The amount of time to gain enough equity in ones personal residence in order to refinance and use the funds to purchase a second property is anyone’s guess. It all depends on the market and how fast home values are increasing.

That being said, saving a down payment for the second property is another option that can save you having to wait for the value of the first home to go up. Since you want to rent out the original property and not the new one, you would be able to purchase with as little as 5% down, and you wouldn’t have to pay the additional rental premiums because the new property would be owner occupied.

How long would it take to gain enough equity leverage to own second home and rent out the first? How much of the home needs to be paid off in order to be considered for buying a second rental property? I ask because I have considered purchasing a home with the intent to move (after a few years) and rent out the original property.

The first is the cost of buying now vs. buying when Rachel actually moves to Kelowna. By buying now, Rachel would have to buy the property as a rental, which would mean that she would likely have to pay a slightly higher interest rate, and a substantially higher insurance premium than if she were to buy it as an owner occupied property a couple of years down the road. In fact, the higher insurance premium alone, would in my mind, be reason enough to deter her from taking this action as it would likely eat up almost the same amount of equity as buying a house in Calgary and having to sell it 18 months down the road.

Rachel would also be exposing herself to market fluctuations in a smaller market that may not be as stable, and is definitely much more seasonal than Calgary’s. If she changed her mind about moving this could cause her to be stuck with a property that is hard to rent, hard to sell, or has negative equity. It would be important for her to only make this decision if she was 100% sure she would make the move. Lots of things play into this type of decision, including job, family, peer groups, and other factors.

Furthermore, Rachel may not even qualify to buy in Kelowna because the bank would likely consider her monthly rent as a liability. While buying in Calgary may be a simple process, qualifying to buy a house with an extra $1500 in monthly obligations tacked on may be near impossible.

Rachel obviously has a lot to consider, and ultimately she will make the decision that is right for her. Her best bet is to weigh all her options, create a plan that minimizes her risk, and execute it to the best of her abilities. The rest will fall into place when and if the time is right.

she can rent a cheap place for now, and invest some of the downpayment in some preferred shares which pay her a dividend. also less stress about having to sell her place when she is ready to leave. she is not tied down, that way she can leave in six months is she wants.

its not always about the money.

Interesting question, one I’ve been asked before by a friend. I will give you the same response now as I did a few years back. Basically, I told my friend that if he wanted to buy a home but was intent on moving out in a relatively short period of time, why doesn’t he buy a property in the city that he intends to move to and rent it out. My rationale to him then was he could game entry into the home market in which he was going to reside, earn rental income to cover the carrying costs etc. on that property, while continuing to pay for a rental property in the city he was taking a definite term contract in. This turned out to be a good move for him as he bought a home in the market were the value of the home appreciated with the market and was able to carry it for the lease payments he was getting. Turns out that had he waited, he would not have got the home he did if he waited to the time he actually moved. At least this idea worked for him.

In your case it may very well work and your client will still need a mortgage. Just a thought.

All the best.

Nolan, Mark took the words out of my mouth…What are your thoughts on her renting in Calgary and buying in Kelowna where she ultimately would like to be. As he said, it solves both issues of getting into the market while interest and prices are low, and prtecting her assets from the future sale. Of course the rental market being saturated both in Calgary and Kelowna might mean she could find herself with both a mortgage and rent to pay…

As for the comment that Fred put out about the 18months being realistic, one would think that if she began making small movements towards her goal that would solidify her commtiment to follow through and follow her heart.

she can rent a cheap place for now, and invest some of the downpayment in some preferred shares which pay her a dividend. also less stress about having to sell her place when she is ready to leave. she is not tied down, that way she can leave in six months is she wants.

its not always about the money.

Additionally, everyone is talking about mortgage payout penatlies and fees to an agent.

I would suggest she look at a two year mortgage. You can get better rates and don’t have to pay any penalties for mortgage cancelation.

Additionally, most agents will give you a reduced commision if you plan on buying and then listing with them. By doing this you can significantly reduce your listing fees.

So if she did want to buy those are two handy tips to reduce all the costs that everyone is talking about.

My two cents.

MH