What Is Equity Leverage?

Real estate investment has long been regarded as a relatively safe instrument compared to the volatile commodity and stock markets.  In particular, the Ottawa real estate market is supported by a large federal government workforce and has seen steady annual equity increases of over 3%.  Knowing where, when, and how to buy- making money with other people’s money.  This is the concept of equity leverage.  When buying an investment property, putting a higher down payment is not always the best choice.  A lower down payment might generate a greater rate of return.

The following example illustrates this concept:

Assume a $300,000 house with rental income of $1600 a month.

Option A: With 20% down payment ($60,000), 3% interest, and 25 years amortization, monthly mortgage will be about $1,140.  Monthly net income will be $460 and the annual net income will be $5,520 with a cash-flow return on investment of 9.2% ($5,520/$60,000)

Option B: With a 5% down payment ($15,500), 3% interest, 25 years amortization, and CMHC insurance, monthly mortgage will be about $1400.  Monthly net income will be $200 and the annual net income will only be about $2,400.  But cash-flow return on investment will be over 15% ($2,400/$15,500). 

Our team of knowledgeable and experienced experts will ensure that your real investment makes financial and economic sense.  We evaluate, plan and execute.