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The One Mistake So Many Homeowners Make and What to Do Instead

There is one mistake that so many home and condo owners are making, one that in the long run will cost them hundreds of thousands or even millions of dollars. Find out what this mistake is and what you should do instead.


3:15 Equity in their home.
7:25 Greatest decision that anyone can make financially.
13:40 4 quick tips for investing using equity in your home.

Click Here for Episode Transcript

Andrew la Fleur: If you own your own home or condo, you’re probably making one huge mistake that I see so many people making. Find out what that is and what you should do about it on today’s episode.

Announcer: Welcome to the True Condos Podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Hi and welcome back to the show. Andrew la Fleur here for Thank you for listening. Today’s episode, as I mentioned in the intro, I want to be talking to homeowners, people who own their own home, or a condo, of course, is a home as well. If you own your own home, this podcast is especially for you.

If you are a would-be buyer, if you’re getting ready to become a first-time buyer and you have not jumped into the market yet, you can still listen to this episode and I hope you do, and I think you will learn something from it and it will certainly help prepare you and give you the right mindset for the future as you get ready and you will eventually become a home owner.

This is very, very important of you to have this mindset I think from the start. This is a mindset that is hard to break if you already are a homeowner. It’s actually probably beneficial for you to think about this now and think about these things now. Anyways, let’s jump into what I’m talking about.

There’s one mistake that I see homeowners making over and over and over again. It’s a mindset that they have that is the wrong mindset, and this mistake is costing homeowners thousands, if not millions, of dollars over time because of this one simple thing. This podcast was sort of inspired by a recent conversation I had, but it’s a conversation that I’ve had many, many times with friends, family members and clients as well.

Basically it goes something like this. The subject of the real estate market comes up and inevitably the conversation goes to the road of, I can’t believe how much prices have appreciated, and then it goes to something like, I can’t believe how much my property, my home, my house, my condo, fill in the blank, has gone up in value. I can’t believe it’s worth X amount, which is so much more than Y amount, the amount that I’d paid for it back in the day when I bought the condo, house, one year ago, five years ago, 10 years ago, 20 years ago, whatever that number is. They say, “Wow, look at how much my house has gone up in value. I have so much equity in this house. So much of my net worth is tied up in this house.”

The mistake that people are making is they are sitting on that equity, they are not using that equity. So there’s this mentality, there’s this mindset that people seem to have about the equity in their home, especially their primary residence, that they almost treat their equity like it’s some kind of a piece of art or like it’s a collection of art. It’s art to be collected and to be admired and to sit back, almost like I have this picture in my mind of someone sitting on their driveway in a lawn chair, staring at their house, admiring their house, marveling in its excellence and thinking to themselves, wow, I have so much equity and wealth tied up and I own so much equity in this property. Isn’t it beautiful?

To me, that is a trap and it’s the absolute worst thing that you can do. Equity in your home is not like a piece of art to sit there and admire. It’s a tool to be used. It’s a massive, powerful, the most powerful tool that you’ll probably ever see, ever have, ever have access for wealth creation.

The point of that equity, the only value in that equity is to get it out of your house and to use it, to invest it, to deploy it, not to sit there and admire it and marvel at it and hope that one day, somehow, you can use it, because the reality is, people think, well, it’s this great wealth that’s building up, building up.

The pretext behind this mindset is, one day I’m going to sell this thing and I’m going to pull that money out, it’s going to be cash in my hands and it’s going to make my life great and better, and I’m going to be rolling in cash, I don’t know, Scrooge McDuck style or something, or I’m going to have some kind of a Hallmark Moment retirement thing in my mind, as opposed to, wow, look at all this free money that is out there that I can take out and I can use and I can invest, money that I could never possibly save on my own if I’m just sitting there and saving my money from week to week and month to month. Most people could never accumulate as much equity, as much cash to do that as they’re already sitting on already.

That’s the key message here that I want to get across to you is just that the equity in your home is not a piece of art to be admired. It’s a tool to be used for wealth creation. I just see time and time again so many people that want to invest, they want to get into the real estate market, they want to buy a condo or build a portfolio, but they’re waiting and waiting and waiting until they have enough cash saved to do so. They’re trying to save up cash.

This will not work for probably 90% of the population. This is just not going to work. 90% of the population, if you’re listening, most likely, you don’t have extra cash just sitting around at the end of the week, at the end of the month. People don’t have the extra dough in their pockets. The cost of everything is going up, taxes are going up, paying fees and charges, and you’ve got kids, you’ve got family, the expenses, you’ve got cars, you’ve got just vacations.

It’s never-ending, the list of expenses and things to spend your cash on. For 90% of people who are not super-high income earners with lots of money left over, you’re never going to be able to save up enough cash, or it’s going to take you 10, 15 years to save up enough cash to get out there and invest.

