Have you worked hard to build the equity in your home? Now might be the time to put that equity to work for you. Your mortgage is an integral part of your overall financial plan and at Best Mortgages Vancouver we want to help you reach your investment goals.
Whether you plan to invest in stocks, bonds, mutual funds or real estate we will help you make sure you’re getting the right mortgage to reduce your borrowing costs and be able to take the maximum advantage of any possible tax benefits you may have from borrowing to invest.
You can arrange a free mortgage consultation with a Best Mortgages Vancouver Mortgage Specialist, without obligation. Click here or call us at 604-961-2400.
Borrowing to invest is not for everyone. Markets decline, rising interest rates and cash-flow crunches can all threaten your investment. Anyone considering adopting this strategy needs to be aware of both the benefits and risks associated with the concept.
You’re in a good position to take advantage of leveraging if you:
- You have a long-term investment horizon of at least 10 years
- You have enough stable cash flow to service the debt
- You have a reasonably high tolerance for investment risk
- You understand how the borrow to invest strategy works, including the potential for increased gains or losses
- Learn all you can. Attend a seminar or talk with individuals who are experienced in real estate investing before committing your cash.
- Understand real estate and be aware that investment properties are not liquid investments. Barring exceptional circumstances, real estate does not sell at a moment’s notice. It could take days or months to sell a property, depending on the strength of the market in a particular area.
- Consider cash flow. You’ll need to have enough capital on hand to cover any short-term losses due to vacancies between tenants, repairs, property management, taxes, mortgage, etc.
- Start small. Look into buying a condominium unit, single family home or a duplex. Leave large apartment buildings and commercial properties to the pros.
- Find a property that will be in demand when you are ready to resell.
- Inspect the property thoroughly to try and make sure that there are no large repairs or maintenance work required. If you don’t feel qualified to do the inspection yourself get an independent home inspection done. Unexpected repair costs can eat away resale profit. Even the best inspection can’t always predict problems, try to set aside some of the rental income for unexpected repairs.
- Be ready to make fixes quickly and respond to the renter’s needs. If you’re not prepared to be a hands-on landlord, consider hiring a property management firm.
- Find a real estate professional that has experience in investment properties in the market you intend to purchase in. They can pass on valuable information about the demand for rental accommodation and what rental prices are in your market. They will also be able to advise you on what types of properties are most in demand in the area you are considering buying and information on the current sale prices of other rental properties in the community.
Although borrowing to invest can work with many different types of investment it can work particularly well with real estate investments because real estate can provide the necessary cash flow to service the debt.
What are some of the benefits of investing in real estate?
Cash is the difference between your income and your expenses on a piece of property. You can have a positive or negative cash flow. Obviously, you’ll feel a lot better if the cash flow is positive.
Appreciation is the increase in value of a property. There are 2 kinds of appreciation. The first is from economic conditions beyond your control, such as inflation. But you wouldn’t gain much from this type of appreciation since the gain is offset by the higher cost of living.
The second kind of appreciation is market appreciation. This kind of appreciation, you can control. When you improve a property (through renovation), you are, in effect, forcing its value higher. You can purchase a piece of property in need of repairs and bring it back up to neighborhood standards or slightly higher. This will give you a property that is much higher in value.
Leverage is the ability to borrow a percentage of the value of a piece of property. Real estate, in comparison to other investments, offers a very high degree of leverage. In some cases it may be possible to finance 100% of the purchase price of a rental property. This allows individuals to purchase real estate with little, if any, of their own money. What other investments offer such a high degree of leverage?
With leverage, or the use of other people’s money, comes a repayment schedule. Your outstanding balance is being reduced with every payment you make. Part of each payment goes to interest (applied first), and part of your payment goes to principal. The principal reduction is called amortization — reducing debt. Hence, amortization can make you wealthy — slowly and steadily.
Owning real estate with the goal of making profit allows you to deduct interest payments and other expenses come tax time. But, don’t be fooled into buying real estate for the tax advantages; buy real estate because it makes economic sense to do so.
What you need to know!
Before beginning, you must understand that real estate investing is not a get rich quick scheme. Real estate investing can make you wealthy, but it certainly won’t happen overnight and it will require work.
When it comes to investing, everybody has certain goals and aspirations. However, we have found that there are certain guidelines every aspiring real estate investor needs to know:
Investing in property
Remember, investing in a property is much different than living in one, and while emotion and attachment can be prime motivators when it comes to homes, it is return on investment that counts when investing in real estate.
At Best Mortgages Vancouver we work with both experienced real estate investors and those that are looking to get their first investment property. If you have questions about investing in real estate one of our mortgage specialists would be happy to help you learn a little more about the process.