Right. The stock market is doing great, no wait, spectacular! At least until a few days ago, when things went sour and everyone participating in the stock market lost a significant part of their investment. As always, Canadians are really good at buying high and selling low.

So you vested into the stock market. But remember real estate is a fantastic LONG-TERM investment. And I know a thing or two about it; I have reaped the rewards of making money in real estate.

Here are some of the reasons, why real-estate can be a good way to making excellent money. You can enjoy an enormous rate of return, amazing tax advantages are to be had and can leverage real estate to build your wealth (this is what I am doing). These are the Top Five

  1. REAL ESTATE PROVIDES BETTER RETURNS THAN THE STOCK MARKET WITHOUT AS MUCH VOLATILITY – Real-Estate gives you control – mostly – over your investment. Your Property is a tangible asset that can be leverage to generate various revenue streams such as rental income, capital appreciation and also acts as a bank, the bank to yourself. You need money to purchase something else, just dip into the virtual equity of your property and Voila, money flows into your account. But remember, you are in for the long-term. It is a boring enterprise, because you have to wait, and does not deliver sensational cocktail stories. If you like those, I suggest Las Vegas with all its glitter. If you are serious about making money, continue reading.With real estate, it has an actual physical address, you can drive to it, look at it, touch it – it’s real! A stock on a company, not quite the same. You know what I am getting to, right?
  2. REAL ESTATE HAS A HIGH TANGIBLE ASSET VALUE. There will always be value in your land, and value in your home. Its always there. Other investments can leave you with little to no tangible asset value such as a stock which can dip to zero, or a new car which decreases in value over time. Or should I even mention Las Vegas. Also remember, Home, Fire and Earthquake insurance will protect your investment in real estate, so be sure to get the best policy available so your asset is protected in the worst-case scenario. A house can be destroyed, but never the land. There is always a residual value.
  3. REAL ESTATE VALUES WILL ALWAYS INCREASE OVER TIME. History continues to prove that the longer you hold onto your real estate, the more money you will make. The housing market has always recovered from past bubbles that caused home appreciation to slip, and for those who held on to their investments during those uncertain times, prices have returned to normal, and appreciation is back on track. Now, real estate investors in the top performing markets are enjoying a windfall. I, certainly, have benefited by the appreciation of my real-estate holdings. Don’t treat it like Las Vegas and desire to see your money every time your property goes up by $100,000. :Chances are that the savvy real-estate investor may never see the real CASH of their holdings, but will be smart enough to draw on the virtual equity to fund additional real-estate purchases or as I do, write mortgages to borrowers against a predictable return. Especially as you are approaching retirement age, a predictable mortgage interest income might be a much appreciated way to generate an additional retirement income.
  4. DIVERSIFICATION BY MEANS OF A REAL-ESTATE INVESTMENT PORTFOLIO. Who, besides your realtor, says that real-estate should be your only investment. Diversify your risk and consider to invest into the stock market, mortgages, and yes, real-estate proper. Discuss your strategy with your financial planner, your accountant, your trusted realtor, and of course, me, your Mortgage :Broker.
  5. REAL ESTATE INVESTING COMES WITH NUMEROUS TAX BENEFITS. You can get tax deductions on mortgage interest, cash flow from investment properties, operating expenses and costs, property taxes, insurance and depreciation (even if the property gains value) and other benefits. 

 

I could write anything here, but consider the litmus test and try this for proof to yourself and amusement in general: Head to your trusted bank and ask for a $500,000 loan as a sure thing investment into the stock market. Then wait. Look them in the eye and offer them 10% down from your own pocket. While you are watching your trusted banker rolling on the floor with laughter, start reading my post from the top once more.

 

 

Disclaimer: Please note that I am NOT a Real-Estate agent. I cannot give you real-estate advice. My views are simply as a real-estate investor myself; I have been active in the GVRD real-estate market since 1989. Whatever I write is my personal experience, and not real-estate or investment advice. I do not hold licenses for either profession, but then, I retired at 41 based on my real-estate savvy. 

 

  1. The Bank Owns Your Home
  2. Your Estate Can Owe More Than Your Home 
  3. The Best Time to take a Reverse Mortgage is at the End of Your Retirement

 

Let’s examine each misconception in more detail.

 

  1. The Bank Owns Your Home

 

FALSE. Over 50% of Canadian homeowners over the age of 65, believe the bank owns your home once you have taken a reverse mortgage. Not true! The lender will simply register their position on the title of the home, exactly the same way as you would expect any other mortgage or Line of Credit to be registered on title, with the main difference in the flexibility of not having to make Principal & Interest payments on the reverse mortgage. You remain the homeowner, you own the title. Period!

