In our last blog, we discussed building a second unit like a coach house on your existing property. In this final entry in our series on real estate investment hacks, let’s look at reverse mortgages and how they can be used to purchase a rental property.
Hey boomers this one’s for you! Maybe you’re not a baby boomer but your parents are. Either way, here we’re going to explore how to reverse mortgage a home in order to buy another property for renting out. From there, you or your parents can live off the income they make from the other property! A reverse mortgage is an age-specific product (minimum age of 55) that allows you to access the equity in your home without having to make any monthly payments.
Take the example of a home that’s worth $980K and belongs to someone who is 65 years old. They’ll qualify for roughly 30% of that value as a mortgage ($294K). Assuming there are some small amount of savings set aside to cover the closing costs, the purchase of a new home (let’s say for $600K) using that $294K for a down payment at a variable rate of 3% and a 30-year amortization, means your payments would be $1,287/month.
With an average rent of approximately $1,886/month in Ottawa, you’d basically be netting an extra $600/month. Remember, your $294K reverse mortgage requires no monthly repayment. All of your monthly revenues PLUS your new rental revenue stay in your pocket, hopefully making life a little easier!
We encounter situations like these all the time where a client has gone to their bank of 40+ years to ask for a mortgage and are turned down for not making enough money. We’ll go over what they do ‘make’ in CPP, OAS, and any pension from work. Let’s say it totals about $27K for the year. Even with a 40-year history with a bank, your income just isn’t enough for them to lend you what you’re asking for.
Even if you’re only looking for $150K to do some maintenance and put some cash into your pocket so money at the end of the money isn’t so tight… the numbers don’t work on their own. This is where the reverse mortgage comes in! It will…
- Get you the money to do your maintenance
- Put cash in your pocket (either in a lump sum or each month)
- Let you keep ownership of your home
- Not incur payments unless you move out of the house
It might sound almost too good to be true but reverse mortgages are common and even ideal for retirees who have wealth built up in their homes but not as much cash savings or investments. A reverse mortgage allows you to access the value of your asset which you can then use to cover expenses in retirement!
Disclaimer: The opinions expressed herein are just that, and should be consumed as such. Always do your own research when considering investments in real estate or otherwise.
Contact the Kyle Miller Mortgage Agent team to learn more about your income situation and how it can affect your mortgage application and/or refinancing processes. We’ll provide you with different options so you get the best deal possible!
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