Creating long-term wealth through investment, cottage and second home ownership

PresenterDate

Welcome!

Thank you for coming. Today we’ll talk about:Why more and more Canadians are turning to: Revenue properties Cottage, and Second home ownership

And you’ll learn how a mortgage planner can help you manage your debts wisely to build home equity.

Creating long-term wealth through investment property ownership

First, why investment property ownership?

Diversify, diversify, diversify cash, stocks, bonds AND real estate.

Create a pension plan for the future. Over the long term, an investment property or multiple real estate holdings can be a great source of retirement funds.

Invest now for children so they have a better future.

Many millionaires have made their wealth through prudent and well planned real estate investments.

What’s the overall process?

Find an investment property that meets your risk/return profile.

Secure financing

Find good tenants because you will be the landlord.

The rental income should cover all or most of the costs of the property, or possibly provide you with a profit. The ultimate goal is an increase in the value of the real estate over the long term, and receiving rent that is primarily profit once the mortgage is paid off.

Your role; our role

Find an investment property that meets your risk/return profile.

Secure financing.

Find good tenants.

Let us worry about the financing!!

Investment Property Examples

Example #1*A single income family earning $60,000 per year

Home $220,000, mortgage $80,000, 5.39% $ 483/month

$30,000 in other debt $ 900/month

Total payments $1,383/month

Refinance and add $30,000 for debt consolidation and$40,000 for down payment on rental property

Mortgage $150,000, 3.49% $ 748/month

Mortgage on rental (25% down) $120,000, 3.74% $ 615/month

Total payments $ 1,363/month

Less rental payments $ 950/month

Total net new monthly payment $ 413/month

Reduces monthly payments by $970, pays down residential mortgage. Customer pays out debt, and buys an investment property.

*Assumes full doc income, 25 yr amortization, and estimates other debt payments at 3% of balance.

Example #2*Young couple; self employed and salaried with 2 children$80,000 income with no pensions and minimal RRSPs

Home $185,000, mortgage $112,000, 3.49% $ 676/month

$4,500 in other debt $ 135/month

Total payments $ 811/month

Equity take out to 85% of appraised value and include CMHC fee (1.75%)

New mortgage at 3.49% for $160,000 $ 798/month

Funds from equity take out = $45,000

Pay off debt $ 4,500

Available for rental property $40,500

Purchase rental at $175,000, mortgage $114,000,

At 3.75% with 20% down payment $ 718/month

Less rental income $1,000/month

Total net mortgage payment $ 516/month

Difference is $295 per month you save!

*Assumes full doc income, 25 yr amortization, and estimates other debt payments at 3% of balance.

Summary of Benefits

Positive cash flow may be possible, but goal is to have your rent(s) cover most or all of the costs.

Expenses related to the property are tax deductible, offsetting rental income and sometimes more.

Remember this is a liquidable asset (you can always sell it)!

Property has always appreciated over the long term, and more than the rate of inflation (but give yourself a reasonable time frame).

Tenants are paying off your mortgage. When it is free & clear, it’s an income to you.

Other key considerations

Location is key for investment property: convenient location desirable to renters. Low crime rates, good school district, near shopping malls and public transportation / highway.

Have a minimum three-month contingency reserve fund for unexpected expenses such as repairs or a reduction in cash flow (i.e. in the event you have a short-term vacancy).

Consider all expenses when setting rents: mortgage payments, taxes, property management, condominium fees, insurance, repairs and maintenance and allowance for vacancies.

Other key considerations (cont’d)

Keep rents at market maximums and if possible manage expenses to keep them at market minimum.

Use professionals as much as possible. Tap into their expertise for your peace of mind, enhanced revenue potential, and reduced risk. This includes a realtor, lawyer, accountant (advice on all tax deductions), building inspector, appraiser, contractor(s), and possibly a property manager.

Cottage property ownership… a dream that is within reach

Why the boom in vacation properties?

Baby boomers are at the right age; want a place to enjoy with spouse, children, grandchildren, and for retirement.

Better roads, Internet and telephone service, satellite service, and winterization expertise, means a vacation property can provide year round living and an ideal retirement home.

Viewed as a solid long-term investment.

They aren’t building any more lakes! Skyrocketing prices are a function of supply and demand.

Vacation property market is more than lakeside cottages. Also mountainside towns and ski resorts.

Lenders are recognizing the desirability and investment value of vacation property.

Second homes

There is also an increase in Canadians purchasing second homes for reasons other than vacationing or retirement:

1. For children attending post secondary education, parents may purchase a home and offset the mortgage payment with rental income.

2. To give children a head start in life, especially if faced with large student loans.

3. For commuting reasons i.e. purchase a condo or other accommodation for the work week. Can therefore maintain principal residence further from work.

Financing vacation properties & second homes

Equity take out from principal residence.

Second mortgage.

Finance the property on its own merits.

Lenders look for: Well-built property, in known vacation areas i.e. with

year round access and known residential areas.

Meet your Mortgage Planner

Name of Planner19 years of mortgage experience.

In-depth knowledge of all products in the marketplace and valuable insight as to the best way to work and negotiate with lenders for the benefit of my clients.

Excellent customer service and retention; referral-built business.

My goal is to develop mortgage plans that are a custom fit to every client.

Why use a mortgage planner?

Today, when it comes to mortgage financing, more Canadians are choosing to work with a professional mortgage planner. According to CMHC (Canada Mortgage and Housing Corporation), almost 30% of mortgages written in Canada are now arranged through mortgage brokers.

Our American neighbours have almost 70 per cent of all mortgages arranged through mortgage brokers. In following this model, we’re changing the way Canadians manage their most significant personal liability.

And mortgage planners have the expertise to discuss more than just a mortgage transaction, like what we’re talking about today.

Why use a mortgage planner? (cont’d)

Choice (over 50 lenders)

Independence & objectivity

Negotiating power (best rate for your situation)

Access to rate promotions

Expertise

A focused specialist

Potentially lower rate at renewal

One credit inquiry

No cost to you* as I am usually paid by the lending institution you select to use for financing

Personal attention

*on acceptable credit

Our Lender Partners

Who is Mortgage Architects?

We are a national brokerage firm owned and managed by Canadian mortgage professionals, with proven Canadian market success.

We attract the legends of the industry; almost $5 billion of loans closed in 2011.

Our brokers have an equity stake in the company.

Negotiating strength with national lenders.

Our services are not about a mortgage transaction, but about drafting clients an individual plan that works for them.

In closing…

Yes you can deduct your mortgage interest on investment properties.

We can meet to discuss this concept one on one. If you’d like to turn your mortgage into a powerful financial tool, let’s book an appointment. Or you can surf my website and apply online at www.mtgarc.ca

I look forward to being your personal mortgage planner and drawing up an individual plan that is right for you.

Thank You!

Questions?