Home Equity Loan for Rental Property
Are you a BC homeowner who was built up significant equity in your property, and want to leverage the value to earn income on the rental market? Despite high interest rates (at press), a home equity loan for a rental property can be a great idea for those who want to generate monthly revenue while building wealth. Below is a breakdown of your three options for making it happen along with a look at key benefits of each.
3 Favorable Types of Rental Property Opportunities for BC Homeowners Considering a Home Equity Line of Credit (HELOC)
Separate Property for Longterm Rentals
If you want a separate property to place on the longterm rental market, be it a single family home, townhouse, or condo, the process is essentially the same as it is for anyone getting a second home mortgage. The more equity you have built in your current property, the more leverage you have with lenders. Furthermore, people who prefer investing in long-term rental properties typically choose fixed rate mortgages as they appreciate the consistency (and low risk) and can set their rental rates to cover the known monthly payments associated with the home equity loan. That being said, you want to make your longterm rental rates competitive to ensure occupancy, which is why you want to get the lowest fixed rate possible, This requires the assistance of a mortgage broker who can get you access to lower than advertised fixed rates on a home equity loan for a rental property. If getting a HELOC in BC, connect to the Okanagan Valley’s home equity loan specialist, Rene Carloni. Call 250.493.9111 for a free consultation.
Separate Property for Short Term Rentals
Short term rentals (STR) are those placed on services such as VRBO and Airbnb. When occupancy rates are high, it can be VERY lucrative because you can charge a much higher rate than you could for a longterm rental. This option is very popular in our neck of the woods (Penticton BC) as the Okanagan Valley is a four-season resort community that attracts visitors year-round. Condominiums are typically the property of choice for those who want to use a HELOC to invest in a STR property. Investors generally prefer variable rate mortgages, as they can frequently adjust the rental rates to coincide with variable interest payments. As with fixed rates, a reputable mortgage broker can get you access to lower than advertised variable rates on a HELOC for your STR investment. Call 250.493.9111 for a free consultation.
Home Expansion for Short Term Rentals
One option that you may not have considered, is a home equity loan to perform an expansion on your current property to create a new space such as a guest house, or other type of rental suite with a separate entrance complete with unshared facilities/amenities. This option is usually preferred for those who want to earn income on the STR market as they can pick and choose when they want someone staying on the property.
Under this scenario, a HELOC is far less complicated than it is when getting a loan for a second home. Even better, is that renovations done to the home can be written off as a business expense, as can the interest on the loan, considering that a rental property is indeed a business. The latter (deductible interest) also applies to the longterm and STR scenarios above.
As alluded to in the introduction, interest rates may not be ideal (at press) for a HELOC. However, when you consider the income earning prospects of a rental property you can certainly make up for what you will spend in interest payments. Regardless, be sure to do all that you get to get the best HELOC terms possible. That means working with a mortgage broker who specializes in home equity loans. If you’re located in BC, contact Rene Carloni today for a FREE consultation.