Buying a third home questions (debt load) (2024)

My situation now is I currently have a rental property that I bought 4 years ago in Ontario and there is roughly $220,000 owing on it. It has a fantastic set of tenants who are going to be there for a long while (at least 15 years probably longer). The mortgage is in my name.
I also have a house in Alberta that is paid for. It was a starter home with a value in today's market around 280,000. I have out-grown the Alberta house and am thinking of moving outside the city to an acreage somewhere in the $650,000 range. I would rent out the AB house.

If I borrow money from my Alberta house using the HELOC I will pay 2.95% on the $130,000 down-payment towards the acreage. The plan was to put a renter into the AB home and use that income to pay off the HELOC in 8-10 years.

What I am wondering is will a bank give my gal and I a 25 year - $520,000 mortgage based on our combined $120,000/year income? I can't find a calculator online to give me a rough idea. How does the bank calculate this with the rental property debt? And if not 520,000 then what amount can I ask for (or what cost of acreage should I be looking at that I can afford according to the bank). I know I can just go in to the bank and talk to them but I would like a rough idea prior to that visit.

Is there another way to do this? I was thinking of selling the AB house to my girlfriend and then just taking the acreage mortgage myself but not sure if we can do that..... If there's another way I'm all ears.

Thanks

I would suggest you talk to the bank. They can usually find a way. I say this as someone with many more mortgages, and lower official income than you. For example, I don’t see you factoring I the income from the rentals. Banks will finance based on revenues.

If you Don’t like the answer your bank gives you, I’d try a different bank, they will compete for business.

All that being said, you’ve got too much equity in your properties to make them good rentals. Your alberts property for example could be sold and you could buy 3-5 places with the money you get increasing your revenues significantly.

Just a Guy wrote: ↑15 Jul 2020 01:04...
All that being said, you’ve got too much equity in your properties to make them good rentals. Your alberta property for example could be sold and you could buy 3-5 places with the money you get increasing your revenues significantly.

Also, I think you need to have a sharp pencil and a good understanding of rental demand at a neighbourhood level.
It is a renter's market right now and I think there are a lot of 'single property landlords' regretting their past speculative purchases (particularly wrt short term rentals).

Added: I see Rentfaster Calgary showing 6,945 apt & house listings. Know your competition.

https://www.travelandleisure.com/travel ... e-to-hosts
What an absolutely tone deaf idea.

Superhosts with numerous properties are struggling during this time.
Their tears taste so very sweet!

Talk to a mortgage broker and save yourself tons of hours spent on the phone, emails, learning mistakes, and pitfalls you might not think about, and very likely a whole bunch of money. Why would you not use professional advise of someone with more knowledge than you, and way more products and lenders than what a bank can offer.......aaaaand, 99% chance it'll all be free service

Not all lenders will accept the HELOC as down payment. Selling to your girlfriend and stuff will just add extra complications and unnecessary expenses. If you're buying the bigger country property together, then both of your assets and debts will be combined, regardless of who's name is on the papers.

Just a Guy wrote: ↑15 Jul 2020 01:04
All that being said, you’ve got too much equity in your properties to make them good rentals. Your alberts property for example could be sold and you could buy 3-5 places with the money you get increasing your revenues significantly.

Could you explain further the first sentence in this paragraph? Or maybe provide me with some reference material that I could read up on. Thanks so much.

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Let’s say you have one property worth 250k which you rent for 2000/month. To make it cash flow, you’d have to pay the mortgage down significantly, providing equity to the bank and insurance that they won’t lose money if the value goes down.

As an alternative scenario you could buy five 50k properties which earn upwards of $5000/month and all cash flow without a significant pay down..done correctly, you should be able to finance them 100% too, meaning an infinite roi.

You don’t have to squeeze every penny out of the second scenario either because the margins are much better than the first solution. The first scenario is unlikely to make you real money, therefore not really an investment. The second scenario is designed to be an investment and is almost guaranteed to make you money.