Investing in a rental property can be a lucrative strategy for generating additional income and building long-term wealth, provided it is approached with careful consideration.

This investment strategy offers various benefits for Canadians, including:

  1. Supplementing current income and boosting retirement funds, providing greater financial freedom.
  2. Allowing you to purchase your dream retirement home now and rent it out until you are ready to occupy it.
  3. Increasing monthly cash flow to cover potential expenses beyond retirement savings.
  4. Utilizing a multi-unit property, like a duplex, by renting out one of the units.

Before diving into purchasing an investment property, there are several important factors to keep in mind. First and foremost, the mortgage qualifying criteria for investment properties differ compared to owner-occupied purchases.

Key considerations when purchasing a rental property:

  • Minimum Down Payment: You will need a down payment of at least 20% of the purchase price. You can utilize existing equity from property you already own through refinancing to fund the purchase.
  • Rental Income Qualification: Only a portion of the rental income can be used to determine your borrowing capacity. There are two commonly accepted methods for using rental income (rental income add-back OR rental income offset). The method used will depend on the lender best suited for you.
  • Interest Rates: Mortgages for rental properties usually come with a premium compared to those for primary residences.

When managed well, an investment property can serve as a valuable source of supplementary income during retirement and offer the potential for capital appreciation on your property.

Investment properties can be an integral component of a sound investment strategy and portfolio. Before deciding whether or not an investment property is right for you, it is highly recommended that you consult with your financial advisor or planner to see how purchasing an investment property fits within your financial plan. I’d be happy to recommend an advisor for your needs.

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If you’re considering an investment property, get in touch, and I can help you explore your options and understand the requirements thoroughly. Proper guidance can lead to a successful investment that aligns with your long-term financial goals.

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