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.

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.  

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.

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. 

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.

An investment property is real estate held for capital appreciation, which is the increased value of the property, and in some cases can provide rental income as well. In contrast, an income generating property is held primarily for the ongoing rental income. Of course, it may also appreciate over time.   For example, a property purchased and sold after some renovations is an investment property, not an income generating property.

Location is always important. We recommend that you work with your realtor to find a property that meets your needs. You can conduct research with the help of market reports from the Canadian Mortgage and Housing Corporation, CBRE Group, Cushman & Wakefield, Avison Young, and Colliers International. After you have identified a property, speak with your nearest Scotia Small Business Advisor to start an application for the Income Property Lending Program. You may qualify for up to 75% of the assessed value of the property.

At Scotiabank, we focus on the small business owner being able to add an income generating property to their operations with the  Income Property Lending Program. You may qualify for up to 75% of the assessed value of the property based on its rental income potential. To start an application and find out what documents are required, speak with your nearest Scotia Small Business Advisor.

Income generating properties may carry higher risk than a residential purchase. The Income Property Lending Program, structured specifically for small business owners to expand their income streams, requires a down payment of at least 25% of the assessed value of the property, which may be different than the purchase price. 

Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third-party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.