Put Your Home To Work

(Originally published in Our Homes Magazine, Winter 2010)

Use your home equity to earn passive monthly income

The pride of homeownership exists in every aspect and detail of your house; the carefully selected colour scheme, hand-picked finishes, manicured landscaping and most importantly, all of the hard work that goes with making your house a home. You have undoubtedly put so much time, money and effort into your home over the years, but ask yourself, what has your home done for you lately?

An odd question, no doubt, but truthfully, with all of its utility bills, mortgage payments, renovations and never-ending quick fix-it jobs, you’ve clearly done your part, but has your home done its part? Consider this, what if you could put your home to work for you, for a change? Imagine that you could take the equity you have built up in your home, the mortgage you’ve worked so diligently to pay down, and use it to earn some extra monthly income. This concept of leveraging home equity for investment purposes is not new, but it is more popular than ever.

More and more Canadians are catching on to what is being considered as one of the most effective ways to build wealth and increase cash flow with minimal effort and risk. Now, some of you may have learned from your parents, your friends or perhaps even your spouse that it is a top priority to pay off your mortgage and own your home. For many, achieving home ownership status and being mortgage-free is symbolic of their success and hard work. On the other hand, if you were to use that money that is just sitting in your home, take it out in the form of a credit line at your nominal mortgage rate, and re-invest it into an income-producing investment, your home could actually be earning you some extra income. Especially in a time when interest rates are so low, you could easily leverage your home equity in the form of a secured line of credit at a fairly low rate because it is secured against your home.

This concept is also known as Investing for Income, particularly when it allows you to invest, earn a passive monthly income while growing your original capital investment at the very same time. The key is to invest in a stable and growing income-generating investment, like real estate for example. As a homeowner, you clearly understand the value of owning real estate, so why not continue to invest in the strength and reliable growth of bricks and mortar? This can be achieved in a few ways; particularly by owning rental property or investing in a REIT (Real Estate Investment Trust).

Owning rental property is a great way to generate additional income and build wealth by investing in real estate, but it is hardly passive. The effort that it requires to own these properties can sometimes outweigh the return that they generate. Playing property manager if you’re not cut out the job or if you simply don’t have the time can be overwhelming for an individual investor. But what if you could own rental property without being a landlord?

REITs (Real Estate Investment Trusts) are loosely defined as a pool of investors who jointly own a portfolio of real estate; this is also a great way to own rental property and generate a passive monthly income without the headaches of property management and stresses of monitoring an investment portfolio. Because of the stable and long-term growth trends of real estate, REITs often pay higher than average returns (distributions) for such a low-level of risk.

A reputable REIT can pay up to 9% annually, which is a great return especially when your cost to borrow is likely less than 4%, which means you’re already up 5%. The benefits of leveraging equity in your home are remarkable. You can usually take up to 80% of the paid portion of your mortgage in the form of a credit line and you can even claim the interest on that line as a tax credit when you use it to invest. What is most impressive however is the ease and ability to generate a passive monthly income (cash flow) from the equity you’ve worked hard to build up in your home. However, the key is to reinvest the money into an income-generating investment in order to generate that passive monthly income.

Borrowing from real estate to invest in real estate is a pretty solid strategy, especially when your return is significantly greater than your cost of borrowing. Then the question remains; what lifestyle do you want? Imagine the possibilities of earning extra monthly income without having to get another job, what would you do?

To learn more about investing for income, the unique benefits of REITs and how to put your home equity to work for you, visit skylineonline.ca/our_homes or call us directly at 1.800.800. RENT (7368). Skyline is a Guelph-based private REIT with a presence of over 20 years in this community and a current real estate portfolio valued at nearly $500 million. Skyline’s investors are currently earning a 9% annual distribution, paid monthly.