Introduction
Remember when refinancing (cashing out on your home’s equity to invest ) was a big thing for Toronto real estate investors just a few years ago?
Back then, interest rates were at all-time lows so it was practically free money, and property values were soaring during the pandemic while helped with big refi’s.
But things took a turn when interest rates spiked combined with real estate prices dropping.
Now, another shift might be happening again soon. With fixed rates dropping by over 1% in recent weeks, and variable rates might also come down in 2024, refinancing might make a comeback this year. Lower interest rates now could mean you can borrow more, opening up more real estate investing opportunities for you!
So in this video, let’s take a closer look at refinancing Toronto real estate. Why real estate investors refinance to grow, how to refinance to invest, and also take a closer look at how more refinancing for 2024 could change up the Toronto real estate market.
How Refinancing To Invest Makes More Money
Let’s start with a simple example. Imagine you own a $1 million home with $500,000 in equity and a $500,000 mortgage.
If property values grow by 3% a year in line with long-term inflation, you’re growing your wealth by $30,000 annually. Keep in mind this is very conservative compared to Toronto’s average appreciation of 7% a year over the past two decades, but we like to play it safe with our projections.
Making $30,000 is pretty good without doing anything – but let’s take it up a notch by adding in refinancing to invest in another rental property in Toronto.
There’s $500,000 of equity in the home, and you can go back to the bank to pull out another $250,000 if you qualify for a bigger loan. After you do this, you’ll end up with $250,000 of equity in your home, a $500,000 mortgage on your home, and a new $250,000 mortgage then you ask us for help buying a rental property in Toronto.
Now, what we do here is use the $250,000 as the down payment, closing costs, and renovations for a Toronto duplex. You would make money from rental income which comes in the form of cash flow and more equity that you own each money you pay the mortgage down.
Add that to values going up each year and even after factoring taxes that you pay out on your investment, you might make another $24,000 after taxes per year on the rental property from rental income and appreciation.
Add this to the $30,000 you get from your own home which is tax free because it’s your own home, and you’re making $54,000 a year on both properties combined – almost doubling what you’d be making if you just let the money sit in your home.
Risk Management When Refinancing
This is why debt isn’t always bad and why we like to refinancing to invest – it helps you make more money on the equity of a home.
But put a big asterisk here because you need to make sure you can manage cash flows from that bigger monthly mortgage payments.
This is something that makes multiplex real estate investing stand out because better rents help you pay for all of the outgoing payments each month, including your mortgage, making it a much lower risk way to refinance and invest.
And as you create more bedrooms or units in your home, not only will you get better rents in cash flows, which further lowers your risk, you might also increase the home’s value on top of what you paid in and possibly help you refinance sooner if that’s in your plans too.
How To Maximize Refinancing Funds
The passive way is to wait and be patient for prices to naturally go up overtime.
However, many real estate investors prefer to take a more hands-on approach, making real estate investing more interesting.
Imagine you have a $1 million property that needs $150,000 in upgrades. You’ve invested a total of $385,000,
Here’s the exciting part — if the property becomes worth $1.3 million after the improvements, that’s a $300,000 increase in value. Refinancing 80% lets you quickly get a $240,000 boost in values.
Ways To Refinance Your Home
Zooming out now, we generally know why refinancing isn’t as popular these days. Interest rates shot went up, causing payments to increase and qualifying tougher. Property values also dropped, making it even tougher to refinance. On top of that, high borrowing costs and generally more fear pushed people to the sidelines when it comes to investing.
But here’s the thing: with fixed interest rates probably dropping in 2024, we’re expecting a gradual recovery for refinancing. And once more people take on refinancing to invest real estate on top of other people, stepping off the sidelines, this could help boost property values. Eventually, these higher property values will give more room for a refinancing from more equity, and then all of this could start to build quicker upward momentum for the Toronto housing market.
If do you’re looking to refinance to invest in 2024, and you are looking for the best real estate investing options in Toronto, we can help you navigate through all of these steps.
How More Refinancing In 2024 Can Change The Toronto Real Estate Market
Zooming out now, we generally know why refinancing isn’t as popular as before.
Interest rates shot went up, causing payments to increase and qualifying tougher. Property values also dropped, making it even tougher to refinance. On top of that, high borrowing costs and generally more fear pushed people to the sidelines when it comes to investing.
But here’s the thing: with fixed interest rates probably dropping in 2024, we’re expecting a gradual recovery for refinancing.
Once more people take on refinancing to invest real estate on top of other people, stepping off the sidelines, this could help boost property values.
Eventually, these higher property values will give more room for a refinancing from more equity, and then all of this could start to build quicker upward momentum for the Toronto housing market.
How We Can Help
If do you’re looking to refinance to invest in 2024, and you are looking for the best real estate investing options in Toronto, we can help you navigate through all of these steps.
We’re not your typical real estate sales brokerage.
Instead, we focus on using numbers to make better real estate investing decisions in Toronto. That can mean looking for stronger investments with positive cash flow, thinking about risk management, and looking for ways to boost returns like value-add renovations and gentrifying areas.
If you want to discuss your private real estate situation with us, just click the button below to set up a time to chat.
