Why I Use RBC For My Toronto Condo Investment Mortgages
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2 things are becoming more of a reality this year: 1) the number of people who own multiple condos as investments is dramatically increasing, and 2) the number of banks who will lend freely and openly to condo investors has shrunk.
The Problem With Getting A Toronto Condo Investment Mortgage
The problem is some banks have changed their attitude towards condos. They feel they are risky and they don’t like to lend money on them as much as they used to. This is a recent development in the mortgage landscape in the last couple years.
This change in attitude is not having much impact on the average first time buyer or “end-user”, but it is having an impact on the condo investor.
Some examples of policies that some banks have recently adopted include:
- some banks have said they will not finance any condo under a certain size requirements. For example, anything under 400 or 500 or 600 square feet they will not touch.
- some banks will finance investment condos but they require unusually high down payments like 35%
- some banks will only give a maximum number of mortgages to one individual (not an issue for most, but for some investors with more than 3 units it can be an issue)
- self-employed borrowers are under more scrutiny
Two Important Things to Remember About Condo Financing
I need to stress a couple important things:
1) Every lender sets their own policies. If anyone tells you, you cant get a mortageg on this condo or that condo – they don’t know what they are talking about. You can always get a mortgage somewhere. There are hundreds of lenders out there in Canada.
2) Lenders change their policies all the time. Just because one lender doesn’t want to finance a condo today, doesn’t mean they won’t change their minds tomorrow if the market conditions change. This is a good time to remind you that everything I’m saying in this article is effective January 2014 and subject to change at any time.
Why I Use RBC for My Toronto Condo Investments
I personally use RBC for my condo investment mortgages because of a few main reasons:
1) I do my day-to-day banking with RBC. It makes things simplified to have everything under one roof.
2) RBC does not have any size restrictions on the type of condos they will finance. If you have been reading this blog for any amount of time you will know that I’m a big fan of studios and I own a few of them as investment properties. One of them is actually the smallest condo in Toronto, and RBC is totally cool with that.
3) RBC only requires the usual 20% down payment. As an investor, I want to increase leverage as much as possible and RBC allows me to do that.
4) RBC gives me a very competitive rate on my mortgages.
More info about Royal Bank’s Borrower Eligibility for Investment Mortgages:
RBC’s borrower eligibility for an investment mortgage (as of January 2014, subject to change at any time):
1) Borrower earns at least $75,000 if they own 2 or more properties. This would be non-rental income.
2) Client must have a minimum of $100,000 net worth (outside of real estate). This is why it is important to show your assets statements, such as RSP, TFSA, etc.
3) Maximum of 5 mortgages altogether in one name.
The Future of Condo Financing
I suspect that a lot of these rules that are currently in place from some of the lenders will go away by the time that many of the condos in the construction pipeline are completed.
Particularly the rule about not financing condos under a certain size. This to me is the most ridiculous stipulation out there by the lenders that have adopted this policy. They say that they are not financing the small units because they feel they are too risky. But it’s the exact opposite.
The smallest condos are actually the LEAST risky to finance of any unit type. Small units, the studios under 400 square feet, are 100% purchased by investors. That means the units are going to be leased out. They are the easiest to lease out of any unit type and provide the best cash flow of any unit type.
That being said, I do understand how the banks would look at these studios under 400 square feet and say that they don’t want to finance them because there are not any “comparables” on the resale market that have sold to say definitively what they are worth (appraised value).
However, over the next 3-4 years as hundreds of these smaller units under 400 square feet come online and all of them lease out with positive cash flow of $100-$300/month, and they start re-selling on the resale market, the banks will have to wake up and realize what RBC has known all along: they are ROCK SOLID investment properties and they are the future of downtown living.