Monday, July 30, 2018

Real Estate Insider: July 2018 News Report





Welcome back everyone! With more than a few hot topics this month, we've made sure to scope out the best reads you won't want to pass up. Do you agree with condos banning smoking with the legalization of marijuana? What is the issue with having Kitec plumbing on your property? How can you save money on your flooring renovation? We'd love to hear your feedback on these topics plus more in this edition of the Real Estate Insider!

Everyone knows the phrase “Location! Location! Location!” when buying a home or business. There are many factors that can increase, or decrease the value! Which do you think living next to a cemetery will do? Find out here! >>

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Building your dream home? Congratulations! While this is an exciting time, we want to make sure you are getting the best tax return on your current home as possible! This can be a tricky situation, read this article to get started! >>

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You don’t have to start with a lot to become a successful real estate investor. Read how at 27, Paula Pant was paying $400 a month in rent to share a kitchen and bathroom with roommates, and at 34, she now has 8 homes!  >>

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Don’t let your ego get in the way of your financial strength! Read here for various reasons why you should put your ego aside when thinking about buying a home. >>

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Ahead of the legalization of recreational marijuana, some condos are taking pre-emptive steps to make sure they ban smoking on their properties. Do you agree or disagree with this move? Read more here. >>

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The age-old question of “fixed vs. variable” mortgage rates continues in this article following the rumours of another rate increase before the end of 2018! Read here. >>

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A deceased person could have assets not controlled by their executor. Who is entitled to these assets? Read here for some insight on the different parts of an “Estate Pie” and who all gets a slice! >>

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Kitec plumbing could be an issue when buying or selling a property that contains it. Watch this video for 5 things to know about Kitec plumbing! >>

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Pooling resources can be a great idea when buying or renting a home to get more for your money, as long as everyone is protected! Read here for tips to avoid costly or ugly scenarios down the road! >>

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Floors are often the last things to go into a renovation project, so make sure to finish strong! Here are 5 ways to save money on flooring. >>


Monday, July 9, 2018

Mortgage Renewal Time: Should You Refinance Your Investment Property?




Hope you guys are enjoying this warm weather!  This summer, I have my student rental property’s mortgage coming up for renewal. I’ve been weighing my options on what I should do. One of the options is to refinance the property and pull out some equity, but this option isn’t best for everyone. Today I am going to discuss investment property refinancing and some important considerations.

Why Would I Want to Refinance My Investment Property?
Basically, to pull out the equity to use the cash for something else—hopefully not to buy a depreciating asset such as a new boat or SUV! To give a good example, say you had the opportunity to invest in something that you expected to return about 10% per year, but you didn’t have the cash required. You could refinance your property, pull out some equity and use that cash to fund the investment opportunity.

How Would the Refinancing Work?
Lets continue with the above example. Say you bought a property for $200k five years ago with a first mortgage of $160k (80% loan to value).   Assume your mortgage is up for renewal this summer and have approximately $150k left on the mortgage, but you estimate the property is now worth $300k. You could find a lender to refinance the property at 80% loan to value at the $300k, or $240k on the new first mortgage. Since you only owe $150k on your previous mortgage, you end up with $90k back in cash ($240k-$150k), aka “pulling out your equity”, after the refinancing closes.

Does Refinancing Make Financial Sense For Me?
It depends on the scenario. Continuing on with our previous example, if you have an investment that is estimated to return about 10% per year and you were able to refinance at market interest rates (as of this time I would estimate about 3.5%), then yes: it would make sense to do the refinancing. Earning 10% while using the bank’s money at 3.5% sounds good to me.

Will All Lenders Refinance My Investment Property?
Good Question. The answer is that it depends. Lenders have definitely pulled back in the last few years and investment properties are one of the areas they have pulled back the most. Some lenders will do 80% loan to value refinancing, while others will only do 65%. Some will do it with an entire first mortgage, and some will do it with a combination of a first mortgage and a secured line of credit.

Is It Easy To Be Approved For The Refinancing?
Not exactly. You will have to re-qualify with the lender based on debt ratios. If you are too indebted either in total debt owing or with number of mortgages (if you have multiple investment properties), they could decline you or not offer you the full refinancing you are looking for.

After I Refinance Will My Property Still Cash Flow?
That’s another good question and consideration. You will have to run the numbers!  It's possible that it won’t with the higher mortgage paymentssomething to weigh. If you are using the extra cash for a lucrative, high cash flowing investment, then you could now use that cash flow to service the shortfall on this property.

What If I Don’t Have A Present Investment Opportunity For The Cash?
Lots of good questions today! You should wait on the refinancing until you do have an investment opportunity. Or, instead consider getting a secured line of credit and that will not incur any interest costs until it is being drawn upon, but will be there when the opportunity arises.

Does My Mortgage Need to Be Up For Renewal to Refinance?
No it doesn’t. You can refinance anytime but there can be substantial penalties if breaking your mortgage early, especially if you have a fixed rate or if you have lots of term left. By staying with the same lender it is possible to waive some of these penalties. Refinancing around your renewal period avoids these penalties and will only result in minor mortgage discharge and legal fees.

Any Other Considerations?
You will need to get an appraisal for the lender from an AACI appraiser and any refinancing would be based on that amount. You should also think about how this affects your tax situation. By refinancing and increasing your mortgage amount and interest costs, you should technically be decreasing your rental income from that property from having higher expenses.

Final Thoughts
Unlocking your equity by refinancing can be a powerful strategy for investors building their wealth. It isn’t foolproof though, and should be used prudently. If it's something you are worried will stretch you too thin and cause you insomnia, then it's probably best to avoid it. Sitting down with a plan with your team (realtor, mortgage professional, accountant, etc.) should help you decide if it's right for your situation.

Readers, have you refinanced an investment property?