Every home is not ‘just’ a home, it is an investment more than anything else. Being smart when purchasing a home means that you are tapping into better ways to secure your financial future, and one of those ways is using your home equity to invest in income property.
What is an Income Property?
Any property that you purchase and develop for the purpose of earning income or generating profit through price appreciation, leasing, or renting is called an income property. This can apply to both residential and commercial property. Basically, a residential income property can also be called a non-owner occupied property.
One thing to remember though is that the mortgage for a non-owner occupied property usually sports a higher interest rate as compared to a property that the owner lives on because residential income properties are commonly viewed by lenders as carrying a higher risk.
What is Home Equity?
If you own your home, then your home ownership has built up some added value that’s referred to as home equity. It is the current market value of your home minus any mortgage payments that you still have to pay.
Home equity is the value that has been built up over time as you pay off your mortgage and the market value of your home appreciates, either because of some changes in current real estate prices or because of upgrades.
Investing on Income Property Using Your Home Equity
Your home equity is money that you can use for other purposes. One of the best ways to use a home equity loan is to make use of it to invest on income property, how so? Cash flow is the number one barrier as to why people often cannot buy a vacation home or another property that they can rent out to tenants. With current low interest rates and refinancing options that our team of Toronto mortgage brokers can help you with, you can make owning a second home or investing in income property a reality.
You can get a home equity loan by borrowing against your own equity. This will allow you to have a considerable amount that you can use as a down payment for an income property. Any income that you can get from leasing that property can cover that property’s mortgage payment, essentially having a property that pays for itself!
If done properly, especially with the help of mortgage professionals, you can purchase an income property with very low interest rates. It is a smart move because again, it will be the tenants who will be paying for your second home until the time you get full ownership. Once that happens, you can either sell the property for profit (great location means your property’s value will appreciate over time) or choose to continue renting it out as a source of passive income that you can enjoy for years to come!
Not a fan of purchasing a second home or an income property? Then use your home equity to further increase your property’s value by using it for upgrades! Contact us to find out more about how you can use your current home equity to finance your future investments.