I know you’ve heard of making money with real estate investing. Most people also have one way or another that their money is making interest; GICs, mutual funds or RSPs. These are all good things to do with your money and if they are working for you then I am happy to hear it.
The reason why I have chosen to use real estate for our investing is because there is not one way to earn, there are SEVEN!
Check out the top seven ways you can increase your cash and GET YOUR MONEY WORKING FOR YOU AS YOU SLEEP!
This is the most common and well known way. The definition of equity is the fair market value (FMV) minus monies owed. If you manage to buy a home under fair market value you have earned equity on DAY ONE! (Sign up for our newsletter to receive “50 Ways to find undervalued properties”) Fair Market Value on a home is $380,000, asking price is $375,000, you buy for $365,000. That’s a $15,000 difference. With $25,000 down, on day one you have earned $40,000. ( Thats calculated by the difference between F.M.V., and purchase price minus money paid on the down payment) Instant equity in your home!
This gives you the ability to buy multiple homes with less money if you leverage it right. The higher the loan is on the value of the home the higher the loan-to-value (LTV) ratio. The higher the LTV is, the more money you have to invest again, and you could be earning the same amount of equity with less money. If you have $300,000 to invest you can buy one home for $300,000. Or by leveraging your money and getting a 75% LTV on your first home, this means you have only put in 25% of your own money and still have 75% to invest somewhere else. Done right, with the right working partner, you now can buy 4 homes instead of one. Thats leverage
Even though markets fluctuate up and down in the short game, in the long haul real estate always appreciates. Im sure you’ve heard an elder say once “When i bought this house it was $15,000” knowing that now that same property could be worth half a million or more.
Let’s say you buy a home for $300,000 that was $310,000 FMV. If the home appreciates 10% in over 3 years, that means your home is worth $341,000. If you have put 20% down on the home ($60,000) you have made $41,000 on a $60,000 investment. That’s a 68% return on investment or a 26.6% annual ROI!
4. Principle Reduction
Investment properties normally have tenants in them. These rental payments will be paying down your mortgage loan and in turn, paying down your principle for you! This is like a free long-term savings plan. The longer the property is held the more equity you get. Let’s say you buy a property at $300,000. Your bank loan is $250,000 after $50,000 down. If there is a tenant paying rent equal to your expenses, let’s say $1000/month, in 3 years thats $36,000 toward your loan. depending on your loan interest that could be up to a 72% ROI on investment. Even with no cash flow and no appreciation.
5. Cash Flow
This one has such a nice ring to it doesn’t it. Any time your good working partner has the amount of rental income over expenses, it is monthly cash flow! If your property is $300,000 with $75,000 down, and your mortgage payments are $900 and your tenants are paying you $1400/month, that’s $500 cash flow every month. An extra $6000/year, giving you another8% return on investment with cash flow alone. Thats your car payment takin care of in one deal from your working partner.
6. Tax Benefits
Running these investment properties though a business can let you write off any expenses to maintain the home. These expenses totalled are taken off your income and could put you in a much lower tax bracket. This can translate into thousands of dollars of savings. Depending on where you are, you can also claim interest on mortgages as expenses! Also accountants will let you claim a 3%-4% depreciation on property value when filing, and as real estate can fluctuate, you could claim that difference as a tax write off too. There are even more creative ways to save with taxes and that’s why we use and we recommend a professional accountant to to make sure we all get the biggest savings for us and our investor partners every year.
7. Equity Recycling
Use your equity over and over! Let’s say your $300,000 home has appreciated 10%/year over three years and is now worth $390,000. And say your $225,000 mortgage ($75,000 down at buy)is paid down by a good renter to $200,000. Now you have your equity (value minus mortgage) of $190,000. Banks normally will lend around 75%(they can lend 60%-80% depending on the situation) of your home value. So if they lend you or refinance you at $292,000 and you pay off your mortgage, you have $92,000 to reinvest! Reinvest at 75% LTV and now you can buy another property worth $368,000!
Now we can start at #1 all over again!
I hope you found this helpful and I hope you understand how powerful an investment with the write working partner in real estate can be.
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Happy Investing! :