If you already own your own home, if you made that great first financial decision, the greatest decision that anyone can make financially to buy your home, if you’ve made that decision in the past in the GTA, most likely you are sitting on a massive amount of equity, and it’s the greatest wealth generator that you’re ever going to have access to. It’s your own house. You don’t need to be killing yourself trying to save your pennies week after week, month after month to get into the real estate investing game.

Side note here, side bar here why I think, again, this is so important, to sort of drill this point home, why this is such a powerful tool, how this could impact your life in the future. You, the listeners, listening to me right now, think about your parents. If your parents own property in the GTA, think about your parents. Whether they’re 50 years old, 60 years old, 80 years old, think about your parents.

Most likely, chances are, if they’re in the GTA and if they are over the age of, say, 50, most likely your parents own their own home. I’d be willing to bet almost every single person listening to this podcast that would be true. Most likely, if they’re over the age of 50, 60 years old, most likely that home is paid off or it’s very close to being paid off in terms of the mortgage on that property. Most likely they’re probably sitting on hundreds of thousands of dollars in equity in that home, and most of that equity has probably been there for many years, just sitting there.

Now, imagine for a moment if your parents had bought just, taking that equity, some of that equity in their home, and just bought one other property, one other property in the GTA using this equity sometime in the last 20 years. It could’ve been 20 years ago, maybe it was 15 years ago, 10 years ago, maybe it was two years ago, maybe it was last year. Think about if they had bought just one other property using their equity in the last 20 years.

Now imagine how much more wealth your parents would have, how much wealthier they would be, how much more their net worth would be, if they had bought just that one other property using their equity at some point in the last, say, 20 years. I’m willing to bet that would be hundreds of thousands of dollars more. In most cases, it would be hundreds of thousand dollars more their net worth would be if they had’ve bought just one other property.

Now, imagine if they had’ve done that, instead of just once in the last 20 years, imagine if they had’ve done that once every, say, four to five years. Once every four to five years, they took some equity out of their property and they purchased an investment property in the GTA, not using any of their own cash, not touching their own cash, not touching their lifestyle, but they’ve lived regardless.

I’d be willing to bet that if they had’ve done that, especially if you go back, say, 20 years and they had accumulated four or five properties over those 20 years, I guarantee you that your parents would have millions of dollars in equity in those properties that they would have accumulated over the last 20 years. Millions of dollars their net worth would be more.

Now, you might be listening to this and saying, “Andrew, that’s exactly what my parents did, and my parents are multimillionaires, and it’s because of real estate investing, and that’s why I listen to this podcast and that’s why I buy condos and that’s why we get along,” but I’d be willing to bet most people listening, that’s not the case.

Statistics show only about 5% of the population will actually own an investment property ever. A vast majority of people, especially the previous generation, are probably not doing what I’m talking about here, have not done what I’m talking about here. Certainly my parents would be in this category, and certainly look at my parents and they’ve done very well. Financially, they have no worries at all. Both my parents were professionals where my dad was working full-time, my mom worked part-time over the years.

Again, financially, no worries, they’re fine. They’re retired now, but if they had’ve taken this advice and just used that equity in their home to purchase one or two or three, regardless of the number, I mean the more they would’ve done, the wealthier they would’ve been, and the difference in their lives today would’ve been absolutely dramatic and they would not have to have touched any of their own cash, it wouldn’t have affected their lifestyle in any way, shape or form because, again, it’s just money that they’re sitting on in their house.

It doesn’t have anything to do with their monthly regular expenses and income coming in. This is just money that is sitting there that’s done nothing that they could have used and taken out and multiplied their wealth tremendously over the last five, 10, 15, 20 years, even longer, but again, we’ll just keep our window of thinking here over the next 20 years because I want you to think about what your life could look like over the next 20 years as you’re planning ahead, as you’re thinking, how can I build a portfolio that will generate millions of dollars in wealth for me over the next 20 years?

The key message here is, if you own your own home, there’s a very good chance that you have the tools at your disposal, ready to go, at a moment’s notice more or less to do that and to start down that path right now, using the home equity in your home to invest.

Let me finish this podcast just by giving you four quick tips for thinking this through and getting ready to invest using the equity in your home.

First tip is start small. Start small. You don’t have to use all of your equity. If you have $300,000, $400,000, $500,000 … Some people I talk to, they’re sitting on $1 million of equity. This is a common conversation I’m having with people on a regular basis. They’re sitting on $1 million of equity. Can you imagine? Can you imagine the wealth that you could create over a 20-year period with $1 million of investible capital? It’s unbelievable when you think about it in the big picture.

You don’t have to use all of it. Start small. If you’ve got a few hundred thousand dollars of equity, just take out, say, $80,000 or $100,000. Just take $80,000 or $100,000 using a line of credit and invest that. Buy one property. Just buy one property at a time. You don’t have to take it all out. You don’t have to buy six properties, seven properties in one shot. Just buy one. Buy one. Get started. Get your feet wet. Go through the process. Get over your fears. Get over your apprehensions. Learn the ropes.

