How many investment properties do you need to own before you can begin growing your wealth? You may think that you need to own multiple houses to see any return in this market. However, the real answer may surprise you. You only need one investment unit to secure your future and significantly grow your portfolio. There is no need to overextend yourself financially by trying to buy and hold several properties. All that’s missing is the knowledge of how to leverage what you already have to reap the maximum benefits.
What is the Property Ladder?
Let’s start by understanding the concept of the “Property Ladder.” The phrase was coined in the UK to describe the process of moving up from a starter house or condo to a more luxurious home as time goes by.
Back when the market was “normal,” the ladder made perfect sense. Start by living below your means and saving for a down payment on your first house. After a few years of homeownership, you’d have enough equity to either move or buy a second investment property.
With the current housing situation in Canada, the property ladder has become more complicated. The soaring costs make it difficult for someone starting out on the first ladder. Very few first-time buyers can start in Toronto unless they are lucky enough to be born to a wealthy family.
However, there are still several ways to succeed as an investor in this market. It may just take some creativity and out-of-the-box thinking to achieve your goals. Here is some advice to help you at each rung of the property ladder.
Step 1: Buy Your First Property as Soon as Possible
If you currently don’t own a house, the best advice is to buy a piece of property however and wherever you can.
The average house cost of $1.7 million may put Toronto living off the table for now, but you can look at areas an hour or two away where the prices are much lower. For a first-time buyer, it’s essential to build your credit and save as much as you can for your down payment.
However, the best advice for a first-time buyer is not to go it alone. It can take years before you can save up enough, and who knows what will happen to the market in the meantime?
Your best path to homeownership now may be to make a joint purchase with a friend or family member. As the home increases in value, you and your partner will both build equity. Then you can begin leveraging your property and growing your investment by moving up to step two on the ladder.
Is Toronto out of reach for you right now, but still want a house in a vibrant city full of amenities? Many first-time buyers and downsizers are discovering that Peterborough is a great option. Here are just a few reasons why:
- Summer is Here! Here Are The Lakes Near Peterborough You Have To Visit
- Five Fun Things to Do in Peterborough Right Now
- Everything You Need to Know About Retiring in Peterborough
Step 2: Build your equity with your home
As a homeowner, your net worth will automatically grow as real estate values go up. However, there are still creative ways to tap into your equity and build your wealth faster. The easiest method is by making minor, inexpensive upgrades. For example, it doesn’t cost much to paint or change all thermostats to smart technology. You can switch out the knobs and handles on cupboard doors to create a fresh new look. There are countless small things you can do to give your house a facelift that could result in a higher price. Even if you don’t plan to sell, your equity will still grow as the value of your house increases.
Another way to leverage your investment is to take on a renter. Even if it’s just a single bedroom, you now have a source of passive income that you can count on every month.
If your house has a basement, you might consider investing in some renovations to turn it into a completely separate apartment. A secondary suite can bring in a healthy amount of income, which helps you pay down your mortgage and grow your equity even faster. If you don’t like the idea of someone in your space, you can get creative. Coach houses and garden suites are now allowed in most cities all over Ontario and are a great way to increase your income and the value of your property.
Want some more ideas on how to add a secondary suite to grow your income? These resources will help:
- A Guide to the New Coach Home Rules in Peterborough
- Everything You Need to Know About Carriage Homes and Secondary Suites
- A Beginner’s Complete Guide To Investing In Real Estate
Step 3: Buy an Investment Property
Once you’ve taken the time to pay down your mortgage a little and built up your equity, you can really start to leverage your property. You can see about taking on a Home Equity Loan (HEC) or a Home Equity Line of Credit (HELOC) to buy a second house or condo to rent out. Because they are secured by your home, interest rates on an HEC or HELOC are typically low. Owning a rental unit is one of the easiest and safest ways to grow your nest egg. This is especially true if you live in a city with a university where many people are looking to rent. Now you can start all over again by upgrading your second home to accommodate more tenants and increase your rental income.
The real wealth doesn’t just come from rental income, however. It comes from the appreciation of the properties as the market continues to go up.
Later on, you’ll have options.
You can cash out of your investment by selling your house at a significant profit. If you want a long-term, generational wealth strategy, you can hold your properties to hand down to your children and grandchildren.
Looking for more advice on how to grow your wealth through real estate? We are happy to help.
You can book a meeting with us here, and we will answer any questions you have.