 

  1. Your Estate Can Owe More Than Your Home

 

FALSE. A reverse mortgage, unlike most traditional mortgages in Canada, is a non-recourse debt. Non-recourse means if a borrower defaults on the loan, the issuer can seize the home asset, but cannot seek any further compensation from the borrower – even if the collateral asset does not fully cover the full value of the loan. Therefore, when the last homeowner is moved to a nursery home or dies (and the reverse mortgage is due), the estate will never be responsible for paying back more than the fair market value of the home. The estate is fully protected – this is not the case for almost any other mortgage loan (specifically secured lines of credit) in Canada, which is full recourse debt. So read the fine print the next time you offer to co-sign for a loan for Mom!

 

  1. The Best Time to take a Reverse Mortgage is at the End of Your Retirement

 

FALSE. This is a common mistake that reflects the “old-school” financial planning mentality. For the majority of Canadians (without a nice government pension), the old school financial planning mentality is about cash-flow, and is as follows:

 a) Begin drawing down non-taxable assets to supplement your retirement income.

 b) Once your non-taxable assets are depleted, begin drawing down more of your registered assets (RSP/RIF) to supplement retirement income.

 c) Once your registered assets are depleted, sell your home, downsize and re-invest to generate enough cash-flow to last you until you die.

 

The problem with the “old-school” financial planning model is two-fold:

 

“Research has consistently shown that strategic uses of reverse mortgages can be used to improve a retiree’s financial situation, and that reverse mortgages generally provide more strategic benefits when used early in retirement as opposed to being used as a last resort.” – Jamie Hopkins, Forbes

In Canada, a reverse mortgage can be set-up to provide homeowners with a monthly draw out of the approved amount. For example: client is approved for $240,000 and decides to take $1000/month. This is deposited into the clients’ bank account over the next 20-years. Interest accumulates only on the amount drawn (i.e.: not on the full $ amount at the onset).

This strategy allows clients to draw down less income from their registered assets to support their retirement lifestyle. In turn, this can create some excellent tax savings, since home equity is non-taxable. Imagine lowering your nominal tax bracket by 5 – 10% each and every year over a 20 year period?! The tax savings can be huge.  You are also able to preserve your investable assets, which historically, can generate a higher rate of return when invested over a greater period of time.

 

At this point you are supposed to say: “This is too good to be true.” Go ahead, say it, and then call me – 604-787-1755.

 

HomEquity Bank, the lone Canadian reverse mortgage lender, has logged a record of new reverse mortgages this year and thus validating rumblings about the anticipated surge in home equity loans.

HomEquity Bank is offering reverse mortgages to Canadians age 55 and older. This year HomEquity Bank is reporting a record of $60 million new reverse mortgages by May of 2017 with a strong target to clip the $100 million mark by the end of the year.

“Canadian seniors are releasing the equity they have built in their homes, transforming it from passive to active,” HomEquity president and CEO Steven Ranson stated recently. “We have seen a shift in mindset: There is a broader understanding of home equity loans. Home equity is often the largest single asset for Canadians, and it is easily unlocked with the help of mortgage experts.”

Many others have pointed to the same fact of Canada’s aging population in parallel with exorbitant growth of real-estate values as a potential source for reverse mortgages demand. For the first time in the nation’s history, adults older than 65 outranked children younger than 15 last year, according to the most recent Canadian census. And as in the United States, Canadian homeowners control a significant amount of home equity – but, unlike their American counterparts, they did not see values fall as precipitously during the Great Recession of 2008.

HomEquity Bank’s reverse mortgage offering is an entirely private program, without the backing of the Canadian government. There is also no claw-back by the Canadian government for any proceeds of such a mortgage. Seniors’ pension claims will not change by receiving funds from a reverse mortgage.

HomEquity Bank’s novel marketing angle is positioning Canadians 55 and older as “the bank of Mom and Dad”, thus spending their retirement cash to put their children through school or to buy homes of their own, thus leaving home equity by means of as their single biggest option for retirement.

 

 

Be your own banker

Equity Take Out Strategy – A Simple Approach

 

The recent increase in property values through a hyperactive real-estate market can work in your favour.

When I began to invest into the Vancouver real-estate market in the early 90s, I leveraged my investments and build on the virtual equity in my homes. I have made Warren Buffets statement of “Buy and don’t Sell” my own and prospered from his investment strategy.

If you are interested to increase your personal wealth through by using your virtual equity in your current home, do contact me and we can discuss on how to do this. I have been successful at this for the past 25 years, and now as a mortgage broker, I have even more insights of leveraging home equity and building wealth on a realistic Equity Take Out (ETO) strategy.

There are no tricks or short-cuts to creating wealth, but there are only sensible and simple ways to make most of your equity in your home. To learn more or to make a personal appointment, contact me here.