If you’ve been a regular visitor of Stocktrades, it’s probably no surprise to you that we love to do interviews. Getting the chance to pick the brain’s of some authority financial figures not only benefits you the audience but us as well.

We had the privilege this week to interview the author of Burn Your Mortgage Sean Cooper. Before we get into the interview let’s get to know Sean a little bit.

Burn Your Mortgage Sean Cooper

Sean Cooper bought his first house when he was just 27 and paid off his mortgage at 30 in just 3 years. An in-demand personal finance journalist, money coach and speaker, his articles have been featured in publications such as the Toronto Star, Globe and Mail, MoneySense and Tangerine’s Forward Thinking blog. He makes regular appearances on national radio and television shows to discuss personal finance, real estate and mortgages. He’s also the author of the new book, Burn Your Mortgage, which helps anyone—from new buyers to experienced homeowners—pay down their mortgage sooner and live well while doing it. Follow him on Twitter @SeanCooperWrite and request his services on his website.

We asked Sean 10 key question that investors getting into real estate are probably asking themselves right now. We hope you enjoy this Q/A, and if you have any further questions for Sean feel free to let us know in the comments!

Say a person is wanting to buy a home, and has twenty thousand dollars above and beyond a 20% down payment. In your opinion would it be best to sink the additional money into the mortgage, or invest it elsewhere?

Sean: It all depends on the individual’s personal financial situation. Does the individual have any high-interest debt? If so, it probably makes sense to put any extra money towards reducing that.

When it comes to the decision to invest or pay down your mortgage, it all comes down to your tolerance for risk. Me, personally, I sleep better at night without a massive mortgage hanging over my head. For other people who are less risk adverse, they might be fine investing the extra money in ETFs or blue chip stocks. It all depends on the individual.

It might even make sense to make a 19% down payment instead of a 20% down payment. That’s because a lot of lenders offer you a better mortgage rate if you put down less than 20%. Even though you’ll pay CMHC insurance, you could still come out ahead. If you’re considering this, speak with your mortgage broker and get him to crunch the numbers.

Which do you believe is a better investment path, real estate, or the stock market?

Sean: When investing in real estate it’s important to remember that a home is a place to live first and foremost. We aren’t likely to see the appreciation in homes prices that the baby boomer generation has seen over the past couple decades forever. Historically, home prices move up with the rate of inflation.

That being said, I think it’s good to invest in both. I’m a big fan of the forced savings a mortgage offers. But you don’t want to have all your eggs in one basket. Once you burn your mortgage, take the cash flow that was going towards your mortgage and invest it. Most people don’t have a gold-platted government pension. You’ll need the money for when you want to retire one day. The last thing you want to do is take a Home Equity Line of Credit or a Reverse Mortgage to finance your retirement and eat away at the equity of your home that you worked so hard to pay off.

In your opinion, what is the best piece of real estate to own as a rental income unit?

Sean: Unless you’re ok with having strangers in your personal space, I’d recommend a house with a basement apartment. If you’re currently using your basement for storage, consider throwing in a kitchen and bathroom and renting it out. If it already has a separate entrance, you can save yourself a ton of money. Just make sure your municipality lets you rent out part of your house. The last thing you want is for your neighbour to report you and to lose that stream of rental income you were depending on.

I am looking to buy my first home, what suggestions would you make in regards to getting the lowest interest rate possible?

Sean: Your local bank branch can be your first stop for a mortgage, but it shouldn’t be your only stop. Use a mortgage broker to shop around for the best mortgage. A mortgage broker can shop several lenders on your behalf. You’re more likely to get the best mortgage rate that way.

While the mortgage with the lowest interest rate may be the best mortgage, that’s not always the case. Consider other factors like prepayments, penalties, and portability. It might be worth paying a slightly higher mortgage rate for a more flexible mortgage product.

Your book, “Burn Your Mortgage”, what inspired you to write it?

Sean: I wrote my book for two main reasons: to promote financial literacy and to inspire the millennial generation to buy homes.

When it comes to financial literacy, the education system falls short. I wanted to teach Canadians about mortgages and real estate in a fun and interesting way. My book isn’t your typical personal finance book. It’s full of celebrity references and written on a conversational tone free from financial jargon to make learning about mortgages fun.

High home prices have made the younger generation feel like homeownership is out of reach. I wanted to write a book to show them that it’s still possible. I don’t expect everyone to pay down their mortgage in 3 years like me, but if they set themselves a goal like owning a home and work hard in order to achieve it, they’re more likely to be ahead financially.

Have you had others contact you with their own real estate success stories?

Sean: Yes. This year I met a hard-working young man named Anthony Molinaro. Anthony’s planning to invest in real estate at a young age. I recently interviewed him for my blog. Anthony and me both share the same strong work ethic and drive to succeed.

Besides Anthony, plenty of other people email me about their mortgage burning success stories. To hear that I’ve inspired them is so rewarding.

Is there any great financial success, loss, or learning that you would care to expand on?

Sean: To paraphrase Spiderman, with homeownership comes great responsibility. When buying a home, don’t sink every single penny into your down payment. Set aside some money for emergency savings.

In my second year of owning a home my basement was flooded. I didn’t expect this. Luckily I put money away for a rainy day (no pun intended). Sock away at least $5K in a high-interest savings account, so you’re prepared when the next costly home repair comes up.

Where do you think the best place in Canada is for a beginner to get into real estate investment?

Sean: If you can’t afford to buy in pricey real estate markets like Toronto and Vancouver, consider buying in a smaller city and renting in the big city. That way you can build up equity, so you can one day afford to live in the big city. For example, if you’re living and working in Toronto, consider renting there for a modest amount and owning a rental property in London or Waterloo.

Is it helpful or harmful to borrow from my RSP for a down payment on a home purchase?

Sean: Taking advantage of the RRSP Homebuyers’ Plan is a good idea as long as you follow the rules. The tax refund you get from the government for contributing to your RRSP makes saving for a down payment a lot easier. Just make sure you repay the money according to the rules, starting in the second year, otherwise you’ll lose the RRSP contribution room and face a hefty tax bill.

If you’re not a first-time homebuyer, your next best bet is the Tax-Free Savings Account (TFSA). Although you won’t get a tax refund for contributing to your TFSA, your money grows tax-free inside.

If you could offer one piece of advice to someone wanting to get into the real estate market, what would it be?

Sean: Set yourself a savings goal today and pay yourself first. Saving a $30K down payment can seem daunting, but when you break it down into smaller mini-savings goals and realize you only have to save about $195 a week, it seems a lot more achievable.

It doesn’t make sense for everyone to own a home. Unless you’re ready to stay put for five years or longer, you’re generally better off renting. Make sure you’re ready to put down roots before making an offer on a home.

That concludes the interview. Thank you for reading and be sure to check out Seans website and book with the links at the top of the page. If you’re interested in other authority figures we have interviewed, check out our section of investing interviews.

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