In the Real Estate investment game, cash flow is the ultimate goal. With positive cash flow, you can weather any unforseen market fluctuations without the worry of having to carry the investment - remember, you want your money to work for you and not work for money.


Given that cash flow is so important, you'll find that most (if not all) investors are more concerned with their mortgage payment that they are with the purchase price. If the tenant is paying your mortgage monthly, who cares what the property cost you!

Yesterday, the Federal Government announced that they are eliminating the option of 35-year amortization mortgages, and also eliminating zero-down mortgages in an attempt to protect the Canadian economy from being hurt in the same way the US has experienced.

As investors, zero-down deals are hard to make work, because it creates such high mortgage payments that positive cashflow is impossible, not to mention the difficulty in finding any lender that will finance a zero-down investment property. Instead, investment properties usually are purchased with 20% or 25% down, and often with 40-year amortizations to reduce the monthly payments.

So, does this announcement hurt investors? not really, in fact it can easily be taken as good news!

With a mortgage of $300,000, the difference in payments will only be $70/month (at current rates), and if $70/month makes a good deal go bad, it wasn't *that* good of a deal to begin with.

but what is does mean is that first time home buyers will now need to save a bigger minimum downpayment and be able to afford higher monthly payments due to the reduced amortization period. This will hold back a portion of first time buyers, and when they can't buy, they'll continue to rent for a while longer.

We have investors that are currently getting $300 per month in cash flow from an investment of under $85,000. If the next investment is 'only' providing $260 per month because of a longer amortization period, I find it hard to believe anyone will have issues, especially since it may may the rental market a bit tigher and even drive rent upwards.


You can find the article here

David.