There are lots of great reasons to apply for a home equity loan. Some of the more popular ones are renovations or a medical emergency. One of the lesser known reasons that people look to a home equity loan is to buy investment properties.
Is this a good idea? It’s not a straightforward answer so let’s look at the pros and cons.
Should People use their Home Equity to Invest?
A property owned for the sole purpose of being flipped or rented can be a great investment especially in a market like the GTA. Using a home equity loan to fund this type of venture is a hit or miss proposition based on the competency of the applicant. Most industry professionals will tell you that using your home equity to fund a side business or investment is a good idea.
Pro: If you have the Right Experience and Personality then you could find Success
Rental properties can provide a steady income and even pay for themselves if you put in the proper work and buy in the right neighbourhood. If you focus on the numbers and not the emotion or delusions of grandeur you could experience a very healthy return on your investment.
Pro: One of the more Stable Markets
The housing market in the GTA has proven to be strong year over year. Very few markets can make the same claim of stability so if you’re looking for a sound investment and the chance to put in a little elbow grease than an investment property is might be your calling.
Con: Every Market has some Volatility
There’s always volatility within the market and you must be prepared for the long haul. Whether you’re flipping or renting, it’ll take time to make your money back. With all investments, a realistic approach is best.
Con: There could be Trouble if you don’t Flip or Rent Fast
Not only will you have to pay the down payment you’ll also have to cover all the costs associated with buying a home. If you can’t flip or fill it fast you might be paying for two homes which for most can be strenuous.
The best thing to do is sit down with a trusted professional and decide if a home equity loan for an investment property is right for you.