How am I going to finance this?

This is the question we all ask ourselves when we are looking at purchasing our next (or very first) rental property. Whether it is a $300,000 deal or a $3million dollar deal there are ways to finance it even if you do not have the cash in your account to use as the downpayment. See below for ways on how to finance your deal.

Traditional Lending ('A' Lenders)

Traditional lending is using the big banks to lend us money in the form of a mortgage.

Here in Ontario we have a number of large banks at our fingertips competing with one another to lend us money with a promise to pay it back over a set number of years (amortization period).

This form of lending has many rules tied to it but has the least amount of interest on the loan.

For a second home or investment property you'll require 20% down on your purchase. The bank will generally lend you 80% LTV (Loan to Value - a percentage of the cost of the property) on a residential purchase.

If you are looking at purchasing a commercial type building (which includes residential that have 5+ units) then you are looking at a different type of requirements. Commercial lending has higher interest rates and higher down payments (25% down, 75% LTV). Generally you will be dealing with a 20 year amortization compared to the 25 years you can get on the residential side. Commercial lending has its own set of rules, much different than on the residential side. Think of residential lending as having to stay inside the sand box while negotiating terms and getting approved. Commercial lending you are able to play outside the sand box when it comes to getting approved. On the commercial side they like to see your total net worth and what kind of income you have coming in. It's a lot more flexible compared to residential.