How would a self-employed person create a small number of rental properties via financing (in Ontario)?

Specifically, I'm looking for an alternative to buy, fix up and sell.

The challenge here is to get some financing to both buy and fix up houses that does not involve standard 'flipping' (buy, fix up, sell) and the infusion of cash that generates. Instead, it would be all about long term rental-based income.

Note that there appears to be a number of standard governmental biases against lending money to self-employed people - even the most shaky contract worker gets easy mortgages. (Known from personal and shared experience)

Note that this is in Ontario, Canada.

Thoughts? Some types of accountants (or firms), certain banks, funding options, etc?

1 Answer

  • 8 years ago
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    There are some caveats with this business idea, particularly the risk involved in becoming a property manager for residential leases. These risks are weighed by any lender who is hearing your appeal for a loan.

    What you'd have to do is establish your own property management company as a LLC (Limited Liability Company), where your business is its own entity and anyone bringing a lawsuit against your business is all they can complain against when seeking damages. Your personal assets can't be touched. This will limit the amount of risk toward yourself however you'll have to operate this for several years to build a credit rating and track record.

    Consider that the business of property management where in essence you'll become a landlord puts you at risk for abuse by the tenants who'll rent your properties. Despite all the deposits, background and credit checks, personal references etc. people will still cause damage and do "midnight moves." There are NO guarantees that your tenants will be angels and you'll never have any problems with them.

    What little you earn in net positive cash flow has to be set aside for maintenance, repairs, taxes, insurance, and other fees I'm probably forgetting about. In order to have a good margin you'd have to have many rentals operating, and you'll have to have a staff to help you keep track of them all. Salaries and expenses from keeping a staff will add to your operating overhead as well.

    Getting started is your biggest hurdle. Your business plan will have to look pretty spectacular to even get a lender's attention, and if you don't have any experience in this business you don't stand a chance. It's how it goes. Unless you have a partner who does have the experience, wherewithall to assist with assembling your business plan, has a little seed money and will agree to be an officer in your company can you feasibly make this happen.

    My advice, do some flips and reinvest in your own LLC of real estate rehab. Obtain your realtor's license and list the flips yourself (owner/agent). It's easier to get a small business loan for acquiring properties for resale this way. Have a trusted inspector to work with you and do pre-purchase inspections on properties you are looking at bidding on so you don't get stuck pulling the trigger on a money pit.

    Good luck.

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