Purchasing second property as Primary residence. Advice?

bjack · Jun 26, 2019

Hi all,

Ill give you some background on my situation. I currently own a home in Vancouver assessed at roughly 1.3mil. This home is currently being rented at $4300/mo. and is mortgage free with no debt against it.

My wife and I are currently renting a $1500/mo condo and looking to purchase a condo ourselves at around $750k.

Now I've spoken to various mortgage brokers and accountants but I'm looking for some advice from you all who have purchased multiple properties and have used your equity to acquire more real estate.

As my rental home is not my primary residence - the option to use a HELOC/Home equity loan is of course negated by the fact that the interest cannot be written off come tax time and my understanding is these products interest rates are a bit higher than a traditional mortgage.

I'm looking for some advice from you all on what the best decision moving forward could be. Max out traditional approved mortgage and use as little home equity loan against the rental for down payment as possible to avoid higher interest rates? Any other tax advantageous options or situations I should be considering?

I appreciate the wealth of knowledge you all have.

Thomas Beyer · Jun 26, 2019

A $1.3M asset rented at $50,000 per year before prop taxes, insurance and some R&M expenses is net maybe $40,000 or 3%. Not that great unless market will go up a lot. Will it in Vancouver and if so, by how much?

Why not put a 50% mortgage on it, deduct those interest expenses and reinvest this in a REIT at 6-8% ?

Why not live in the house? Why rent a condo ?

Devin Roberts · Jun 26, 2019

bjack said:
Hi all,

Ill give you some background on my situation. I currently own a home in Vancouver assessed at roughly 1.3mil. This home is currently being rented at $4300/mo. and is mortgage free with no debt against it.

My wife and I are currently renting a $1500/mo condo and looking to purchase a condo ourselves at around $750k.

Now I've spoken to various mortgage brokers and accountants but I'm looking for some advice from you all who have purchased multiple properties and have used your equity to acquire more real estate.

As my rental home is not my primary residence - the option to use a HELOC/Home equity loan is of course negated by the fact that the interest cannot be written off come tax time and my understanding is these products interest rates are a bit higher than a traditional mortgage.

I'm looking for some advice from you all on what the best decision moving forward could be. Max out traditional approved mortgage and use as little home equity loan against the rental for down payment as possible to avoid higher interest rates? Any other tax advantageous options or situations I should be considering?

I appreciate the wealth of knowledge you all have.

Agree with Thomas. Are you glued to keeping you current rental? Why not reinvest or move in there?

Devin Roberts — Brent Roberts Realty
Vancouver REIN Member
Cell: 604-354-7160
Email: [email protected]

bjack · Jun 26, 2019

We are not glued to the rental condo we are currently in - the only reason it made sense for us to stay was of course how cheap our rent is. $1500/mo in downtown Vancouver is extremely rare so it gave us an opportunity to save some money for when we decide to buy a place of our own.

We have also considered living in the home itself - but again were talking about a 100+ year old home - it would need a ton of work to modernize for us and at the moment the cash flow from renting was worth staying in a smaller living situation until we move to something a bit bigger.

bjack · Jun 26, 2019

I'm very intrigued though about the possibility of taking equity out and putting into another income producing asset REIT,stocks, mutual funds etc. with the ability to deduct interest expenses. Again we are a young family - and not particularly well versed in real estate investments.

Any recommendations of where I can inquire more about putting 50% of the equity in REITs? We have always talked about making the value in the home work for us.. and at the moment is just sits in the home doing nothing. Considering the home is paid off we want to make the equity work for us in the best way possible.

Thomas Beyer · Jun 26, 2019

bjack said:
I'm very intrigued though about the possibility of taking equity out .. We have always talked about making the value in the home work for us.. and at the moment is just sits in the home doing nothing. Considering the home is paid off we want to make the equity work for us in the best way possible.

Two options: sell it and invest money elsewhere. Or keep it but add a mortgage, or line-of-credit (LOC) up to the level of being cash flow neutral from rent.

Renting seems to work for you, for now and often is the better economic choice in Vancouver.

Is there an area of town that you would prefer to own a condo, half-duplex, house or TH? If so, research that and consider selling the house or use the freed up equity via mortgage or LOC for it.

Thomas Beyer, Asset Manager, Investor, Author, Father, Mentor www.investoliver.ca

bjack · Jun 27, 2019

ThomasBeyer said:
Is there an area of town that you would prefer to own a condo, half-duplex, house or TH? If so, research that and consider selling the house or use the freed up equity via mortgage or LOC for it.

Thanks for your feedback - this is likely our best option. Appreciate your help.

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Purchasing second property as Primary residence. Advice?

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