We recently had an opportunity to catch up with Todd Spetter, a Toronto area mortgage professional who specializes in assisting residential property owners and first-time buyers. Todd has a lot of insight into the rental property market, and good advice for prospective buyers about interest rates, qualifying for different types of lenders, and the important role played by property management companies.
Lenders and interest rates
When choosing a lender, interest rates are one of the most important elements to take under consideration. Todd says that rates for rental properties are generally higher, especially with ‘A’ lenders like TD or Scotia – raising the rates on a 5-year fixed mortgage from the 3.1-3.3% range for residential properties to 3.3-3.5% for rental properties. ‘A’ lenders are reliable big-name mortgage lenders, but they’re not your only option when looking for a rental property mortgage.
Also available are alternative or ‘B’ lenders, who typically have higher interest rates and lender fees. Todd says that while these lenders aren’t often as attractive as ‘A’ lenders, they’re often the only way that somebody can get into the rental property market. Lenders will make decisions on whether or not to give you a mortgage based on a number of factors, including your reported annual income, employment status, credit score, and the potential rental income of the intended property.
Qualifying for a mortgage through both types of lenders is dependent on debt service. Todd recommends always going to an ‘A’ lender first, as ‘B’ lenders typically required a larger upfront fees and downpayments on rental properties. Todd let us know that some banks will pre-approve people for rental properties, and though it necessarily mean a guaranteed approval, it’s generally a good idea on whether or not they’ll be approved through certain lenders.
Although many people choose to go with a five year fixed mortgage for their rental property, these products often have the largest drawbacks when broken – with penalties as high as 4% of the mortgage amount. For this reason, it’s always best to speak with a mortgage professional about every angle and potential situation, not just the interest rates available.
Rental property market
“You’re not buying a rental property for the sexiness of it – you get into it to make money,” Todd frequently tells people. He says that property management companies have changed the way he looks at the rental property market. After a series of rather negative experiences with a once promising tenant, Todd found Highgate Properties and he never had to hear from the tenant again.
Todd says that ideally, you want to buy a rental property, hire a management company to look after it, and then find your next rental property. He says that many people try to manage rental properties themselves, but that it may not be the most practical situation for property owners – “The goal they have is not to manage properties but to achieve financial freedom – the way to do that is to delegate these things to people.”
Once you’ve become comfortable with the market and have owned a number of rental properties, the size and scope of your investments may grow naturally. “Something people with a solid track record of rental properties can do is enter into a joint venture partnerships – a silent partner with money, while you handle the rental side of the partnership” advises Todd.
Todd Spetter offers mortgage brokerage services for first-time buyers, people who are self-employed, are new to the country, or those who have blemishes on their credit. He says that brokers like himself work diligently to locate funding and lender packages for your mortgage financing – he works for you, and not the banks. Choosing the wrong mortgage can cost you thousands, which is where mortgage brokers like Todd come in and play such a vital role.
For more information about the mortgage brokerage services offered by Todd Spetter, visit his website at http://www.toddspetter.com.