How You Can Leverage Home Equity to Purchase a Pre-Construction Condo

You can leverage home equity to buy a pre-construction condo if you wish. It serves as an effective way to use and grow equity through the real estate market. Home equity refers to the equity you have built over the years in your current home.

As you make monthly mortgage payments, the equity you have accrued in your home will grow. If your home’s value goes up, such as the case with a hot real estate market, your home equity has also grown as well. You can leverage the home equity you have accumulated and take out a loan or line of credit to purchase a pre-construction condo.

It should also be noted that the purchase of pre-construction condos has grown exponentially in recent years, especially in very expensive real estate markets like Toronto. Here, our focus will be on how you can leverage home equity to purchase a pre-construction condo.

How Can You Leverage Your Home Equity?

To leverage home equity, you will need to own a home and have equity built into your home.

You can leverage home equity to buy a pre-construction condominium by taking out a home equity line of credit, home equity loan, or a cash-out refinance.

You should also know the difference between good and bad debt before making any investments. Good debt refers to a loan that has the potential to grow wealth.

Bad debt refers to a loan that is taken out for consumption only. It may also refer to a loan used to buy assets that quickly depreciate in their value, such as a car loan.

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By understanding the difference, you will be able to make a sound business decision that will increase your net worth.

Using a HELOC to Buy a Pre-Construction Investment Property

Leveraging a small amount of cash over a prolonged period may pay great dividends. A home equity line of credit may allow you to buy a pre-construction investment property when leverage is used in your favour, such as if you have lots of home equity available, if interest rates are low, or if you can get a great deal on a pre-construction in a hot real estate market.

Your lender will first ascertain how extensive the line of credit will be. After your line of credit has been approved by your lender, you will have the option to use your home equity line of credit to buy the pre-construction condo using cash alone.

Or, you can use your home equity line of credit to put down a down payment on the property instead. If you are a savvy investor, you can turn the condo into a rental property that can serve as a recurring revenue stream for you and your family.

Why Invest in Pre-Construction Condos?

With a pre-construction condo, you may have access to many comprehensive deposit programs that you would not be privy to with other investment opportunities. Moreover, you can take advantage of current-day prices when investing in a pre-construction condo.

You can also enjoy a hands-off experience, and you will not be held down by a mortgage until the actual occupancy date. The process is well-defined, with minimal bureaucratic red tape or legalese to worry about.

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You may also have the opportunity to trade for a better condo or sell the unit in the future. Investing in a pre-construction condo may also provide you with unique tax advantages depending on where you live.

The end goal of investing is to make more money with less money. In other words, you want to maximize the benefits of real estate leverage to optimize your return on investment.

To reap the rewards, you can take advantage of real estate appreciation, which has further been enhanced by the financial ramifications of the global pandemic.

It is also important to realize that if you opt to convert your condo investment into a rental property, your tenant or tenants can be used to make the monthly mortgage payments and provide you with extra profit as well.

While your tenants will cover your initial investment, you can make modifications to further enhance the value of your property or earn more rental income to ensure you have a net positive cash flow every month.

The passive income that you generate each month can be put towards upgrades for your primary home, which will help boost its equity and curb appeal.

Yet another benefit of investing in a pre-construction condo is that it is recession-proof. As inflation rises, so will the value of your investment. Rental prices will also remain unhindered even when there are market dips.

You can also strategically raise rental prices to keep up with inflation. Furthermore, investing in a pre-construction condo will provide you with long-term financial security. You have full control, as you will serve as your decision-maker, and the tax benefits can be quite beneficial. For example, only fifty percent of capital gains are taxable in Canada.

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If you are considering purchasing a pre-construction condo in your area, then please speak to a  financial advisor or real estate broker to learn more about the benefits of doing so.

Taking the First Step

To make money in pre-construction investing, you need to work with a wealth strategist specializing in the real estate market. They will assess your needs and perform the necessary due diligence to provide you with a custom-tailored solution.

Qualifications and affordability are also factors you need to consider before investing.

By investing in a pre-construction condo over a conventional home, you will be able to get your foot in the door without having to deal with stringent mortgage regulations and an elevated mortgage.

When you think strategically and work with a seasoned real estate expert, investing in a pre-construction condo will serve as an investment that will yield the highest return over time.

Your journey towards condo ownership and long-term financial security begins when you take the first step.