73 - Friday, October 16, 1987 — North Shore News

Real Home can be great source of investment cash

IF YOU purchased a home years ago, two things will likely have happened.

mortgage has been paid off and the value of your house will substantially,

Much, if not all, of your

deal have appreciated

consequently

making homeownership ane of the best investments you could have made.

A house with little or na morigage represents a great of potential which can be used for fur- ther investment.

While all types of invest- ments are open te you fro stocks and bonds to pork belly futures, there is one type with which you are already quite familiar: real estate. I: you own a prin- cipal residence, it has most

capital

likely appreciated in value over the years.

Owning a second property is an investment which can pay off handsomely. With the equity in your first heuse, buying a second house can be relatively easy.

NEWS photo Tom Burley

FRED RAUTER works on the construction of a deck rail on a wrap-around porch being built on a house on

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Let's assume vou bought your residence for $50,000 financed with a $35,000 mortgage. The mortgage has been paid off and the value of your house over the years has grown to $150,000.

Since most financial in- stitutions will provide mor- tguge money equal to 75 per cent of your home’s market value, you could probably arrange quite a substantial loan, if it were required.

Now, let's say you are in- terested in buying a second property for investment: you intend to rent it out and use the income to pay the ex- penses and perhaps make a small profit. If the house costs $120,000, you would probably arrange a mortgage on the property based on 75 per cent of its value: a mor- tgage of $90,000.

But you would also need a down payment of one- quarter the value: $30,000. This down payment can be arranged using the equity in your residence.

There are two ways in which you can go about ar- ranging the down payment. Since your residence is worth $150,000, you can easily take out a $30,000 mortgage and apply the cash to the down payment of your investment property.

Keep in mind the interest costs paid on your residence are not tax deductible. However, the interest on a loan taken for business or investment purposes, using your home as security, is tax deductible.

Before buying the proper- ty, you should ensure that the income it generates will cover most or all of your expenses. You'll have mor- tgage payments, taxes, in- surance and probably repair bills from time to time.

INCOME PROPERTY

Because you'll want to control your expenses, you should assume a long-term morigage. That way your primary cost is fixed, no matter what interest rates do in the future.

In addition, when you purchase an income proper- ty, you become a landlord with all the responsibilities the position entails.

On the upside, you will own real property. Histori- cally, property has proved to be an excellent investment over the long term = with house prices traditionally ris- ing faster than the inflation rate.

As an investor,you’ll en- joy a number of tax breaks. You can deduct expenses associated with the maintenance of the property, mortgage interest costs and the depreciation of the property, if any.

You can also enjoy one other tax advantage. Under federal tax laws, you are en- titled to a lifetime capital gains exemption of $50,000. If you sell your investment property for a profit, the return is all yours.

Reprinted from Royal LePage Homeowner)

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