Consider tucking a rental property into your investment portfolio

In so many ways we’ve become a nation of investors. We’ve become accustomed to the idea that we’ll need to help provide for our own retirement.

Canadians certainly didn’t abandon the stock markets during the last downturn, but increasingly investors are considering new ways to diversify their portfolios. In fact, if you’re like most Canadian homeowners, your house was probably your best performing asset of the last few years. Many of us have now started reading the real estate news along with the stock charts!

For Canadians with good credit and good income, a rental property can be an outstanding investment. Approximately 25% of all new condos being built in Canada are expected to be rental apartments. And other multiunit properties – duplexes, triplexes and fourplexes – are also expected to provide housing for renters. Investors look to have the rent from these investments at least cover their costs and provide a reasonable investment return over the long term.

Under the new rules borrowers are required to have at least 20% downpayment on all rental property. And you are required to have a positive net worth and prove that you can carry the mortgage payments on a rental property factoring in any rental income. Alternatively, you need to have a good amount of equity in your principal residence to take out in order to get a big enough downpayment that qualifies you for a regular first mortgage.   

A rental property can be a great addition to an investment portfolio. And if you’re excited about the low rates on your home mortgage, consider that a mortgage on a rental property actually goes one better: like all investments, the interest on the loan to purchase a rental property is taxdeductible.

Like any investment, rental property isn’t an investment that you should jump into without doing your homework first. Consider your own aptitude for managing a real estate investment, and then talk to an independent mortgage professional about your mortgage options!