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Better option than investment property mortgage???

Playday

Thread Starter
Freshman Member
Joined
Sep 9, 2019
Professional Status
General Public
State
Canada
Hello,
I can use some guidance here! I wonder which would be the better option for my brother, who wishes to buy a condo! Even though he has a stable job right now, he plans to get into real estate in the future. My brother doesn't have any pending mortgages or personal loans; even the property he is living in is mortgage free. Nevertheless, he is thinking of buying a condo for renting straight away. In about seven to six years, he would sell his home and move into the apartment.
He has saved enough to pay the 20% down payment, though he would need to finance the rest to buy the condo. Since it falls under an investment property, his friend advised him to get an investment property mortgage.
I guess he would be able to write off his tax return's interest irrespective of whether he takes a HELOC or a mortgage.
I'm much happy to understand from those who might have had a related situation and what you had ended up doing.
Thanks in advance!
 

ramrcdk

Senior Member
Joined
Jan 15, 2008
Professional Status
Certified Residential Appraiser
State
North Carolina
Condo...why? "Investment type Mortgage" humm. Why Not consider all of the Lenders Loan Options.
No judgement, just some thoughts. How much are the monthly mandatory dues & taxes? When was the last special assessment & are there any UPcoming? This can be costly.
Is there a Rent Control within the Dev' Covenants? I've found where there is NONE, the actual owner-resider' gets tired of the Condo'-in-your-face Renters. And what are the reasons the Condo would be a good choice? College nearby? Location to nearby??? ETC.
PITI + Dues = What is the profit margin? And the percentage of estimated Vacancy?

A house in a mandated HOA could be the same AND forecasting future outcomes may not bring any "better" future profit.
In any case, keep "all receipts of improvements" for use in IRS depreciation. And even read-up on the IRS pages of how to avoid cap' gains when selling a property.
EDITED IRS : thanks Denita, Playday isn't from "around here".
 
Last edited:

Denita Neuenhaus

Junior Member
Joined
Jul 21, 2015
Professional Status
Real Estate Agent or Broker
State
Florida
I see that you are in Canada and I'm not familiar with the tax system there at all so I have no way of knowing if your interest deductions are limited for HELOC's like they are here in the US. This would be something that your brother needs to review with his CPA/tax accountant so he makes an informed decision.
As to why he would use an investment mortgage over a "regular mortgage" it is because it is a form of mortgage fraud to borrow money for a secondary home when it is actually an investment property. Yes, the interest rate is higher, but so is the risk to the lender. IMO it's best to use the property for it's intended use (investment vs second home) and get the appropriate mortgage.
Whether a condo is a good investment vehicle is up to the investor. Personally, I wouldn't want to have a third party (condo board) involved that has absolute veto power over any tenant selected. In my area, the condo boards can be very capricious and they don't have to explain why they turned down your tenant. So you end up with a longer vacancy and lower cash flow over the term of the investment.
 

DTB

Elite Member
Joined
Jun 11, 2004
Professional Status
Certified Residential Appraiser
State
Illinois
Condo? No for some of the reasons already posted and they lag the market in appreciation for the most part.

Financing? Get the mortgage on his residence, much better terms. Use the money to buy the investment.

Rates are so low, tie the money up for the longest term possible.
 
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