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Buying your next property

Buying a second home isn’t that different from buying your first – or is it? Here are some tips to guide you through your next property purchase.

Updated

4 min. read

Buying a second home or property? Exciting! Whether you’re looking for a vacation home, investing in real estate, or downsizing, there are many things that go into buying a second property – and we’ve got tips to help you along the way.

Buying an investment property

Investing in real estate can bring in extra income and help you build your equity. What’s not to love? However, before you take the plunge, it’s a good idea to learn about the responsibilities that come along with an investment property.

Start by reviewing your finances and asking yourself if you can afford to carry an investment property. Here are some expenses you should consider to help you decide:

A minimum 20% down payment.
Real estate agent commissions and lawyer fees.
Income that can cover your mortgage payments, property taxes, utilities (if you’re paying), insurance and repairs.
A budget for maintenance repairs.

You’ll also need to dedicate some of your time to learning about your legal obligations as a landlord and familiarize yourself with the Canada Revenue Agency Rental Income Guide.

Buying and selling a property

Have you outgrown your current home, need to relocate or just want a change of scenery? We’ve got tips and strategies to help make your home buying or selling experience a success.

Should you buy before you sell or sell before you buy?

There are pros and cons to both strategies. Whether you want to buy or sell your property depends on your financial goals and needs. Take a look at the table below to compare the two options:

Selling your home first versus Buying a new home first
Selling your home first	Buying a new home first
Getting a new mortgage will be easier than getting a second mortgage. You won’t have to carry two mortgages at once. You can use the proceeds from your home sale toward your new home.	You have more time to make improvements and upgrades to your new home before move-in. You can make your current home “sale-ready”. You won’t have to worry about not being able to take possession of your new home before closing on your current home.

If you’re not sure which option suits you better, make sure to talk to a realtor to help make an informed decision.

How to finance your second home

Before you jump into buying your second home, it’s important to take the time to do your research. Here are some financing options you can explore:

Check your current mortgage features. A portable mortgage lets you transfer your existing fixed mortgage rate, loan balance and maturity date to your new mortgage.
Get a pre-approval. Even if you’re a current homeowner and are looking to buy a new property, you’ll still need to get pre-approved for a mortgage before you start shopping. Then, you can look at your existing equity and what you have available to purchase the next home of your dreams.
Consider bridge financing. Bridge financing is used when you buy a property before your current home sells. The temporary funding covers costs of both mortgages until you close the sale on your property.
Make your home sustainable. Learn how to reduce your carbon footprint, your energy bill, and your maintenance costs with an eco-friendly home.

“Even if you’re a current homeowner and are looking to buy your next property, you’ll still need to get pre-approved for a mortgage before you start shopping.”

Downsizing

Perhaps your children have grown and left the nest. Maybe you’re planning to retire and want a lower maintenance home. Or, you may want to move to a new city. Whatever your reasons for downsizing, we have ways to help you make the most of the equity you’ve built in your home.

Downsizing from a house to a condo has several benefits. You no longer have to concern yourself with property maintenance, shovelling snow, cutting grass, and all of the other house chores. However, condos tend to charge a monthly maintenance fee, so you’ll have to look closely at these fees when shopping for a condo.
Free up funds you’ve built in your home. Let’s say your current home is worth one million dollars in today’s market and you buy a new property for $750,000, you’ll have approximately $250,000 in available cash. That windfall can be used as investment funds to give a lift to your post-retirement finances.If you’re considering this scenario and believe you’ll have extra funds for investing, a BMO financial advisor can help provide you with a variety of investment options and guidance.
Moving to a less expensive area can lower your daily expenses and save you money. Buying a less expensive home further out of the city can cut costs and free up more post-retirement funds. You may also be considering relocating to a new country for retirement.

Now that you have some of the basic tips and advice on buying and selling, you‘ll be able to make choices with more confidence. You can also speak to a Mortgage Specialist for more information and to start your pre-approval.