What is real estate cap space?
A long time ago, in a galaxy far, far away, it used to be quite easy to purchase and finance residential rental properties. Well, as you are probably quite aware, those days are pretty much over with, now! Sure, you can probably still pick up a few using your name, but most of the banks now have caps for how many rental properties you can own, regardless of who the mortgage is being held with! Depending on the bank, it might be 4, 6, or even 8, but at some point you are going to max out here.
At one point it was even fairly easy to hide the fact that you were a land baron, but about 10 years ago many of the banks started reporting mortgages on your credit report, so that makes things even MORE difficult for property investors.
Top 4 solutions if you are running out of cap space.
What’s the solution to all of this for rental property investors looking to grow their rental property portfolios? Well, here are a few ideas;
1. Play the Monopoly game. Sell your single family rental properties and buy a multi-family or commercial building. Use a corporation to buy the asset and obtain a commercial lease where the same rules don’t apply
2. Joint venture with partners so that they can qualify for the mortgage and save your personal cap space for when you really need to use it!
3. Place your rental properties into a corporation and place a blanket commercial mortgage on the entire portfolio of properties.
4. Stop buying real estate and invest in something else. We don’t really recommend that, but giving up is always and option!
If you’re looking to pick up a rental property or two in either BC or Alberta and need some advice, feel free to get in touch with our property management and real estate company!
Aug 13, 2017