus level.

In order to save the global economy from a depression, governments around the world took on aggressive stimulus (printing money) since late 2008 which will result in high inflation sometime in the future.  As inflation becomes the primary objective of governments, interest rates will have to rise to control and moderate inflation.  Canada is already experiencing high inflation numbers, however the Bank of Canada is choosing to keep its benchmark rate low due to the uncertainty originating out of Europe.

A spike in interest rates would effect Canadians since mortgages will renew at higher interest rates and unsecured loans would cost more.  Based on August 2011 data, the affordability index in Toronto for 2 storey homes and bungalows is at 61.4% and 51.9% respectively ( If one assumes that an income earner is taxed at 40%, it means that in order to buy a 2 storey or bungalow in Toronto, 2 incomes are required. Condos are a more affordable option in Toronto at 34.2%.

A spike in interest rates which diminish the ability of many to qualify for a mortgage especially insured since qualification is based on posted rates.  Demand would therefore be reduced since less buyers can qualify for a mortgage.

The main point to take away from this post is to have a plan regarding mortgage/debt paydown and plan to renew ones mortgage at a 6% level.  For more information, click here.

My next post will discuss unemployment spike.

Are Mortgage Interest Rates Dropping?

My Commentary On What The Bank Of Canada Said Today

Where Is Prime Rate Going?

Is That The Best Rate You Have?


In today's competitive mortgage market, there is lots of "lowest interest rate" and "best mortgage rates" advertising in the media. I even saw a jeweler offering mortgages!!  Is the best rate really what's best for one's situation?

Asking for and making a decision strictly on lowest rate is similar to someone walking into a financial planner's office and asking for the lowest MER mutual fund.  Mortgages are investments and need to be chosen based on where the economy is currently, what's expected to happen with interest rates over the next few years (inflation, job creation and global factors), personal and financial situation and borrower's risk tolerance. The fine print of the mortgage such as compounding, prepayment priviliges, increased payments, portability, assumability and how the penalty is calculated are important features to be understood upfront prior to commiting to a mortgage product.  It's unfortunate that homeonwers have been programmed to get the lowest rate, set the payment and not look at the mortgage till renewal time. There are significant opportunities in optimizing the mortgage to reduce the amortization and build significant equity in a shorter period of time if the mortgage is managed properly by a professional.

The next time you are in the market for a mortgage whether you are buying a home or an investment property, renewing, or refinancing, please email me to send you a checklist of factors to consider in choosing what's right for you and your family.

Please contact me should you have any questions regarding your mortgage.

What Drives Fixed Rate Mortgages?

Since January of this year, fixed rate mortgages have been volatile (see chart below) with many increases followed by decreases whereas prime rate (which affects variable mortgages) has been stable over the same period of time. What drives fixed interest rates to be this volatile?


Fixed rates are driven by the bond market.  Bond yields decrease with bad news such as the recent Japanese natural disaster and the Libyan crisis. These events which occured in mid March resulted in lower fixed rates for a short period of time. On the other hand, news such as higher inflation and positive job creation drive up bond yields since investors move their money into the stock market and for bonds to be attractive for investors, they would have to provide a higher yield (ie. fixed rates would increase).

Good economic news with respect to job creation, lower number of Canadians filing for unemployment insurance, US economoy creating jobs and trimming its deficit, result in increased bond yields and therefore higher fixed rates.

In my opinion, the number one risk over the next few years as the global economy recovers is inflation. Governments spent billions of dollars to stimulate the economy by providing liquidity into the market which has to be paid for by the taxpayers eventually.  High inflation would drive up fixed rates accordingly.

To review your personal mortgage situation, please contact me.

Cash flow Or Capital Appreciation?


When buying an investment/rental property, sometimes the question is: Should I buy the property to generate cash flow on a monthly basis or do I sacrifice cash flow (break even) and hope for capital appreciation over the long term?

In today's downtown Toronto condo market, it is difficult to generate positive cash flow without a significant downpayment.  Buying an investment/rental property is a buying a business. If you were presented with an opportunity to buy a business which requires 30-40% capital investment that breaks even, would you buy it?  Being profitable on a monthly basis and having time on your side for capital appreciation is a win-win investment strategy. The stronger the cash flow of the property, the easier it is to sell the property in future when you decide to do so.

Here is an idea: Having 2 rental properties that generate $400 each on a monthly basis will net $800.  If you were to put the $800 on your personal mortgage (which is not tax deductible), your mortgage amortization will significantly be reduced paying it off faster thus providing access to your home equity for further investments.

In conclusion, it is important to surround yourself with a team of professionals who are investment savy (mortgage broker, real estate agent, accountant and insurance broker) who understand your long term goals and can help you be on the right track.

For detailed cash flow, cash on cash return, return on investment, cap rate and capital appreciation analysis for your rental properties portfolio, please contact me.


Buying An Investment Property Should Be Like Having a Three Course Meal!

I heard Russell Westcott, REIN™ General Manager, in an interview on Inside Toronto Real Estate show say: "Buying an investment property should be like having a three course meal" and I couldn't agree more with him.  Here is his, and my, approach to buying an investment property, otherwise it's not worth it:

  • Mortgage pay down: the generated rental income has to pay down the mortgage to build equity over the long term
  • Cash flow: the rental property has to generate cash flow after all expenses.  Having an investment property is owning a business, and no one in their right mind would acquire a business that does not generate cash on a monthly basis
  • Capital appreciation: Investing in areas where there is long term capital appreciation due to job growth, infrastructure investments and immigration

I believe the above three courses, or rules, provide a solid foundation when deciding where and what to buy. For a complete cash flow, return on investment, cash on cash and investment property analysis, please feel free to contact me.


How To Get Financing For An Investment Property?

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.