Our family home has about $188K in equity. We are carrying a $20K HELOC. That gives me about $168,000 in equity.
($525,000*0.8-$357,000)=$63,000 <--- if this is right, I need to find $100K before I can even entertain this. I now feel like a trainwreck. <Edit - D'oh - no this is the size of downpayment I have. Aye Carumba, wake up!>
How much cash? I would say zero to 20%. I think you are trying to find a way to put zero cash down. Do you have savings? If yes, you still may not want to use them. I would rather keep my savings and borrow money as long as my savings are earning more interest than the mortgage. AND as long as the rental income covers all mortgage(s) & expenses.
I don't quite follow your numbers. Your house is worth $525K but your current mortgage is $357K so your equity is only $168K not $188.
As mentioned, of that you can only borrow a total of 80% from your house. New Canadian rules, this is only 65% for a full HELOC but you have lots of it as a real mortgage so you should be fine with 80%
I will assume the second line of your calculations are correct, so you could get $63,000 from your home. You may want to look into getting your house appraised; the bank will do this if needed.
I wouldn't borrow the entire amount but just set it up as your rainy day fund. You could/should set this up tomorrow and at least have that part of your financing ready.
On the rental, that is where you get the extra money:
$160K Purchase price
$32 K down payment
$128K Mortgage on rental property (I would put a HELOC of $1 on this place too and it can build as your rental emergency fund as you pay down the principal.)
As you already figured out, you will need to pull at least $40k for the down payment and closing costs.
With a good inspection you should know what your immediate fixer-upper costs are.
This $40K will likely be borrowed at a variable rate on your personal home HELOC. So use only 40K of the 63K. If the place is in such bad shape that you need to borrow all $63K today I would walk away. Also, don’t mix any other borrowing in this HELOC or it becomes complicated to deduct the interest for taxes. Even if the title is on your house the interest for this portion is still tax deductible because you used it to purchase rental property. (FYI for Americans, we can’t normally deduct interest on our prime residence.)
So numbers wise, it all looks possible. You do have enough equity in your home for the down payment+. Given the equity in the properties the bank may lend you that money. But honestly it is a bit tight. If you have a good steady job they will be more willing to take a risk.
But the bigger question is, can the incoming rents not only cover the mortgage but also the money borrowed for the down payment? And the taxes, maintenance, management, vacancy etc.
Is it safe to jump in?
Yes, if your incoming rents minus expenses are cash flow positive. But you need to look carefully at your expenses because you have more expenses since you plan to borrow everything.
Quick math on the mortgage, $160K at 3% for 25y = pmt of $760 per month. CIBC once did a quick calculation for me and said rents must be 2x that or $1520 per month. Ball park, can you get that in your area? But you should look at ALL expenses and check for cash flow positive.
Leveraging that much borrowed money, & paying back the
two loans would be my biggest concern.
But if it works, you have effectively put ZERO down and you are making an infinite ROI.