Financing was promising to be problematic. So we found three tentative options and ran our numbers:
2.99% interest rate with 40% down payment resulted in $18/month cash flow with additional $250 of principal paid by the tenant during the first year. $268 cash flow per month is more than our goal of $200 per door per month.
With 4.99% interest rate and 25% down, we'd be losing $210 dollars per month. But again after taking principal pay down into account, the cash flow is positive $15.
In the worst case scenario of 7% interest only financing, we'd be losing $278 every month. This is a type of deal we don't want to get.
Before making the final decision and waiving financing condition, we confirmed with our mortgage broker that Plan A and B looked doable. We also negotiated a $200 / month increase in rent 3 months after purchase with the existing tenant. With this rent increase, even in the worst case of Plan C our loss would be $78 per month. We decided that we could live with this loss temporarily for 6-12 months, while securing a better financing option.
We qualified for Plan B and went with a 1-year term.
During the first year, we averaged $164 cash flow per month plus principal pay down.
At the end of the year, we re-financed and got 2.84% interest rate, which is $155 cash saving per month. In addition, we increased rent by $21. Lastly, we reviewed insurance with our insurance broker and removed flooding and earthquake, since the house is on top of a hill and earthquakes never happened in Barrie before. This saved another $5.
Overall, cash flow after the first year increased from $164 to $340. This means I gave myself a 2K raise.