How to Leverage Your Home to Invest and Build Wealth with Toronto Real Estate

How to Leverage Your Home to Invest and Build Wealth with Toronto Real Estate

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If you own an existing home, then you may be able to buy a property for FREE. Yes, you read that right – a property for free! In this blog post, we’ll let you in on the details of how you can leverage your home to invest and build wealth with Toronto Real Estate.

Table of Contents - How to Leverage Your Home to Invest and Build Wealth with Toronto Real Estate

For clarification, “free” in this case means that you don’t pay anything out of your own pocket. The property you are buying will not hinder any of your available funds that you need for living. Furthermore, you won't be borrowing it from your parents, your partner or any of those second mortgage products out there. It's actually a very simple strategy that the wealthy have been executing for a long time now.

So now that we’ve established that buying a property for free means buying a property without your available funds, let’s delve further into the details of this highly effective leveraging strategy.

The most common way to execute this strategy is by using the equity of your existing personal home to finance your investment property. The technical term for this is “cash-out refinance”. 

It’s important to highlight here that cash-out refinance is just one of many techniques used to execute this strategy. There are other techniques out there, but for simplicity, I’m going to explain how you can buy a property for free using this cash-out refinance technique and why you should take advantage of this immediately. 

Traditionally, when you buy a property, the bank gives you 80% of the funds to purchase your home in the form of a mortgage and you come up with the remaining 20%. The difficult part for most people right now is coming up with the funds to cover that remaining 20%. A lot of people struggle to recognize this, but there’s actually one really simple yet powerful move that allows you to start building wealth.

So for that 20% down payment, what if you don’t have to cover it by yourself with your own funds? The super simple hack to wealth building is using the available equity in your existing home as the 20% down payment to purchase your second house. This is the power of leverage. You use other people's money to build equity and appreciation. In this case, you’re using the bank's money to build your own personal wealth as the bank is literally handing over 80% of the funds needed to buy your second property. 

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With this technique, you would put a Home Equity Line of Credit (known as HELOC for short) against your existing home. Most major banks have this product and many of their customers take advantage of it. At the time of writing, the current HELOC rate is about 3.5% or a bit higher than the current mortgage rate.  

In effect, what you’re doing is “borrowing” the 20% down payment for your investment property from your house. For example, let’s say you’re looking to purchase a $500,000 property as an investment. You would borrow $100,000 from your existing home to fund the 20% down payment required on the $500K property.

The key to making this strategy work is to have an investment property that pays for itself, which means that your rental income covers your investment property’s mortgage, taxes, insurance, and utilities (if applicable). This protects you from having to pay out of pocket for this investment property. Now you may be wondering, what about that HELOC interest at 3.5%? Isn’t that an out-of-pocket expense? Well, 3.5% of $100K, is $3,500 per year or just under $300 per month.

We specialize in finding properties with rental incomes that are higher than ALL of your expenses (i.e., cash flow positive properties). What if I told you that I can find you a property that is cash flow positive $300 dollars per month? This means that your investment property also covers the cost to borrow against your personal home (i.e., the HELOC interest rates). 

After purchasing your investment property, you basically have a free property that is paid for by the rental payments from your tenant, while the remainder is financed by the bank through the mortgage. The beauty with all of this is that this doesn’t change any of your daily personal finances other than the fact that you just got a free property that’s allowing you to gain even more equity, rent and appreciation every month. And just like that, you have yourself a free property!!

We execute this strategy all the time with our clients. Anyone who executes this strategy can build wealth for early retirement, kids’ tuition, funding your kids’ future home, and quite frankly, it’s how you can get ahead financially, especially in the current market economy with staggering property prices and looming hyperinflation.

As further added bonus, there are properties where your rental income can be EVEN higher, which means that instead of just having a free property, your rental income will produce EXTRA cash leading to more spending money in your pockets! If the property yields another $200 or $300 extra in rent, you've just gained $200-$300 of extra spending money. 

Pause to think about that for a second – You’ve essentially created $200-300 of extra spending money out of thin air by buying a free property. How powerful is that?! If you’re interested in executing this strategy, then make sure you reach out to Zhen at Zhen@PrimePropertiesTO.com or 416-436-9436 to get started today.

Now, you might have some doubts or worries about this strategy. Let’s address this. A lot of the concerns that I get with first-time investors regarding this strategy is that you’re being over-leveraged or you’re taking on too much debt. Here’s the unfortunate thing about our current economy right now that you must know - there is so much debt in the system caused by the government, cities and large corporate entities. Money is continually being printed and interest rates are staying low because of all of the debt. Realistically, the only way for the government to get rid of their significant deficit is to inflate it away. 

Unfortunately, inflation makes the money that you have less valuable. So, if your hard-earned money isn’t put into some kind of anti-inflationary asset, then it's going to be worth less and less each year as the government prints more and more money. The cost of living is going up and it's going up at a much faster pace than your income, so you need to protect yourself with good assets. 

Given the current economy, you need to understand how debt works in order to “beat the system”.  You can't just work hard and save up like what past generations have done. You need to invest and have a good investment strategy in order to even retain the value of your money! 

I’ll leave you with one final thought – here’s a great quote from Robert Kiyosaki, “Good debt makes you rich and bad debt makes you poor”. Good debt is the debt that is paid for by someone else, such as mortgage debt being paid for by your tenant and the bank in the leveraging strategy that was explained in this blog post. Bad debt is when you pay for it yourself, such as financing a new car or a boat. In a nutshell, don’t be afraid of good debt that is being paid for by someone else because this is how you’re going to get ahead in your financial freedom goals. 

So, get some good debt, get ahead of everyone else and don’t look back! You are just one free property away from realizing your financial freedom. Until next time, your move your future!

How to Leverage Your Home to Invest and Build Wealth with Toronto Real Estate


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Zhen Liang

Zhen Liang

I help Canadians invest in real estate to create more options in their lives. Looking to leave your job? Retire early? Dare to dream. Let's help you create your winning investment strategy today.