Investor · Montréal, Québec · Member since 2016 · 52 posts · 17 votes
Hi BP, little background: currently own and renting out a triplex, the property mortgage is tied to my name ( No trust, corporation) holding the property. Now my current plan is to purchase more rental property, however I would ideally like to buy a property to live in within the next 5 years... my dilemma is how I should proceed to limit the debt I tie to my own name, assuming this would make it harder to finance future deals and ultimately my ideal living property. My current solution is to purchase larger residential rental properties (6-8 units) as financing for this would be considered commercial and therefore would not be tied to my personal debt as is my triplex, any advice as to how I should proceed would be greatly appreciated
Not sure about Canada, but down here they still count debt in an LLC that you own. Even if only a percentage. So putting it in an entity doesn't make it go away.
But hopefully you have rental income to offset that.
Good luck!
When you get a vanilla confirming residential 1-4 family property, it'll show on your credit.
I have $100k homes from my early days that show up on a credit report while the $4m property I just bought doesn't show up at all (even though I'm the Guarentor of both)
You are on the right track and the advice from our U.S. friends is more or less the same here in Canada. A residential lender will qualify you based upon your personal income and any financing will be registered against your credit regardless of whether the property in held within a corporation. This type of financing is traditionally for 1-4 unit properties, but a couple of the Big-5 were/are underwriting 5-6 unit properties with residential lending (this is their attempt to target an area where commercial lenders will not lend).
One challenge you will encounter with smaller commercial properties (5/6 to 10/12) units is the deal size may be considered too small by many {commercial} lenders who are not usually interested in underwriting financing less than $1-2M.
An option would be to approach a credit union as they frequently underwrite any rental property with commercial lending and will look at smaller deals.
When you do finance a property commercially, while the debt will not be registered against your personal credit, the lender will want to confirm your financial house is in order and you are not personally leveraged too much. They will also look at your experience in running a business/property of similar size and, if not satisfied, may insist on professional property management - though this is unlikely to occur with properties smaller than 20 - 30 units.
You are on the right track and the advice from our U.S. friends is more or less the same here in Canada. A residential lender will qualify you based upon your personal income and any financing will be registered against your credit regardless of whether the property in held within a corporation. This type of financing is traditionally for 1-4 unit properties, but a couple of the Big-5 were/are underwriting 5-6 unit properties with residential lending (this is their attempt to target an area where commercial lenders will not lend).
One challenge you will encounter with smaller commercial properties (5/6 to 10/12) units is the deal size may be considered too small by many {commercial} lenders who are not usually interested in underwriting financing less than $1-2M.
An option would be to approach a credit union as they frequently underwrite any rental property with commercial lending and will look at smaller deals.
When you do finance a property commercially, while the debt will not be registered against your personal credit, the lender will want to confirm your financial house is in order and you are not personally leveraged too much. They will also look at your experience in running a business/property of similar size and, if not satisfied, may insist on professional property management - though this is unlikely to occur with properties smaller than 20 - 30 units.
Thanks Roy, always look forward to your insight ! So based on what you said, I'm guessing your suggesting is to lean towards commercial property...
If your plan is to grow into a business with many units, then yes.
Look for the biggest property - obviously at a price that makes sense - that you can swing ... particularly if there is a chance you may need to bring on professional management.