How the new mortgage rules work in favor of the sophisticated investor

ScaredAs the mortgage rules continue to tighten, investors cringe in fear as the dream to expand their portfolio becomes more difficult. Prior to April 2010, investors could snatch up investment properties with only 5% down. Heading into 2013, the rules have drastically changed and are not in favor of the investor. Or are they?

Coming up with 20% down seems like a daunting task. A condo townhome in Kitchener-Waterloo sells for $155,000 with a required minimum down payment of $31,000 (20%). Let’s be real, the average consumer looking to invest in real estate is going to have a hard time coming up with $40,000 all in (20% down, closing costs, land transfer, renos, inspection etc) on an “entry level” condo townhome investment. So how could what seems like a punishment from the government actually be a positive for you, the investor?

Well that’s just it. The government is indirectly trying to “punish” the “mom and pop” landlords from over spending and investing in real estate with negative cash flow and everything else that comes with it ie. Providing poor quality housing, bad tenants due to improper background checks like a sophisticated investor would etc. With the new mortgage guidelines “weeding” out the unprofessional investors, it leaves more properties and opportunities for the sophisticated investor. The amounts of tenants have not changed, if anything there is more since 2010 here in KW/Cambridge. So what does that mean to you, the sophisticated investor? Less competition!

 Buying a primary residence still only requires 5% down but what has changed, is the length of amortization. No longer can you get an insured mortgage (0%-20% down) amortized over 30-35 years. It’s now 25 years. This part of the mortgage “crack down” does not affect the investor directly as sophisticated investors are putting 20% or more down. What it does do is prevent the tenant in your “entry level” single-family investment to qualify for a mortgage after a few years of saving. They now have to rent longer!

 So, lets do a quick recap of how the new mortgage rules affect you, the investor. You now have to put more money down, giving you a lower mortgage payment which equates to more cash flow every month. Your tenants will have a harder time qualifying for their own mortgage, so they will need to stay in YOUR property longer. With the “mom and pop” investors getting out of the market there is more opportunity both with finding properties and having a larger tenant pool to choose from. That’s not so bad is it?

If you’re looking to expand your single-family investment portfolio in KW/Cambridge, feel free to contact me anytime! Visit my website and see me renovate properties for clients and watch video testimonials. I look forward to helping you achieve your goals!

Mat Piche

RE/MAX Real Estate Centre

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