Personal Finance

Minimum downpayment for rental property?

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  • Dec 15th, 2010 2:52 pm
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[OP]
Deal Addict
Apr 21, 2008
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Minimum downpayment for rental property?

I googled and got conflicting info. I think alot of it is dated.

What's the minimum downpayment required for rental property nowadays? And with which insuance provider...cmhc or genworth?
23 replies
Member
Nov 13, 2008
389 posts
51 upvotes
Kitchener
As the above poster said, 20% is the new standard on rental properties. All three insurers (CMHC, Genworth, Canada Guaranty) offer default insurance on rental properties, but if your lender wants you to pay the premium, I would look elsewhere for financing. 20% SHOULD make it a conventional deal most places, but some lenders will still want this kind of deal insured and may expect you to pick up the tab.
Deal Addict
Dec 8, 2002
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Edmonton
Also, banks have different qualifying criteria depending on the location of the rental property. Generally major cities are ok, small towns are not as easy (ex. TD requires CMHC insurance on any rental property in a town of less than 20,000 regardless of loan to value ratio). So every situation is unique and you have to ask the lender.
Member
Jan 20, 2010
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19 upvotes
Isn't there a way around putting 20% down on a rental property?
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Dec 10, 2008
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KINGKAM wrote:
Oct 28th, 2010 7:37 pm
Isn't there a way around putting 20% down on a rental property?
Yes, there is after you put 20% down for the rental property.
Member
Jan 20, 2010
314 posts
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Lol^^
I mean let's say I want to purchase a rental property, but don't have 20%, can I not purchase it with intent to rent it out?
[OP]
Deal Addict
Apr 21, 2008
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KINGKAM wrote:
Oct 28th, 2010 8:14 pm
Lol^^
I mean let's say I want to purchase a rental property, but don't have 20%, can I not purchase it with intent to rent it out?
Ya, that's what im trying to figure out too. I'll have to talk to a few lenders and see what ppl are saying. Any suggestions of where to go to...preferrably a cheap broker?
Deal Addict
Oct 1, 2006
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DanP wrote:
Oct 28th, 2010 10:33 pm
Ya, that's what im trying to figure out too. I'll have to talk to a few lenders and see what ppl are saying. Any suggestions of where to go to...preferrably a cheap broker?

You cannot get around the 20%. Except you want to commit fraud.
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May 15, 2010
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North York
Why would you want to buy a rental property if you don't have 20% to put down? It's not like you'll be able to put 5% down and generate positive cash flow.
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Sep 15, 2008
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Dilton wrote:
Oct 28th, 2010 10:42 pm
Why would you want to buy a rental property if you don't have 20% to put down? It's not like you'll be able to put 5% down and generate positive cash flow.

+1, unless you get some very very simple renters who don't know the difference. One of the reasons the new 20% minimum exists is to stop people from buying properties they can't really afford, even if it is for income purposes.
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Deal Addict
Dec 8, 2002
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Edmonton
Dilton wrote:
Oct 28th, 2010 10:42 pm
Why would you want to buy a rental property if you don't have 20% to put down? It's not like you'll be able to put 5% down and generate positive cash flow.

That's a generalization. On multi-unit apartment buildings, it is common to generate positive cashflow even with no equity.
[OP]
Deal Addict
Apr 21, 2008
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or even if im willing to supplement the short fall on a monthly basis. So the min is 20% no matter who i go with hey?
Deal Addict
Dec 8, 2002
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Edmonton
DanP wrote:
Oct 29th, 2010 10:09 am
or even if im willing to supplement the short fall on a monthly basis. So the min is 20% no matter who i go with hey?

Not necessarily. It's really a judgement call on the bank's part, and here are a couple other ways they can qualify you:

1. Show that the income will cover mortgage, expenses and contribute to a reserve fund (with some more left over). If you can show a capitalization rate of over over 8%, that will at least convince them that you are likely to make your payments. If you can also show that you have leasers lined up, that will help as well (longer term contracts are even better).

2. Get the property appraised. If it appraises higher than the purchase price , then you can show a lower loan-to-value ratio and qualify on that basis. For example the purchase price is 8 million, but the appraisal is 10 million. So your loan to value ratio is 80% which is similar to putting 20% down on a conventional mortgage.

If you can't convince a conventional lender, you can also try to get a bridge loan from a private financier for the 20% and then apply that as your down payment. This is a little more tricky since you will need to find a financier that doesn't mind being behind the bank on title (since the bank will insist on first priority). You can also try to get the full loan through private financing, but they generally have very high interest rates (over 10%), commencement fees, renewal fees and extremely steep penalties for breaking the loan.
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Nov 11, 2008
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DrXenon wrote:
Oct 29th, 2010 11:26 am
Why can't you just get a loan for the 20% downpayment from another bank? We did this to avoid CMHC fees.

... either your mortgage lender was blind, or you gave them an arm for a deposit. but that basically means your now at a higher risk to them which most other banks would not lend you the money if that was the case

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