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My Top 5 Tested Tips for Wealth Building Homeowners

My Top 5 Tested Tips for Wealth Building Homeowners

Welcome to 2021 and to my blog! Whether you are looking into real estate for the first time or if you already own real estate, I am happy to share my mortgage expertise with you. Subscribe to my mailing list so you never miss a post!

Every blog post will be jam-packed with helpful information about real estate, financial services, and wealth-building, and today is no exception. Today, I am going to share my top 5 tips for potential and current real estate owners. Let’s dive in!

#1
RRSP/RESP/Mutual Funds or Real Estate? REAL ESTATE!

The debate over “what is the best kind of investment” never ends. RRSP/Mutual Funds and TFSAs are often promoted by traditional banks. However, opting for them over real estate means you are only earning money on your own hard-earned cash: you aren’t leveraging someone else’s money as well.

Real Estate gives you the opportunity to put up only 20% of the total property value and let someone else pay off the mortgage for you.

Here’s the breakdown:

(In order to show the difference, we need to compare apples to apples. In this example we will assume you are putting $400/month away into an RESP, RRSP, TFSA, Mutual Funds or Savings Account). 

RRSP/RESP/Mutual Funds

$400 investment each month

12 months/year

15 years

4% Annual return on investment

$98,436 = Total Savings After 15 years

Real Estate Investment

$400/mth would be the approx. cost to borrow a $100,000 Down Payment

$400,000 Mortgage= $500,000 Investment Property

15 Years Of Ownership

4% Annual Appreciation

= $900,471 after 15 years

Mortgage remaining after 15 years = $246,189

Equity created in property $654,282 – $100,000 Initial down payment

$554,282 = Total Equity After 15 years

$98,436 vs $554,282 (560% Higher Return on Investment)

But What if…

Real Estate only appreciated 2% instead of 4%?

Mutual Funds/RRSP/RESP return was 8% instead of 4%?

= $138,415(Investments) vs. $326,795(Real Estate)

188% Higher Return on Investment

No matter how you look at it, Real Estate will always yield a greater return than other investments.

#2
You Can Earn A Guaranteed 19% Return On Your Money

Most of us are searching for ways to put our money to work. This usually involves finding the right balance of risk vs. reward through a combination of investing in stocks, mutual funds, real estate, etc. Sometimes the simplest and best return for your family is sitting right in front of you: CREDIT CARD DEBT.

The average Canadian household is holding $4,240 of debt in credit cards. The average credit card interest rate in Canada is 19%. If you paid off that credit card, you would give yourself a 19% return on your money.

It’s that simple.

If you have no credit card debt but you have a LOC, student loans, consolidation loans, or a mortgage, you could guarantee a rate of return equal to the interest you are paying. For example, paying off student loan debt of 7% would equal a 7% rate of return. You would be hard-pressed to find that return anywhere else without leveraging yourself or taking on some sort of risk to your initial capital investment. 

Example:

$4,240 of credit card debt at 19% interest

Making just the minimum payment of $68/mth would take 23.2 years to pay off and would cost you $14,646 in interest.

Getting rid of this debt is the best bang for your buck with a guaranteed return on your money: 19% to be exact, and no risk. As an added bonus, you improve your credit score with strong payment history. Good credit opens the door for more and better opportunities to invest!

#3
One Less Coffee A Day = Being Mortgage Free 2.5 Years Earlier

Time is the most powerful ally of investment. Time allows for your investment to grow and the power of compound interest to take place. The same can also be said about paying off your mortgage quicker. Time can be your friend if you use it correctly.

Something as simple as giving up a coffee a day can make such an impact. Imagine being mortgage-free two and a half years earlier than you expected. How would that change your life?

Here’s an example:

400k Mortgage with 25 years remaining has a payment of $1,893/mth.

A cup of fancy coffee is $5/day. If you put that toward your mortgage instead, you would reduce your mortgage from 25 years to 22 years and 6 months. The savings in interest would be over $20,000.

This would mean increasing your mortgage payment by $147/mth or $73.50 if you’re bi-weekly or semi-monthly.

#4
Is HELOC Right For You?

HELOC stands for Home Equity Line of Credit. HELOC is a financial product that works like a credit card for the equity in your home. You can borrow money up to a certain credit limit set by your lender and then pay back the borrowed amounts along with interest.

This option can offer more flexibility — you can even withdraw and make payments on a daily or weekly basis, if necessary.

A HELOC’s credit limit depends on a few factors, including your credit and unpaid debts, but it’s determined largely by the market value of your home and the amount you owe on your mortgage.

A HELOC is an open mortgage and can be paid back at any time with no penalty. There is no cost to use a HELOC unless you have a balance on it. 

Minimum payments each month are interest only.

There are costs associated with initiating a HELOC including the appraisal and legal fees.

Some mortgages are already set up for a HELOC and there might not be a cost.

There are several ways to take advantage of a HELOC, including:

  • Transfer higher interest credit balances: you can pay off your debt quicker if you transfer credit card debt (or other high-interest debt) to your HELOC due to HELOC’s lower interest rates.
  • Use it as an emergency fund for loss of job, health reasons, etc.
  • Use it for repairs, renovation or maintenance on your home.
  • Use it to purchase an investment property

#5
Should You Refinance Your Mortgage?

Refinancing is a debt management plan that can help you reduce your monthly household payments, complete home renovations and/or get funds to purchase investments.

There are many variables to consider when looking to refinance your mortgage: your financial situation, current and market interest rates, employment situation, etc. However, you may find yourself in a common situation when refinancing your mortgage would be very profitable.

This example shows a savings of $400/month in cash flow when high-interest debt is added to the total mortgage amount and the current mortgage interest rate is lowered:

This is a common situation for homeowners. If you think you could benefit from a refinance, then we need to talk! And if any of these topics grabbed your attention, contact me and I will set up a phone call right away!

I hope you enjoyed my Top 5 Tips and found something useful to apply to your own life! Stay tuned for my next blog post!

Warmest Regards,
Christina Pentlichuk