There’s so much value in just taking action, in doing. So many people will just get caught up in this cycle of thinking about investing, thinking about investing, thinking about investing, researching investing, going to seminars, never actually investing. Get out of that rut. Take action. Start small. Do it. Do it now. Make it a priority. Make it happen. Get that equity that you’re sitting on to work. That’s the first tip: Start small.

Number Two. Pull out your calculator and do some basic math. Understand just the numbers behind it. Get your calculator out, get your pen and paper out, write it down, make it real, understand how the numbers work. It’s not anything to be scared of. I can certainly help you with it if you want. You can email me or contact me anytime just for a free consultation to sort of help you understand the numbers behind it, but it’s really not that complex. You don’t need to make it that complex.

Interest rates now on home equity lines of credit, it’s around 3%. Some of my clients I’m hearing are getting 2.7%. It’s unbelievable. This is an incredible time in the history of the modern world where money is so cheap. Interest rates are so low. We don’t know how long this is going to last, but the opportunity is certainly there now to take advantage of.

If you go back to my example, take out, say, $100,000, 3% interest per year on $100,000, that’s about $3,000 per year in interest payments that you’re going to have to make. Let’s say you buy a pre-construction condo today, it’s going to be ready in four years. Oh, let’s see, you take $100,000 for that, just simple basic math, we won’t over-complicate it, 3% a year, $3,000 for four years, that’s $12,000 in interest payments, effectively, $12,000 of extra payments that you’re going to have to pay to purchase that property using your equity as opposed to using your cash, but here’s the beauty of it.

Here’s the beauty of it. Because you’re putting only 20% down deposit, you’re not paying 100%, you’re just paying 20% on typical pre-construction condo, 20% down, the condo only has to appreciate in value, when you do the math, by 0.6% per year. One-fifth of 3% interest rate is 0.6%. The condo only has to appreciate, go up in value, by 0.6% per year to completely negate the interest cost that you’ve incurred to purchase that property, to invest in that property. Think about that.

If you believe, as I do, that the typical Toronto condo will appreciate more than 0.6% per year over the next four years, which is just laughable, of course, the condos have appreciated 0.6% in the past week, so if it’s more than 0.6% a year, which of course it will be, then those interest costs are completely erased. You’re ahead of the game. You’re ahead of the game as long as that property appreciates by more than 0.6% by doing this strategy. Again, just to understand some of these basic numbers and basic math how this works.

Tip Number Three, always think long-term when investing. Again, as I started at the beginning, imagine your parents if they had’ve done this once, even just once anytime in the last 20 years, imagine the effect that this would’ve had on their net worth, and then imagine if they had’ve repeated it and done it over and over again every few years, not every year, not every other year, but just even every few years.

As they were in their 30s and 40s and 50s and 60s, imagine that they just had’ve done this every few years, added one more property to the portfolio, take that equity, add another. Now the property is growing. Now you have equity growing in multiple properties and you can access equity not just from your own but from these multiple properties, and it just becomes this growing spiderweb of wealth that you’re accumulating over time, and it’s all somebody else’s money and you’re not touching any of your own cash.

Anyway. I get very, very excited thinking about it and how simple and how beautiful it is and how uncomplicated it really is, but yet, I get frustrated when just so many people I talk to don’t understand it or they’re scared of it, they’re afraid of it, they don’t do it, and they continually miss out on this absolutely phenomenal wealth-building opportunity that’s available to anyone who’s fortunate enough to own their own home already in the GTA.

Think long-term, understand that you’re not buying these properties to get rich overnight. You’re buying these properties to accumulate wealth over a long term, over decades is how to think about it and how to do it and how to approach it.

Finally, final tip is rinse and repeat. Rinse and repeat. Once you’ve been through the cycle, once you’ve done your first property, as I said, rinse and repeat. Do it again and again and again. It doesn’t have to be overly complicated, rocket science. It’s not a one-time thing. It’s not buy one property once, take the equity once.

Five years from now, when your properties are worth more, 10 years, 15 years, your properties keep going up in value, your mortgages keep getting smaller, your equity keeps growing, the tool therefore that you have at your disposal keeps getting more and more powerful.

The lever that you have becomes stronger and stronger and can move a larger and larger boulder, which is the boulder of your wealth and of your future prosperity, and when you really start thinking about it, the future prosperity of your children and even your children’s children, if you take this strategy to the max and to the potential that it really has, and to the potential that so many millionaires and multimillionaires have used it over the decades and century that this type of mortgage financing has been available.

Those are the tips for you today. That, I think, will end the episode there. Hopefully you found this episode useful, fascinating, enjoying, enjoyful. “Enjoyful” is not even a word. Enjoyable? Whatever. Hopefully it was good. Until next time, I hope you have a great week.

Please go ahead and share this podcast with somebody you know, somebody who owns their own home, who’s thinking about investing, who maybe doesn’t have the cash, or just do me a favor and take action yourself and take that next step. Do what you need to do to make this a reality in your own financial journey, your own financial path, and let me know about it when you do. Until next time. Talk to you soon.

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