Episode 45 Transcript – More equity for rentals

Hi! You’re live with Jessi Johnson. What I want to talk to you today was the dangers of purchasing a home for the purpose of investment property with not enough down payment. A lot of people from time to time will fib or fabricate the truth as to their intentions of purchasing a particular property. What I want to talk about is a lot of times you’ll have people who have a principle residence and they will say that they are going to be moving into this new property that they are purchasing and renting out their existing property. Unfortunately a lot of people fabricate that truth for the purpose of getting mortgage. The issue with this is if they are actually planning on renting out the property they’re purchasing and only putting 5% down to do so, in the event that they need to refinance and after their term runs out, I guarantee they’re going to have to refinance, there’s a very good chance that if they switch lenders you’re still at 95% loan to value. What that means is that you’ve got 5% equity, the 5% down payment, if your property doesn’t increase or God forbid it goes down. The real estate market does fluctuate. They can’t get another mortgage. The bank can tell if the house they’re actually living in is their principal residence. They can tell which is the rental property. You are essentially handcuffing yourself by doing this. Something you might want to consider when putting 5% down for a principal residence that you are actually going to rent out. You could get yourself into a bit of trouble when you are trying to do a refinance.

I’ve shown you my living room before but now we’ve done some significant renovations. As you can see here we are not quite done yet but we’ve got all new tile flooring in, very beautiful. We’re doing all the painting, all the trim and my mom’s coming out of the closet, ha, ha!  As you can see we’re basically repainting the entire room. We’ve rebuilt the entire fireplace and putting in some tile around the sides. It’s an old school fireplace with the wood and we’re turning it into a gas fireplace. Putting in a new gas line and putting a new fireplace in. We did the crown moulding and baseboards are coming in and there’s my mom coming out of the closet. Are you ever going to come out Mom? [No, I like it in here!] You like it in the closet hey! I’ll show you the reno’s when they’re all said and done.

I hope you understood the initial point on this video blog that people very commonly do fabricate their true intention when purchasing properties and I understand some times that people do what they have to do to get what you need but you could be putting yourself into a situation that could get you into trouble as well. You can reach me at www.firsthomeinfo.ca. Have a good day! Bye.