Proactive Resizing
The average Canadian in retirement has a shortfall of $20,000 annually and an average of $200,000 saved. Many believe the smart retirement decision is to sell their larger home, buy a smaller condo and live off the difference. These clients don’t realize they could stay in the home they love, buy that condo now and have an income stream until they want to downsize.
Proactive resizing is the purchase of a property that clients will eventually move into when they sell their existing home. That property is often a condo but could be a townhouse or a one-level rancher.
The clients take a reverse mortgage on the existing primary residence to fund the purchase of the condo. If there’s enough equity in their primary residence, we do the deal based on the primary residence alone. If there isn’t enough equity in the primary residence we can do an inter-alia over the primary residence and the new condo. There is no mortgage payment so the rent collected only needs to service the strata fees, insurance and property taxes. All remaining rent – usually more than $2,000/month – becomes monthly income for the clients.
Not only are their investments left untouched and continue to grow, they now have two properties growing in value and a monthly income stream.
Recent Client Story – Proactive Resizing in Action
Steven (70) and Cynthia (70) have a free & clear home in Burnaby valued at $2.5M. They have a shortfall each month and were going to start drawing down their $300,000 investments. They knew they were going to downsize at some point but weren’t ready yet. They decided to purchase a condo that they would one day move into, but they were going to rent it out for the next 5-10 years.
Reverse Mortgage approved loan amount: $856,500
We could have done an inter-alia over their house and the new condo but they found a condo they loved for $800,000. Because they don’t have any mortgage payments, the rental income on the condo (after deducting property taxes, strata fees and insurance) nets them $2,000 per month, more than enough to cover their shortfall. Assuming both properties appreciate at a rate of 4%, the net worth of their 2 properties in 10 years exceeds $3.1M. They’ve also had the benefit of the additional $2,000 month for 10 years and their investments remain intact and growing.
Proactive Resizing Strategy Walkthrough
The proactive resizing strategy can be difficult to wrap your head around. Angela Calla Mortgage Team is happy to hop on call a to go through the example that can be used to illustrate the scenario.
Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.
Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.
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