Edmonton, St Albert, & Area RE/MAX Real Estate Professional

Financing:
Do you borrow from your primary resident i.e. HELOC, 100% down or
Do you borrow 20% down from primary resident and finance a second HELOC on revenue property or
Do you borrow 20% down from primary resident and finance with first mortgage on revenue property?
Which way do most real estate investors choose?

Hi John,
When purchasing a revenue property it's always a good idea to speak with an accountant before you do anything. They can help you figure out which approach is more favourable to your bottom line!
Realistically, you could finance a revenue property using any of the three scenarios you've described above (except for 100% financing which no longer exists). However, there are tax implications when you purchase a revenue property and you are able to write off certain associated interest costs.
I’ve had many clients who have financed their revenue property by providing the 20% down payment in order to avoid paying CMHC premiums (sometimes by pulling money out of their principal residence via a HELOC if necessary). I've also had a few clients who have bitten the bullet, paid the CMHC premium and have set up a mortgage for 95% of the revenue property.
As for where or not you should choose a fixed mortgage or a HELOC on your revenue property…again this really depends on your risk tolerance and personal preference. HELOCs are great as they have interest only payments and generally have lower interest rates than fixed mortgages. However, HELOC interest rates are floating, subject to change and you must be prepared for a fluctuating mortgage payment. I have some lending institutions that will give you the best of both worlds, allowing you to have both a fixed mortgage and a HELOC on the same property. I have used this product a lot for revenue properties.
The decision of how to finance a revenue property really depends on a variety of factors including where your down payment is coming from, your overall financial situation, how much income you can make from the revenue property, your risk tolerance…it goes on and on!
If you are seriously considering a revenue property feel free to contact me anytime, I’d be happy to answer any further questions you may have.
Natalie Wellings, Mortgage Associate with Mortgage Success
780-722-6287 www.youredmontonmortgage.com