Marc-André Rocher from the Royal Bank gave a talk at my Real Estate Investment Group about bank financing for residential multi-door. For information on our group, click here: Montreal Real Estate Group
|These are my notes from the presentation.The bank can finance a building as a residential property this is a 6 plex and sometimes exceptions for 7-8 plex depending on the property and bank. The property must be 100% residential without a commercial business. As soon as the building occupies a business, it’s considered commercial and the lending factors change completely.The bank cannot issue a pre-approval like you would get for buying a home, HOWEVER, I strongly suggest developing a relationship with your bank. It will insure fast action when you do need a mortgage, it will help the broker plea his case to the one who makes the finale decision, and also they may be able to freeze an interest rate for you for a period of time. It’s also very handy if you need a quick opinion about a listing where you have the type of relationship where you can email them the details.|
A mortgage for a residential that you are planning on living in is based upon the purchase price, otherwise it is based on income. From my experience it’s much easier to get a mortgage based on comparables and not on income.
Minimum down payment for a residential investment property is always 20%+ unless you are planning on occupying the property. For an investment the bank will expect as a down payment of:
Triplex- Fouplex: 10%
Make note that if you are planning on occupying it and the bank feels necessary, they will ask for a sworn affidavit that you are indeed going to be legally occupying.
If you are planning on putting down 20% you will avoid CMHC (insurance) costs which is about 3-3% of the purchase price and is accumulated into your mortgage.
Appraisal is required for 100% of non-occupying properties or any property worth $600K or more. The bank will usually pay for this appraisal. I say usually because if you’ve tried several times to get a mortgage on a property without avail, then bank may ask you to pay for the appraisal. All within reason.
Your financial situation
For buildings that you will not be occupying, RBC will require that you make at least $55K (salary + passive income) to purchase one property. They will require you to make $75K to purchase more than one. These numbers can also include if you are buying with a partner or spouse. The bank would look at your total income.
The bank also requires that you have at least $100K of liquid assets after down payment is made. This could include 50% of your RRSP, GIC, unregistered stocks and equity in a property or line of credit.
If you are planning on going the CMHC route, the bank will only consider 50% of the net rental income, where if you are planning on putting minimum 20% down, they will consider 100% of the rental income.
There isn’t a maximum of doors that you can own to be considered for a mortgage. It used to be 10, until it was recently changed to 2 million worth of properties.
The bank will always take a snapshot of the property and your finances. The potential of a property will not be considered. Meaning if 2 out of 4 apartments are vacant, you better have enough money to cover the difference in your calculations.
The bank will always make sure that there is sufficient cashflow from the property to cover the expenses and mortgage. If not, you will have to come up with the difference out of your pocket.
4plex value @ $600K
25% down @ $150K
Gross Rental Income (GRI) is $43,000
The bank will subtract
5% vacancy debt allowance
Taxes, insurance, janitor, heat, electricity
$400 per door per apartment annually
3% maintenance costs
$80 for fridge and stove
The Net Operating Income (NOI) is $25,000, which means that when the math is done, the ratio is 92%, meaning that the buyer will have to come up with the 25% + the extra 8%.
The bank would also like to see that if you have a permanent job and that you have been there for at least 6 months or until after probation.
For any other questions please contact me or Marc-André Rocher | Mortgage Specialist | Montreal South-West | RBC Royal Bank | T. 514-591-3815 I F. 514-300-2060 | http://mortgage.rbc.com/marc-andre.rocher