On the money: Financing strategies you can take to the bank

If you've been following our Investment 101 series, you probably have noticed a common theme running through the first three instalments.

Well, this one is no different. Cash flow remains your No. 1 priority. Remember you as an investor, not a speculator, are looking for properties that generate enough rent to cover all of your expenses and leave you with extra cash at the end of the month.

While it's obvious, at this point, that having cash-flow positive homes in your portfolio is an essential part of making money in property investing, it's important to also realize that cash flow is a major factor banks consider when you're applying for financing, says Real Estate Investment Network President Don Campbell.

"If you don't have cash flow from an income property, it's going to be incredibly difficult to get financing," he says. "Every time you buy a negative cash-flow property, it not only limits your personal income, but it also limits your ability to buy more properties in the future."

Campbell says the best way to think of an investment portfolio is in terms of good and bad debt. Good debt simply refers to properties that are generating income, while bad debt refers to those that aren't.

"The banks are going to look at your income and your real estate portfolio (if you have one already) to decide how much income you're generating overall. The more income you're creating, the more mortgages the banks will happily give you," he says. "If you have properties that are negative cash flow, that's taking money right off of your bottom line and that'll hurt your chances for additional financing."

Brokering mortgage success

The best way for you to ensure you have everything the bank is going to need and get the best possible interest rate is by working with an investment mortgage broker, Campbell says. Remember there's no such thing as pre-approval for an income-property mortgage.

"So the first thing you should do is get all of your info together and sit down with an investment mortgage broker because they can advise you on what you need to do to get approved for financing." In addition, brokers work with multiple lenders, allowing them to provide you with more than one option for a mortgage.

And best of all, you don't even have to pay them for their services because they're paid by the banks. But remember there's a big difference between a mortgage for a home and an investment property. So make sure your broker has experience finding mortgages for investors.

"All banks have limits on the number of properties they will finance for each investor. A quality broker will know that and place your mortgages in strategic fashion," Campbell says.

To get the rest of Campbell's insight into the world of finance, pick up an copy of our February issue, on newsstands now.

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