Downpayment Source

[ekisielewski]

I am in the process of purchasing property # 5 and I have different options available for the downpayment source. I am wondering if one is more favourable than the other. Your opinion is greatly appreciated.
Sources:

1. Sell non-registered investments ( approx. yield 8% per year)
2. Secured Line of Credit @ prime rate
3. Re-finance property # 1 currently with a Positive cashflow of $ 270.00 per month. After re-financing it would break even or slight positive cashflow.

Looking forward to your input!

Elisabet Kisielewski
Oakville-Ontario

 

[lanedry77]

Hi Elisabet,

Of those three choices, I would suggest #2 is the best bet.

Between #1 and #2, consider that a HELOC tends to be interest only payments at prime. The bank`s prime lending rate is 4.75% right now, so by cashing in your non-registered investments you would be loosing 3.25% per year gain compared to borrowing the money at prime (assuming an 8%/year growth).

As for the refinance option, $270/month is not a lot of cash flow, and I (personally) don`t think that`s enough to consider a refinance.

but beware that by using a HELOC for the down payment, the purchase is 100% financed so you need to make sure it`s a wise purchase in the first place. just like always, don`t skip any of your steps doing your diligence.


David.

 

[kboughen]

QUOTE (ekisielewski @ Jul 21 2008, 08:43 AM) 1. Sell non-registered investments ( approx. yield 8% per year)
2. Secured Line of Credit @ prime rate
3. Re-finance property # 1 currently with a Positive cashflow of $ 270.00 per month. After re-financing it would break even or slight positive cashflow.
Hi Elisabet


If you have factored in any fees for refinancing property #1, and if your DCR still works for your portfolio after a refinance, then I like option #3. This should provide you with the best over all cash flow (no carry costs on a SLOC), which in turn should improve your debt/service ratios as well.


This way you also get to keep some non-registered investments which seem to be performing respectfully.

 

[SomchayYau]

You can claim the interest you paid on your HELOC when you file your tax return. Can you do the same with the other two options?

 

[ekisielewski]

QUOTE (SomchayYau @ Jul 21 2008, 08:08 AM) You can claim the interest you paid on your HELOC when you file your tax return. Can you do the same with the other two options?


Good Point. I could if I re-finance and I could not if I used the non-registered funds.
Thanks
Elisabet

 

[GarthChapman]

Elisabet, in your position I would ask my Mortgage Broker which method would create the best presentation to Lenders for your future purchases. If you intend to grow your business this is always the key.

Hope that helps,

 

[SomchayYau]

Elisabet, which option did you end up choosing?

 

[ekisielewski]

QUOTE (SomchayYau @ Jul 24 2008, 02:43 PM) Elisabet, which option did you end up choosing?


Have not made a decision yet.
I am waiting for my Mortgage Broker to get back to me with more info re: re-financing. I know I will have to pay a penalty and I don``t think I will get the rates I was able to get 3 years ago.

Elisabet

 

[Thomas Beyer]

QUOTE (ekisielewski @ Jul 21 2008, 06:43 AM) I am in the process of purchasing property # 5 and I have different options available for the downpayment source. I am wondering if one is more favourable than the other. Your opinion is greatly appreciated.
Sources:

1. Sell non-registered investments ( approx. yield 8% per year)
2. Secured Line of Credit @ prime rate
3. Re-finance property # 1 currently with a Positive cashflow of $ 270.00 per month. After re-financing it would break even or slight positive cashflow.

Looking forward to your input!

Elisabet Kisielewski
Oakville-Ontario
ask a mortgage broker .. as some banks may not like option 2 ..

assuming option 3 is a long term hold and assuming costs are reasonable .. I`d re-fi .. i.e. option 3 ..

also: keep in mind that the real estate road is more bumpy than the last 10 years, i.e. market right now is FLAT to slightly declining in many Canadian markets .. so keep in mind that a long term hold with some cash-flow or at least break even cash-flow is king to wait out the bumps in the (real estate) road over the next 2-4 years !

keep some prudent reserves for vacancies, repairs, unexpected life situations ..