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Use an Investment Property As Your Pension

General Trish Pigott 2 Aug

An investment property can be a great option if you’re looking for a way to generate additional monthly income. It can also be a great opportunity to help grow your wealth over time. We’ve summarized three key benefits of owning an investment property below.

  1. Supplement your income now and boost your future pension, creating more financial freedom
  2. Buy your dream retirement home now and rent it out until you’re ready to use it
  3. Increase your monthly cash flow for potential expenses beyond retirement savings

However, before you buy an investment property, there are a few things to know:

  • Buying a property for the purpose of renting it out comes with different qualifying criteria and mortgage product options, than traditional home purchases.
  • The minimum down payment required is 20% of the purchase price. It is important to note that these funds cannot be gifted; they must come from your own savings or the equity in your current home. Consider factoring the funds in for closing costs, potential repairs and maintenance if you’re refinancing to use equity.
  • Only a portion of the rental income can be used to determine how much you qualify for. Some lenders will only allow you to use 50% of the rental income, while others may allow up to 80%.
  • Interest rates usually have a premium when the mortgage is used for a rental property. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
  • When it’s time to sell, you will be subject to capital gains tax.

With the right purchase price, this can be a great way to supplement income and make the most out of your retirement. You will have the opportunity to produce monthly cash flow now, and cash out by selling the property later.

Before getting started, it is important to calculate the cost of your investment (purchase price and closing costs), as well as the maintenance (approximately 1% of the property value for the year). Then, compare it to the current rental prices to be sure it’s a profitable investment.

If you’re looking to purchase an investment property, be sure to reach out to us here to discuss your options and understand what’s required.