Real Estate Investment no Money

It is possible to invest in real estate with no money down.  Providing you own a home, or a major percentage of value in property you can apply for the Homeline Plan or similar product, in order to leverage money for other investments, such as more real estate.  You can be advanced up to 80% of your property value either in a line of credit and/or mortgage(s).  This allows those with solid assets, but perhaps no ready cash to re-invest without selling.   In Canada, major banks, such as the Royal Bank of Canada and the Scotiabank, often will seek out their customers with solid portfolios and offer them this option.

By using this system you can use the money allowed as a down payment on another property investment and/or investments.   However, it is important to understand when investing that your real assets are collateral for this type of loan and should you default, they will be at risk.  

Providing you are in the position of already being a property owner, this is a good way to gain in the real estate market, especially with current low interest rates.  You can potentially buy a rentable property using this income to pay the line of credit or mortgage.  In this way, 100% of your investment is being serviced by money that is not coming directly from your own pocket. 

However, with properties becoming more high-priced and rents remaining relatively stable it has become increasingly more difficult to pay this debt without subsidizing.   The most lucrative investment is one in which a rental income will service the debt, which is 100% interest, in full.  If you invest in real estate in Canada the interest is 100% tax deductible.  As well, you will be able to write off items such as property maintenance, property tax and other expenses from your personal income tax.

As much as this may appear to be a great idea to make money, and it can be, it can also have its pitfalls.  If you are relying solely on rental income to service debt, you must also make sure that should a renter default or leave you are able to come up with the payment.  As well, you must ensure that you have money put aside in the event that the property requires upgrades and/or maintenance that will likely not be covered in your income equation.  

Banks in Canada are cautious when it comes to lending money to investors, and the above option is usually offered only to those that have a “proven track record”.   Prior to allowing you a Homeline Plan for investment the banks will do a complete search on your credit history and determine your ability to pay using your personal income with/without rental income as a factor.  Therefore, you will also be someone with a substantial viable personal income along with personal (usually appreciating) assets. 

Canadian real estate has made gains year after year in most areas of the country.  Downturns in the market are however usually part of a cycle, whether caused by recession or otherwise.  It is important that you are able to hold your property investment during these times and sell when the market is higher.  Using this method of investing you can potentially gain from leveraged assets and put money in your own pocket – perhaps for another investment – this time with your own down payment.