How do I turn my property into income? #Toronto #realestate

How do I turn my property into income?

Chapter 3 : How do I compare my options to get income from my property?

A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step. Find out more.

 

Investor Education Fund

 

Using your home or other property to create income is a big decision. Once you start down this road, it may be hard or even impossible to go back. For example, once you sell your home, you can’t turn around and buy it back. Also, if you borrow a lot of savings from your home, you may find it hard to replace those dollars later.

Make sure you consider all options before you put up the “for sale” sign. Weigh the risks and advantages with care. We’ve created a chart that sums up the benefits and drawbacks for each choice.

 

Should I sell, rent, or borrow? The pros and cons


Option Benefits Drawbacks
Sell and buy a less expensive home

 

* Frees up cash that you can turn into monthly income with an annuity, or invest * Reduces cost of keeping a home * Reduces property taxes * Keeps some of your equity in an asset that may go up in value, and that you can leave to your family or estate when you die

* Forces you to give up a home you may love in an area you really like * Leaves less room for guests and family members who visit * Does not eliminate all property taxes * Creates tax cost if you invest and get unsheltered earnings * Reduces the equity you have in your home, which could reduce your estate
Sell and rent another home, condo, or apartment * Frees up cash that you can turn into monthly income with an annuity, or invest * Eliminates many costs of keeping a home * Eliminates property taxes * Requires rent payment every month * Forces you to give up a home you may love in an area you really like * May reduce room for guests and family members who visit * Creates tax cost if you invest and get unsheltered earnings * Eliminates opportunity for future growth in the value of your home
Rent out property you own (for example, rent part of your house, rent your cottage for a season, or run a bed and breakfast) * Brings in cash you can use to create monthly income with an annuity, invest, or use to cover expenses such as property taxes * Keeps equity in an asset that may go up in value so you can leave more to your estate * Provides a tax break, because you can deduct part of your mortgage, taxes, and other expenses against the rent you get

 

 

* Means that you won’t be able to enjoy your property as much as you used to * Does not eliminate the cost of property taxes * Can lead to extra maintenance and hassles from tenants * Creates tax costs because income from rent is taxable * Also creates tax costs if you invest the rent and get unsheltered earnings * You may also pay tax on part of the capital gains when you sell the home if you deduct a portion of your mortgage as an expense * You may not be permitted by local laws, or you may need to invest extra money to meet fire codes before you can rent

Borrow against the equity in your home through a secured line of credit or loan

 

* Frees up cash you can turn into monthly income with an annuity, or invest * Keeps cost of borrowing low * Lets you deduct the interest on the loan from your taxes if you invest the money you borrow (this tax break can balance out any tax you may pay on unsheltered investments) * Lets you stay in a home you may love in an area you really like   * Keeps some equity in an asset that may go up in value and add to your estate

* Does not eliminate cost of property taxes, maintenance, and carrying costs * Requires you to pay a minimum payment on the loan (may be the interest only) every month * Your costs of borrowing can go up if interest rates change * Adds costs (e.g., appraisal fees, application fees, legal fees) * Taxes will be due on any unsheltered investments you make using the money you borrowed
Get a reverse mortgage (age 60+)

 

* Frees up cash you can turn into monthly income, or invest * Reduces some costs of borrowing (there will be no tax on the money you borrow, and no repayment as long as you stay in your home) * You can deduct the interest on the loan from your taxes if you invest the money you borrow (this tax break can balance out any tax you may pay on unsheltered investments) * Allows you to stay in a home you may love in an area you really like * Keeps some equity in an asset that may go up in value, and that you can leave to your estate

* Reduces the equity you have growing in your home, so there is less to keep when you sell and less to leave your estate * Does not eliminate costs of property taxes, maintenance, and carrying costs * You can build up a lot of debt (by paying interest on the interest) that you will have to pay back when you sell your home * Adds costs (e.g., appraisal fees, application fees, legal fees) * Charges higher interest rates than a normal mortgage * Your costs of borrowing can go up if interest rates change * You must pay off any loans on your home, including a normal mortgage, before you get any money * You may pay high penalties if you change your mind later and want to cancel

Remember: Whether you sell, rent, or borrow, there are benefits and risks

 

What’s right for you depends on your financial needs and personal priorities. Think it through with the help of your adviser.

Content in this section is provided in partnership with the Investor Education Fund. The Fund is a non-profit organization that promotes financial literacy and helps consumers make better financial and investing decisions. It was established by the Ontario Securities Commission and is funded from settlements and fines from enforcement proceedings.
To find out more go to getsmarteraboutmoney.ca.

Posted via web from Toronto Real Estate News, Blog

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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