Mortgage Do's & Don'ts for Real Estate Investing
Real estate investing is like a game of chess: there are many paths to success, but the first few moves are crucial, and making the wrong ones could cost you. The best opener and strategy will depend on your needs and goals, but following a few basic rules will help most investors to save money and ensure long-term growth. The good news is, whether you own 0 or 100 rental properties, you can use these Do's & Don'ts to maximize your moves at any stage of the game.
Refine your "why" for investing.
Dig deeper than money. If you had seven figures in your bank account, what would that mean? Perhaps the freedom to pursue a dream; or the security to provide for aging parents. Having a defined vision for what the end game looks like will guide your journey and help you make the tough decisions.
Underestimate the importance of mindset.
All markets have ups and downs, and housing is no exception, so don't let short-term losses derail your long-term focus. That's easier said than done, but you can train your brain to be resilient. A couple of great reads on mental toughness (that have nothing to do with investing) are Option B and Can't Hurt Me.
Understand that the more real estate you own, the harder it is to get financing.
Even if properties aren't mortgaged, lenders have limits, with some as low as five units, because complex applications cost additional time and resources to underwrite. Most Canadians never buy more than 1-2 rental properties, but you can own more than a couple of duplexes by following these rules.
Choose a mortgage because it's easy, convenient, or cheap.
Instead of looking for the best rate, focus on qualifying on better terms for longer. Use lenders in the correct sequence to borrow more at an overall lower cost and acquire more properties faster. Some lenders have policies that are friendlier to investors. Be strategic: don't use your Queen if a pawn will do.
Build your team.
This should include a qualified mortgage professional, realtor, accountant, lawyer, insurance broker, and wealth management consultant. Discuss short and long-term needs and goals with each to help make holistic decisions. For example, should you buy real estate in a corporation?
Only review your mortgage options on renewal.
An annual review is the best way to ensure you're not missing any opportunities to save money. It's also key to help qualify for the next investment purchase because you never know when a great investment opportunity will present itself. Here are four steps you can take right now to improve your next mortgage application.
Know your numbers.
It's the key to reaching your goals faster, and watching your wealth grow is also super motivating. It's easy with the VINE Group Rental Worksheet because we've entered the formulas for you. See your debt coverage ratios (DCR), identify trapped equity, and instantly calculate your net worth. Download your free copy here to get started.
Give up if you're told "no."
Consider major banks, credit unions, monoline lenders, B and alternative lenders, private financing, commercial lending, or incorporating. Every investor who owns 5, 10, or 100 properties has been declined and kept going. Hitting the "financing wall" is inevitable, not the end.
Join a supportive community to learn from and cheer you on as your portfolio grows.
When it seems like it's all going wrong (there will be days) having like-minded friends to vent to and laugh with will make all the difference. If you're in Toronto, I recommend Volition's Real Estate Investor Meet Up. There are lots of options online, and you can also contact me; I'm happy to help.
Just buy and hold.
Depending on your skills and comfort level, consider incorporating other strategies to maximize your returns. Many investors like to buy, renovate, rent, refinance, and then repeat (BRRRR). Did you know that you can earn appreciation on a preconstruction condo without ever getting a mortgage? It's even possible to fix & flip with as little as $20,000 downpayment in Ontario ($10,000 in Alberta). There are lots of options.