Lately, I have been dealing with an increasing number of clients who are deciding not to sell their home. They are choosing to keep their existing property by turning in it into an investment property and using the proceeds of the refinance to buy a home. Since the financial credit crunch in late 2008, more Canadians are skeptical about the markets, are worried about having enough to retire and are looking for alternative ways to diversify their investments.A greater number of homeowners, after reviewing the numbers, are deciding to refinance their existing home up to 80% of its current market value, take advantage of today's historic low interest rates and rent the property. Here is real example that I did for a client who owns a condo in downtown Toronto.
Condo value: $350,000 Mortgage amount: $280,000 (80% loan to value) Mortgage amortization: 30 years Mortgage interest rate: 3.29% Mortgage term: 5 years Annual appreciation: 2%
There are two items to pay attention to in the above chart: 1/ initial equity is $70,000 and after 5 years based on 2% capital appreciation and utilizing the inflation hedge mortgage strategy, 2/home equity is at $135,771. By having the tenant paydown the mortgage and adjusting the mortgage payment gradually for higher interest rate environment, the home owner almost doubles their money in 5 years. Imagine the financial freedom a fully paid off investment property would create.
If you are interested in finding out how to turn your current home into an investment property and use your home equity to buy a home, please contact me.