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What are income generating properties?

Income generating properties are properties purchased and held primarily for ongoing rental income, in contrast to investment properties, which are held as an asset, or sold, for a profit after upgrades have been made.

Types of income generating properties

Income generating real estate can consist of Commercial, Industrial, Office, Multi-residential (a minimum of five or more fully self-contained legal units) and mixed-use properties.

Since the start of the pandemic, we’ve seen increasing changes to the demand for commercial, industrial, and mixed-use properties. More people have left traditional jobs to start their own businesses, changing the job market and where people live and work. Additionally, with an increase in online shopping, warehouse facilities are in demand for sorting and distribution. 

Benefits of income generating properties for business owners

Investing in income generating properties as a business owner can help you generate additional income as well as provide a steady stream of income that can help support and supplement your retirement and investment goals.

How to qualify for an income generating property loan

Scotiabank’s Income Property Lending (IPL) program is designed specifically for income generating properties. A Canadian small business with annual sales of up to $15 million can apply for a loan under this program to purchase an income generating property. The loan can cover up to 75% of the assessed value of the property. A portion of the loan can be structured as a revolving line of credit for exclusive use by the business.

The business is required to make a down payment of 25% of the property’s assessed value. Qualifying for the loan is typically based on the amount of rental income generated from the property, and other factors, which could include the business owner’s credit score. We offer competitive interest rates as a part of our program that can be set as a fixed or variable rate loan, with a term between 3 to 5 years and amortization of up to 25 years. The monthly payment schedule is consistent on the principal, while the interest rate payment amount will depend on whether it is a fixed or variable rate.

Speak to your nearest Scotia Small Business Advisor to find out what documents are needed to start an IPL application. Most often you will need the financial statements for the business, a property appraisal, the building’s rent roll and copies of leases. 

Protecting your income generating property

As the borrower, you should consider if the monthly rental income covers the monthly loan payments and expenses. Otherwise, the property may negatively impact your monthly cash flow. In your planned expenses, include property insurance to protect against fire, vandalism, and other damage that could reduce the property’s value.

Also consider your ability to manage the rental property. Multi-unit buildings may appear to bring in more income than properties with fewer apartments, but as the scale of the building increases so do expenses, including property management and maintenance.

Other expenses to consider include annual property taxes, renovations to make it rentable and coverage of the loan until the units are rented. There will be closing costs such as land transfer taxes and legal fees. There may be other expenses such as condominium fees, advertising, rental brokerage agents and unplanned vacancies.

You can also apply for Scotia Business Loan Protection to protect critical members of your business operations. If you or another key employee loses the ability to work, Scotia Business Loan Protection can make regular payments or completely pay off your Scotiabank line of credit, loan or credit card.

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