The world-famous board game Monopoly, demonstrates how lucrative rental properties can be. Buying investment property can be one of the best ways to diversify assets and maintain a passive income. But purchasing a real estate investment is not as easy as rolling the dice. All these investments require a large sum of money.
If you’re planning to enter the real estate business, the first thing you need to do is establish your capital. This includes your down payment, emergency funds and a budget for fees and repairs.
Let’s start at the top of our list: down payment for purchasing a rental property.
Know the target: how much do you need?
The amount of your down payment depends on the total purchase price of the property. The rule of thumb when it comes to down payments is to have at least 20% of the purchase price.
4 winning strategies to increase your down payment
There are plenty of creative ways to help you increase your down payment. Here’s 4 winning strategies you can look into:
1. Refinance your existing mortgage
One of the tricks real estate investors use in buying investment properties is refinancing an existing mortgage to help purchase another property.
2. Explore HELOC on your residence
If you’re feeling apprehensive about refinancing your current mortgage, explore a home equity line of credit (HELOC). A HELOC is a secured line of credit secured by your home and is based on the equity available in your property.
Lenders look at the value of your home against the amount you’ve already paid off and will use your home as a guarantee that you’ll pay back the money you’ve borrowed. You can use this loan as a down payment for a house, or in this case, a rental property. Compare HELOC rates and get the most competitive deal by consulting with an expert.
3. Using Home Buyer’s Plan
You can use the Home Buyer’s Plan (HBP) to tap into your Registered Retirement Savings Plan (RRSP). By maximizing your RRSP, you can access up to $35,000 as your down payment. Of course, there are certain rules and conditions that must be followed. One of them being that it’s the first residential home you’ll be buying. With careful planning, this is definitely feasible.
Just be sure to repay the loan on time, otherwise, you’ll get hit by hefty tax penalties. Consult a trusted financial advisor who can help you strategize before proceeding.
4. Loans from friends and family
Your parents, siblings, aunts, uncles, grandparents and trusted friends, your immediate network, whom you can consider borrowing from. This is also another way that can help you accumulate funds towards your down payment.
Now, it’s time to hit the target
In a time when people keep moving from everywhere to everywhere, having rental property may be a good investment for you. Getting there can be hard and challenging, but never impossible.
Talk to Daisy Raouph, a trusted mortgage broker and financial security advisor. With Daisy on your team, you’ll have the confidence and experience you need to purchase your rental property, protect your investment and secure your finances.