Canada - how do you finance your 2nd, 3rd...10th property

[Dominika M]

Hi all,
i'm setting up to buy my first investment property. Conventional financing is a little difficult. I'll make this deal happen, but i don't know how i'll finance the next property. I'm in for the long game - i'd like to purchase at least 3 in 2 years and have at least 10 properties in 5 years. Canadians, how do you finance your 2nd, 3rd,...10th properties?
I currently have a tiny home in GTA, on which i've been accelerating mortgage payments to pay off 10 years ahead of schedule. I have a job with decent earned wages, but only one income for the family. I have savings for a very decent downpayment on investment property. My current bank will only give me about $100 mortgage because they are mostly looking at my earned income (not considering downpayment or future income from rental.
I went to a mortgage broker who can get me more mortgage but at significantly higher % (4.5% instead of 3%).

Canadians, how do you finance your 2nd, 3rd,...10th properties? (After that, i figure i will know the game).
Thanks a lot,

[Roy N.]

@Dominika M

The Canadian banks are starting to tighten-up their lending for investment properties ... yet they will still give our large - albeit insured - mortgages for owner occupied. RBC, Scotia (who just tighten things last month), and BMO still appear to be in the market for investment mortgages.

That said, if the bank has capped you at 100K mortgage - which won't buy a pretzel stand in TO - you need to check your debt to income {some banks will use DTI calculations similar to the US, others may also look at the "total household after-tax income to household debt" ratio}.

Making accelerated payments on your own home is an excellent strategy as that debt is not earning you any money. However, if you have grossed-up your payments, in addition to paying bi-weekly, your monthly debt service may be sufficiently large the bank has concluded you could not service more than another 100K of debt.

If you are planning to make a conventional purchase (LTV <=80%) you will get more cooperation from the banks ... thought some my try to convince you to ensure it even with a downpayment of 20-25% {ignore them}. You should also be able to secure a rate below 3.0% if you are willing to go with a 5-yr term variable rate product.

Now, if you mortgage broker is finding you products from tier II lenders, then you will get a larger mortgage (though technically you still need to qualify at the BoC 5yr posted rate w/ a 25yr amortization) as they have more appetite for risk ... you will also pay for that appetite 4.5 - 7%

If you can produce signed leases and tenant estoppels for the property you are purchasing, most of the banks will count 50% of the rental revenue in addition to your earned income {some use to count up to 70%, but most have pulled back} for qualification.

Finally, #2-#4 are essentially rinse & repeat: you will have to qualify for each subsequent property considering the debt of prior mortgages, but you will also get to use 50% of existing rental income.

When you arrive at mortgage #5 things change. Some banks, RBC as an example, will only entertain 5 residential mortgages {including your personal residence} ... and that's not 5 with them, but 5 in total. Others have their own internal policy and limits. That said, by the time you reach five residential mortgages your DTI likely will be flirting with the threshold ... probably long before that in the GTA.

For properties 6+, you might be able to still use conventional financing, depending on how much equity you have built in your prior properties and to what degree you have improved the rental revenue ... but the process gets more difficult each time. It was at this point we decided to pursue commercial properties only (financing is based more/mostly on the property itself and not your salary). You can also find yourself one or more private lenders who would be willing to carry a mortgage ... you will pay 6-10% interest which in our current markets will really limit the properties which service that level of debt and still cash flow adequately.