As your Realtor, my goal is to ensure you aren’t just buying a property, but that you are making a financially sound decision that aligns with your life goals. Here is a breakdown of how financing works in the investment space.

Residential vs. Commercial Mortgages: The Big Divide

The first thing to understand is how lenders classify properties. In the world of financing, the magic number is five.

• Residential Mortgages (1–4 Units): If you are buying a single-family home, a duplex, a triplex, or a fourplex, banks generally treat this as a residential mortgage. The qualification is heavily based on your personal income and credit score.

• Commercial Mortgages (5+ Units): Once a building has five or more units (or includes commercial space like a storefront), it falls under commercial lending rules. Here, the lender cares less about your personal income and more about the building’s ability to generate income. They look closely at the Debt Coverage Ratio (DCR) to ensure the rent covers the expenses and the mortgage.

Traditional Financing and Down Payments

For most investors starting out with residential properties (1–4 units), traditional banks and A-lenders are the go-to source.

However, the rules are different than when you buy your principal residence. In Canada, if you are purchasing a property strictly for investment purposes (meaning you won’t be living there), you generally need a minimum down payment of 20%.

If you are moving into the commercial space (5+ units), be prepared for a steeper climb. Commercial lenders often require down payments ranging from 30% to 50%, depending on the profitability of the building.

Alternative Financing Methods

Sometimes, traditional banks say “no” because you have too many properties or are self-employed. This is where B-Lenders or Private Lenders come in.

• B-Lenders: Offer slightly higher rates but have more flexible qualification rules.

• Private Lenders: Are usually individuals or investment corporations. They focus almost entirely on the asset (the house) rather than the borrower. Rates and fees are significantly higher, and these are typically short-term solutions (1 year) used to secure a property before refinancing with a traditional bank later.

Creative Ways to Raise Capital

If you don’t have 20% cash sitting in your savings account, you aren’t necessarily out of the game. Here are a few ways investors raise capital:

• HELOC (Home Equity Line of Credit): Many investors use the equity in their principal residence to fund the down payment on a rental property. This effectively allows you to unlock “dead money” sitting in your home.

• Partnerships and Joint Ventures (JVs): This is where you team up. Perhaps you have the time and expertise to manage the renovation and tenants, but you lack the capital. You can partner with a “money partner” who provides the down payment while you provide the sweat equity.

• Syndicates: For larger commercial deals, investors sometimes pool their money together to buy assets that would be too expensive for any single individual to purchase alone.

Who to Approach for Advice

Financing an investment property is complicated. Do not just walk into your local bank branch and hope for the best. You need a Mortgage Broker who specializes in investment properties. They will have access to multiple lenders (A, B, and Private) and understands how to structure deals so you don’t hit a financing “wall” after your second or third property.

If you need a recommendation for a mortgage specialist who understands the Ottawa investment market, reach out to us. We have a list of trusted professionals we rely on.