I was just reading an article from my financial advisor on using home equity to invest in other investments. I have read a lot about this lately as it has become very popular given that market gains have resulted in a lot of people now having huge equity in their homes. The bank will allow you to borrow against that equity and use the money for other purposes. Often people talk to their financial advisors and use this equity borrowing to buy mutual funds, stocks, etc.
I personally believe in borrowing against equity whenever possible to potentially significantly increase money making vehicles held by the individual. However, I always suggest 2 things
1. When looking at taking money out of your home, I would suggest that you consider using it not to invest in some other investment, but to buy more real estate. That is what I have done to buy all of the properties I own other than my principal residence. And of course all of those properties have increased in value much more than what any other investments that I would have chosen would have done.
2. Instead of buying other investments, first consider whether you are in the best principal residence you could own. I think that putting as much money as possible into the principal residence, particularly in Vancouver makes a lot of sense. When you sell investment property or other investments, you are likely to pay a significant amount of tax. When you sell your principal residence, it should be tax free.....so why not have your money appreciating in an investment where you won't pay tax on your gains? The counter argument is that you should diversify: well that is what I use my RRSP for (see previous blog on paying maximum into RRSP and then using the refund to pay towards your mortgage).....and I am not prepared to diversify any more than that as in addition to making money on my investments, I would also like to limit the tax I pay. AND, it seems to me that most people who make money investing do it in real estate-not so much in other investments!
Just my opinion but something to think about! If you have any questions about this, just give me a call!