A third rental after the first lender had reached its limit.
SampleIllustration only, no figures
How lenders count rental income
No lender counts the whole rent. Each takes a share, to allow for vacancies and repairs, and then uses it in one of two ways. The difference decides what you can borrow.
Add-back
A share of the rent is added to your income, and the whole mortgage payment, tax and heat on the rental sits with your other debts. Simple, and the less generous of the two, because the full cost of the property counts against you while only part of the rent counts for you.
Offset
A share of the rent is set against the rental's own costs first. If the rent covers them, the property roughly carries itself and barely touches your ratios, the measures of debt against income that lenders use; if there is a shortfall, only the shortfall counts as a debt. This is the method that lets a portfolio grow.
Which method, and what share, is set by each lender. For a property you are buying, the rent comes from the lease in place or a market rent letter from the appraiser. We know which lender uses which, and that is where the application goes.
What changes
A rental beside your own home
The lender is lending against a small business, and the rules move accordingly.
| Your own home | A property you rent out | |
|---|---|---|
| Minimum down payment | Starts at five percent of the first part of the price. | Twenty percent of the price. Default insurance is not available on a property you will not live in. |
| A home with a suite | Counts as your home if you live in one unit, and the suite's rent can help you qualify. | If you live in neither unit, it is a rental. |
| Income counted | Yours. | Yours, plus a share of the rent, by add-back or offset. |
| Documents | The usual. | The usual, plus the lease, proof the rent arrives, and the property tax notice for a property outside Vancouver, Surrey and Delta. |
| Pricing | Each lender's standard terms. | Many lenders price rentals a little differently and some do not take them at all; we show you the ones that do, side by side. |
| Who is on title | You. | You, or with some lenders a holding company, with you signing a personal guarantee. |
Holding companies and guarantors
Some investors hold property in a company for reasons of liability or tax, and that is a question for your accountant and lawyer rather than for us. What we can say is how lenders see it. Many will only lend to people. Some will lend to a holding company that owns the property, with the owners signing a personal guarantee, which means the company borrows and you are responsible if it does not pay. The company's incorporation documents, a record of who owns it and sometimes its financial statements join the application.
A guarantor is a person who signs for the debt without owning the property, usually a parent or a spouse whose income gets the ratios over the line. A co-borrower both signs and goes on title. Either way they are responsible for the payments as much as you are, and a lender checks their credit and income like yours. It is a real commitment, and we say so to them directly.
Proof
Proving rent, property by property
A lender wants the rent documented for every unit you own, not a total on a spreadsheet.
- A signed, current lease for every unit, showing the rent and the term
- Recent bank statements showing each rent arriving
- The statement of real estate rentals from your tax return (form T776), for any property you have owned a full year
- A mortgage statement for every property you own: balance, payment, maturity date
- The property tax notice and, for a strata, the fee and the most recent documents
- For the property you are buying, the lease that comes with it or the appraiser's market rent letter
- A one-page list of every property: value, mortgage, payment, tax, rent
One property at a time
Most lenders have a limit on how many rental properties they will carry for one borrower, and each counts rent its own way. So the order matters. The first two or three can go to a lender that uses the offset method; the next may need a lender with a higher limit; the equity in the first can supply the down payment for the third.
We keep a copy of your list, property by property, so that each application starts from an up-to-date picture rather than a search for last year's leases. When a lender's limit is reached, the next property goes somewhere else by plan, not by surprise.
Can I use the rent to qualify before I have a tenant?
For a purchase, yes: the lender uses the lease that comes with the property, or a market rent estimate from the appraiser. It uses its share of that figure, not the number in the listing.
Can I buy a rental with less than twenty percent down?
Not a property you will not live in; default insurance is not available for it, so twenty percent is the minimum. A house with a suite that you live in is different, and can be bought as your home.
Do I need a company?
No, most people buy rentals in their own name, and more lenders will lend that way. If your accountant recommends a company, we know which lenders will work with one.
What about short-term rental income?
Most lenders will not count it, because it is not a lease, and BC restricts short-term rentals in many communities. If the property has a long-term lease, we use that.
How many rentals can I own?
There is no legal limit. Each lender has its own, which is one reason we plan the sequence of lenders rather than going back to the same one until it says no.
Bring your property list, even a rough one, and the lease for the property you have in mind. Book a 20-minute call →