Have Tenants Pay the Mortgage When Buying Properties

So you’ve started thinking about buying your very first rental property in Ontario.

Look at you go, Mr. Investor!

The problem is that you have not a single clue about what it takes to finance your idea or where to start.

I’ll try my best to answer your problem on the subject, but just remember that this article is a guide only and every mortgage application should be reviewed and assessed separately.

After some time in the real estate market, I’ve realized (and it’s pretty obvious) that real estate can be the biggest investment of your life, you’re spending (a lot of) money on the house after all however, if it works out, you can benefit a lot from it. But what if you didn’t have to pay the mortgage at all? There are ways that you can actually buy a house – without actually paying more than a down payment and a few additional costs for it.

It’s obvious that a house in Ontario still needs a mortgage (unless you’ve got a few hundred grand saved). However, a house can also be used as an investment. The most common way to do this is with a rental property. It’s exactly what it sounds like, a mortgage you take out on a property you want to buy to have tenants renting it. These types of mortgages are calculated differently and interest rates of often slightly higher since it’s a higher risk for the lender than owner-occupied mortgages. But really, you’re not paying the mortgage for the most part so a slight increase in rates won’t do too much.

So you may or may not have already started to look for a property but what exactly are you looking for? When you buy a home as an investment, you want to consider the target market you’re renting it out to.

One of the first things you should consider is the bathroom. It’s one of a home’s biggest assets and should be a high priority in deciding whether or not to buy. If you’re planning to rent to students for example who are on the go, a stand-up shower would probably be favored – less water usage and less time spent showering. However, if you’re renting out to a family, they may want a full bathroom.

The kitchen is another thing to consider. Students or single occupants generally wouldn’t need a large kitchen but a large family would.

After the pre-approval process, you would talk with a mortgage broker to see your available options. Be sure that the option you choose is going to work with your situation since over the length of the mortgage there will be several tenants – some who have more income than others. You also need to have sufficient funds in case a time comes up where there are no tenants and you need to pay from pocket. Once you’ve found a house and have been approved for the mortgage, you would pay the down payment. The down payment is generally around 20% or higher on rental properties. Now it’s all up to you to find tenants so post ads at grocery stores, laundromats, bulletin boards, tell friends, contact colleges and universities! Once you find a tenant, you’ll only generally have to worry about their payments paying off the mortgage, the maintenance, and making sure everything is running smoothly – unless you hire a property manager of course.