Turning Your Property into a Lucrative Investment with Rental Income

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Rental Investment Property 101

Are you ready to step into the world of real estate investment and make your property work for you?

Aspiring landlords, listen up! B

uying a property with an existing rental unit can be your ticket to paying off that mortgage sooner than you think.

Moreover, the prospect of rental income can significantly boost your home purchase budget.

In this blog, we’ll explore how lenders treat rental income, whether you’re inheriting an existing tenant or finding a new one.

Inheriting an Existing Tenant: A Simple Path to Rental Income

The easiest way to start earning rental income is by purchasing a property with an existing tenant.

It’s a straightforward process – all you need is for the tenant to sign a new lease with you, and your lender can include the rental income in your financial profile.

Most lenders typically allow you to include 50% of the rental income. This accounts for factors such as the tenant occupying less than half of your property, as well as potential vacancies, repairs, and maintenance costs.

While buying a property with an existing tenant saves you the hassle of finding a new one, it comes with its own set of pros and cons.

On the positive side, you skip the tenant search, but there’s a catch – the existing tenant might be paying below-market rent. Despite having a reliable tenant, you could potentially earn more by leasing your property to new tenants.

To qualify for rental income inclusion, the rental unit often must be a separate entity with its entrance, kitchen, and bathroom. Physically separated units are usually a prerequisite for lenders.

Finding a New Tenant: Market Rent Opens New Possibilities

If your property doesn’t come with a pre-existing tenant, fear not – you can still tap into rental income.

Enter the concept of market rent. Many lenders allow you to include potential rent even if your property is yet to be occupied.

To make this happen, you’ll need to provide a market rent report, a valuable tool that estimates potential rental income based on similar units in your neighborhood.

Typically costing between $100 and $150, a market rent report is prepared by an appraiser who analyzes the local rental market, giving you a solid foundation for estimating your property’s rental value.

Additionally, some lenders may accept a signed lease with a new tenant before you move in as an alternative to the market rent report.

This flexibility allows you to secure rental income from day one.

Conclusions: Maximizing Your Investment Potential

In the exciting journey of becoming a landlord, understanding how lenders treat rental income can make a significant impact on your financial strategy. Whether you inherit an existing tenant or embark on the quest to find a new one, your property has the potential to generate income that accelerates your mortgage payoff and enhances your home purchase capabilities.

So, if you’re ready to turn your property into a lucrative investment, explore the possibilities of rental income. From inherited tenants to new lease agreements, each avenue offers a unique opportunity to make the most of your real estate investment. Start reaping the rewards and watch your property become a key player in your financial success story.

Contact Huber Mortgage to talk through your options!  Contact HERE.



PS – One of my hobbies is blogging about mortgages, debt and government policy.  During the day I’m a MORTGAGE BROKER in Kelowna, BC!

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