It’s not unusual for established homeowners – particularly those who’ve seen their primary residence rise in value – to consider another property for investment purposes. Real estate can be a sound part of a financial portfolio if carefully planned to align with your other investments and your near- and long-term financial goals.
You should first consider your primary objective. For example, you may want your investment property to create an ongoing revenue stream by renting it for steady, monthly income. Or you may hope to benefit from rising home values, if for example you plan to purchase a house, renovate it and resell it at a higher price.
Before you count your profits, think carefully about either strategy. For instance, do you have the knowledge and time to be a landlord? Or, if you plan to renovate and resell the property, do you have the resources – both technical and financial– to do it successfully?
Consider what other expertise you require, including legal, tax and financial advice, to understand key issues such as property affordability, how it would impact your cash flow and the property’s probable rent or resale value.
Solid financial advice is also critical since buying an investment property is like adding another asset class to your portfolio and it might change the amount of risk in your financial plan, including your retirement nest egg. For instance, if you already own a residence, an investment property might skew your asset mix heavily to real estate, which could be an issue if housing markets decline.
You should also consider financing methods. Most lenders have special programs to help purchase investment properties, but keep in mind that they are subject to different policies than if you were going to live in the home yourself.
If you plan to buy an investment property, your primary residence may be a good place to start looking for financing. For example, if your home is worth more than your outstanding mortgage, you may be able to utilize some of the available equity. Depending on the amount of equity you have built up, with the Scotia Total Equity® Plan*, you can borrow up to 80% of the value of your home to finance the purchase of an investment property.
As part of your research into real estate investments, you should include a Scotiabank Advisor on your team - along with a real estate agent, contractors, accounting and other professionals - to help you make sound decisions geared to your financial goals.
* Some mortgage solutions may not be eligible to be included as part of a Scotia Total Equity Plan.