Today, We dive into a bunch of areas. I hope that you can follow along and walk away with at least a new idea or two.
Building a Rental Portfolio, and have other people pay off your mortgage
The idea is to add a new house, apartment, or rental to your portfolio every couple of years.
Many people feel that the bank won’t give them money to buy a “second home”, but using this strategy works much better with the banks.
Getting a mortgage for a rental property is more difficult than getting a mortgage on your primary residence. So, if you buy a new place hoping to rent it out, it gets a little trickier.
But, if you buy a house, live in it for a couple of years and then buy a new house to live in and rent out your old house, then you have the bank giving you a mortgage on your primary residence. On your primary residence you can also get away with putting 5% down, where it isn’t usually possible to get a mortgage on a second property with only the 5% down.
I am going to make another video on ways to get the best mortgage rates and what the banks want in more detail, but often you will need a higher deposit and the bank will be strict on buying a second property for just renting out.
Points to consider. When you get a mortgage with less than 20% down you sign an affidavit saying that you will live in the home for a period of time, so check that out and make sure you are living in the house for long enough before you plan to move to a new primary residence.
But after that, if you have at least the 5% cash for a second home that you can move into then this is how this moving and acquiring properties can work.
The advantage of this plan is that when you rent out your original home you get rent that you can use as income. You also essentially have someone else paying your mortgage.
The downside of this investment plan is that you would become a landlord (or you need to find a company to manage it). I will try to get into more landlord type video in the future, bringing in specialists and giving my experience over the last 10+ years as a landlord. If this is a financial path you wish to take you will also need to learn the ins and outs of bring a landlord.
Buying and selling during the correct times in the market cycle is important but building a portfolio of rental properties can be a lower risk option compared to most investments.
Using Line of Credits to lower Bank Penalties
Save $3,000 or $4,000 Easy
We get into porting and assuming mortgages in another video, but if you are in the position where you are going to need to break your mortgage and want to reduce the fees, most mortgages have a prepayment option to allow for you to pay down 15% or 20% of the mortgage. Generally, the penalty is based on the amount owing, so using a line of credit or Home Equity line of credit to bring down the amount owing can greatly reduce the fees.
Once you sell the home you just use that money to pay off the amount you borrowed from the line of credit.
You only do this if you are going to sell your home and refinance as you want to use the money from the sale to pay off that amount borrowed from your line of credit.
Co-Buying
When I think of Co-Buying, I automatically think of the young generation. Maybe it has been explained to me that co-signing is basically now co-buying in that the co-signer is no longer just a name on file that could help the bank in the case that you don’t pay, a co-signer is now tied with their credit and shares the risk, basically making them a co-buyer.
I have heard many people say that the new generations will never be able to afford their first home. I disagree. Maybe I have more faith in them. I think that any young person with some financial knowledge can do small investments, save up and be able to handle the down payment needed. Especially if they get past the temptation of spending and lock saving into things like an FHSA (see our blog on FHSA here).
Maybe there are relatives that would be interested in investing if you are going to care for the place and cover the expenses sharing the house with their trusted friends. Thinking outside of the box can help you a lot.
Co-buying is also attractive for people who want to go big. If you hear of people that own 1000 units, they likely have worked together with other people to have such a portfolio.
It is important to watch who you go into business with, but many people who dream of business never do anything. Co-buying and partnering with knowledgeable people can change your life. It can also make great relationships, motivate you by being around likeminded people and if you have the chance to Co-buy and you trust the other people/person it may be well worth it.
For businesspeople co-buying may also be of interest if your company has money but you realize that the bank isn’t as nice with small to medium companies. If you have friends or family that can easily get the bank’s attention, then deals that wouldn’t have happened could become a reality.
HELOC – Home Equity Line of Credit (see our other video on HELOCs here)
For investors having a Home Equity Line of Credit can be extremely helpful.
You don’t pay until you use it, but it is ready whenever you need it.
Maybe in my life the market has not been completely predictable, but more so now, it seems that the market can be completely unpredictable. If there was to be a big crash, having money for investments will be a huge advantage.
If you are using line of credit for down payments, you may also be looking at alternative lending (see our other video on Alternative Lending).
There can also be some tax benefits as you can generally write off the interest from the Home Equity Line of Credit as well.
Having that money there just in case, is also an amazing way of reducing stress. Even if you don’t use it, if you have several properties or investments there is a high chance you will have a sudden big expense sometime, or there is a crash, etc. Peace of mind is a good thing.
When you get your next mortgage, ask your bank about attaching a HELOC to the mortgage so that as your mortgage is paid off, a HELOC amount grows, and you have access to these funds.
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