Expanding Investments Without Personal Debt by Using Non-Recourse Loans
Should more Canadians be tapping non-recourse loans to expand their real estate investment portfolios?
Credit giant, Transunion Canada, recently published a report with new insights revealing a rise in consumer debt and delinquency. The oil slump has pushed average balances up by $600 over last year to $21,348, according to the data. In the first quarter of 2016, 2.8% of consumer loans and credit cards in Alberta were overdue.
With the cost of living on the rise, Canadians need to grow their investments and alternative sources of reliable income. Typically, for many, this has meant borrowing money to invest in real estate or businesses. In late May 2016, the Bank of Canada decided to keep key interest rates low, but predicts an economic rebound is on the horizon. Gas prices have certainly started to rise again in the U.S., and Canada could see a rise in interest rates by next year; the Bank of Canada expects an economic turnaround to show up by Q3 2016.
Investors currently face the dilemma of determining how to expand their investments without taking on more personal debt. This could have an adverse effect on their credit or put them under additional financial strain. How can their income increase without a rise in monthly payment obligations?
Non-recourse loans provide financial leverage and working capital without taking on more personal debt, which can be the answer for many. These loans are collateralized by the business, or asset itself, not the individual’s personal assets or finances. This means, should insolvency ever occur, the personal credit of the investor would not be hampered.
Alternatively, partnering up to invest in real estate such as retail shopping plazas, could be considered. When combining capital with other accredited investors, it:
- Reduces the Need for Debt
- Helps Maximize Capital
- Increases Diversification
- Lowers Risk
This allows for income and asset growth, without taking on overhead or monthly payments. Hybrid options may be more appealing to some. For example, investing in a partnership which also utilizes a modest amount of non-recourse financing at good rates to provide enhanced ROI and fund capital improvements.
Canadians may not have slowed down their shopping, but they are realizing the need to achieve passive income and invest safely. Some are having to use the personal credit cushion they have to maintain their lifestyle comfortably until the economy bounces back later this summer. Fortunately, there are options for growing investments and achieving financial goals without having to load up on more personal debt. Explore them…
(Photo Source: GotLoans)