Some years ago (2012) we were celebrating being "debt-free" and contemplating our next financial move. We had a significant amount of equity in our house and were looking for opportunities to grow our wealth. We had already set up a "HELOC" (Home Equity Line of Credit) on our home in Calgary, so we decided to tap into that equity and use some of it as a down payment on a rental property.
"Banks have no problem taking your money to build their wealth,
why not use their money to build your wealth"
Our Realtor found us a nice semi-detached house in an "up and coming" neighbourhood. So we took the plunge, bought the house using our line of credit as a down payment, and applied for a mortgage. We were approved and we made the purchase. We found excellent tenants that moved into the house in July 2012.
Six years later in June 2018, we sold that house.
Here's the good part: When we sold that house it was worth $70,000 more than we paid for it, and we had paid down the debt by about another $70,000. And, to top it all off, we had earned $300 per month in rental income. That's an additional $21,600. It had the original tenants still living there. There were some maintenance costs and a roof replacement, which was an insurance claim.
When we sold that property we walked away and gained about $161,600 of wealth in 6 years and we never used any of our own money but exclusively used the bank's money instead. That's what I mean by robbing the bank. It's just a play on words - I'm not advocating walking into and robbing a bank.
Even if the value of this property hadn't appreciated, we still would have made about $90,000. This is what we mean by using someone else's money (The Banks) to build your wealth. This is an example of "Good Debt", which is using debt for appreciating assets, like real estate. Borrowing to invest may not be for everyone, but with a careful plan, it can be possible.
Now, the REALLY good part: What if we kept this property for 20 years? How much would we grow our wealth during that long-term horizon? You do the math on that one. So far, we have multiplied this process 7 times over, at varying degrees of success.
"Someone else can get rich using your money or you can get rich using someone else's money - it's your choice"
If you want to live like most people, hand to mouth, paycheck to paycheck, then keep doing what you're doing - working long hours, paying lots of taxes and interest on bad debt. Or, meet with us and discover the strategies we use to grow and protect your wealth for a lifetime of success. Book Now!
Retirement Income & Tax Advisors,
Willis & Nancy Langford
Financial planning for everyday people
