5 min read

I’m going to share a short story with you about Pam, who went from absolute zero to a net worth of $1.1 million dollars in 6 years, via refinance.

This single mom knows a thing or two about sacrifice.  

Deciding to move back home with her aging parents after a failed relationship, Pam wanted to secure a future for her and her young son. 

Knowing that I wear two hats as both a Mortgage Broker and a Realtor, she came to me for some property and financing advice. At the time of our first meeting, Pam barely had enough funds to put towards the minimum required downpayment.

She was persistent however, and within a period of six months, had built up enough savings to qualify for a property outside the pricey city core.  Our answer came in the form of a cozy, twelve year old, freehold townhouse. 

 It wasn’t perfect, rarely is.   

The location was far from just about everything Pam and her son’s lives revolved around. Thus, right off the bat, she knew this would not be a property they would occupy. But, the price was right and the space was a generous size.  

I saw the long term potential and recommended that the property could be leased out for a year or two, while giving herself some time to transition post-relationship. 

She agreed.  

Fast forward three years later and this humble home, now-tenanted, had gone up in value by nearly $220,000 dollars. 

Not bad.  

Keeping a close eye on the market,  I followed up with Pam who was still residing with her parents, but taking it in stride. 

We met for coffee one day and she began telling me that while she was doing okay moving back home, she was a bit worried about some debt she had accumulated to cover unforeseen expenses. 

At some point in time, this happens to just about everyone and without a financial cushion, it’s fairly easy for debt to spiral out of control. 

Luckily, Pam wasn’t at that point but certainly wasn’t keen on approaching it either. 

You should consider refinancing your rental property while the market is high and interest rates are low, I told Pam.

“What’s Refinance?” 

When a property has gone up in value over a period of time, for example in your case from $300,000 to$ 520,000, you are allowed to access a portion of that gain (called equity) and use the funds towards whatever purpose you have in mind.

The amount you borrow is then merged into your current mortgage.  Depending on the rate at the time and how much funds you obtain, your monthly commitment may go up slightly, but not in any dramatic way.

The benefit to refinancing is your mortgage rate is a lot cheaper than the crippling interest rates charged on your credit cards, personal loans or unsecured lines of credit.  

We began crunching the numbers and realized there was enough built up equity to both eliminate her debt as well as leave room for a second investment property.

Let’s take a close look at the math:

• Pam’s first home went up in value by more than $200,000 

• We decided to refinance $70,000 of the equity with a breakdown as follows: 

  1. $20,000 towards debt elimination

  2. $50,000 towards the downpayment of property 2. 

The condo we found had low maintenance fees and was situated in a well maintained building in a high demand growth area.  

The sellers were also really motivated to sell which allowed us to secure the unit at a pretty decent price. Yay!

Within the first week of putting the condo up for lease, we had 8 offers including two tenants willing to pay upfront for one year, plus offer an additional $300 above our asking price. 

The lease payments received was enough to cover just about all the condo’s carrying costs. Another win, Pam was delighted.

That was three years ago.  Since then, her condo investment had gone up in value by more than $150,000.   

I got a call from Pam a few weeks ago, she’s decided now’s the time to find a place to call home with her son. With just two properties in her portfolio, Pam has accumulated a net worth of more than $1.1 million dollars. 

We are now in the process of  using the same tried and true strategy of creative financing, to help Pam land her third property. Knowing Pam though, her ambitions probably won’t end there. 

Here’s my suggestion to you the reader.  If you’ve owned a house or condo over the past 5 years or more, you may want to consider tapping some of that equity build-up to use towards other goal or projects. 

A few of my clients have opted to pay down debt, invest in a second property, pursue graduate degrees or simply use the funds towards long term savings and investments.

As a full time mortgage broker and real estate agent, I have access to more than sixty financial institutions including: Credit Unions, Chartered Banks, Private Lenders and Mono-Line lenders, all of whom allow for creative refinance strategies.

Let’s discuss your options. Send me an email at:  stevie (@) nestabode (.com) 

To learn more about the basics of refinance, visit the Financial Consumer Agency website, here. You might also find this article I wrote about rent control rules in Ontario useful, link here.

Talk soon.