“Once you own real estate and rents go up, it’s stupid to sell. Never sell your real estate; just use it as a piggy bank.”
Barbara Corcoran, founder of The Corcoran Group and Shark on “Shark Tank”
Let’s talk about leverage.
Simply put, leverage is using other people’s money to make more money for you.
In the stock market, you pay 100% of your money to control 100% of your investments. In real estate, you can pay 20% of your money to control 100% of a property.
Let’s say you own a house that is worth $500,000 with a mortgage for $300,000. Your property has increased in value since you purchased it, and you’d like to access some of this equity to buy another property.
If your appraisal comes in at $500,000, assuming you qualify based on the lender’s guidelines, the lender will give you 80% per cent of the appraised value, which is $400,000.
Since you currently have a first mortgage of $300,000 with the lender, this means that you now have access to an additional $100,000 to grow your portfolio.
Another option is a full mortgage refinance, which means taking out equity by breaking the current mortgage and increasing its current balance by the amount you are taking out.
If your mortgage is up for renewal or there are minimal penalties for breaking your mortgage, a refinance is an option to consider, as it also offers an opportunity for consolidating any non-secured debts, negotiating better interest rates with your lender and shopping for cheaper rates and better terms.
Looking for equity above the maximum 80% of appraised value that traditional lenders such as banks, credit unions and trust companies can provide to take advantage of an opportunity? You may be able to take out 90% through private funding.
Are you looking to invest in property? We can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you, or how much they could save you right now. Get in touch and let’s get started!