While Someone Else Pays Your Mortgage
Wouldn’t it be nice to have someone else pay off your mortgage? These days, it’s not just nice—it’s entirely possible! The reason for this is that right now we have a perfect storm of:
- A new phenomena called Air BNB
- Historic and record low interest rates
- An influx of folks relocating to Vancouver Island, especially Victoria and surrounding areas!
All of these factors have resulted in record high rental accommodation rates and record low vacancy rates.
Let’s look at an example of what this looks like in real world terms. We’ll use the following assumptions for our example:
- Purchase price $700,000.
- Property contains a 3-bedroom suite upstairs and a 2-bedroom suite downstairs.
- Estimated rent for the upstairs is between $1,800-$2,200 per month, so we will be use $1,800; for the downstairs it would range between $1,200-$1,400, so we will use $1,200.
- Estimated property taxes of $4,000 per year.
- For home insurance we will allow $1,500 per year.
- For maintenance and repair we will allow 10% of the rent; that’s another $300 per month.
- Down payment will be 25%; we can get in with as little as 20%, however we will work with 25% for our example (this can be in the form of cash and or investments or equity take out from another property).
For this example our figures would be as follows:
Mortgage of $525,000 with a fixed 5-year rate of 2.94% and using a 30-year amortization would result in payments of $2,191 per month. Add to that the taxes, depreciation and insurance, and we have approximately $2,949; that leaves us a surplus of $51 from the rental income. Not much, you say at first glance? Yes, but bear in mind that over the 5 years, your tenants have paid off $58,900 of your principal, and any potential appreciation in value is yours!
Not only that, but you would still be setting aside $3,600 per year to allow for repairs and maintenance, and we’ve used conservative rental income. Of course, if you didn’t have the cash for the down payment, you likely had to borrow for that, so we would have to factor that in. However, keep in mind that the interest you will be paying on this mortgage will be tax deductible.
As well, we’ve found that for clients contemplating these types of purchases, when we’ve done a global assessment of their overall financial situation, in many cases we were able to restructure their existing mortgage and debt in such a way as to result in even further savings and improved cash flow.
Of course, being a landlord isn’t all “cookies & ice cream”; there are challenges, but if you’re the right person who can endure those, the rewards are incredible.
Auxilium means to care, aid, assist, and support.
We look forward to helping you with your mortgage needs.
or call 250-590-6520 (Toll-free 1-855-590-6520) to speak with a mortgage planner. We’re open 8:30 a.m. – 5:00 p.m. PT, from Monday to Friday.