Purchase Investment Properties with Home Equity

Considering using your home equity to purchase your next investment property but not sure if it is a good idea?

Refinancing your home to take out equity to use for investment can be a great way to build your investment portfolio. The key is that the investment rate of return is higher than the cost of borrowing.

With any investment, if you can borrow money at a low interest rate and invest this money with a high rate of return, then you are making more money than it costs. This is a great way to build long-term wealth.

With real estate you need to understand the rate of return on your purchase and make sure that you include all expenses of the property. Use calculations such as Cap Rate, Cash-on-cash return, and Debt Coverage Ratio to evaluate potential investment properties.

For example, if you refinance your home and take out $100,000 at say 5% interest rate and use this as down payment to purchase an investment property with a cash-on-cash return of say 10%, then this is a great use of your home’s equity. This example has a positive cashflow and is more than the cost of borrowing.

Contact Us

For more information on using your home’s equity to purchase an investment property, contact your local Ajax Mortgage Broker, Sean Stewart at 905-427-9596 or sean@seanastewart.com