I recently met a couple that took out a reverse mortgage to purchase a house in Hamilton, ON. Their daughter was attending McMaster University, and was just starting her post-graduate degree.
After spending close to $25,000 over 4-years in rent, her parents decided to get into the landlord business!
Here’s how the numbers worked out:
- Clients 58 & 60 years old
- $3M home in Oakville, ON
- Approved for $600K reverse mortgage
- McMaster Rental Property – $2375 monthly rental income (daughter lives rent free), or $28,500 rental income per year
- CHIP Reverse Mortgage Interest – $28,500 (4.75%)
Now at first glance, it looks like these freshman landlords will simply break-even as interest expense is equal to rental income.
But there are a few considerations:
- Daughter is living rent-free – parents are saving $5700/year in rent
- CHIP Reverse Mortgage Interest is tax deductible against total taxable income
- $3M Oakville home – if it increases in value long-term, by only 1% per annum, this will cover the interest expense & more
- The flexibility of deciding how much or how little interest payments to make on their reverse mortgage puts these clients in an enviable cash-flow position.
House rentals are not for everyone as they tend to be a “hands on” investment. But for the right client, rental properties can be a lucrative opportunity as part of a diversified investment portfolio.
To learn more about how this CHIP Reverse Mortgage can work for you, contact the mortgage professionals at Dominion Lending Centres.