Author Topic: Smith Manoeuvre  (Read 1277 times)

FIRE Artist

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Smith Manoeuvre
« on: February 02, 2018, 12:44:10 PM »
Is anyone doing this?  I have been looking into it, and already have a line of credit set up with my mortgage, where mortgage outstanding plus available credit is equal to 80% of property value at time of mortgage initiation so I should be good to go on that front.

How do withdrawls from your investment account affect the Smith Manoeuvre tax deductibility?  If I transfer funds from my LOC into my investment account, invest it in ETFs, is there a waiting period before funds can be moved out of the investment account.  What if I purchase one ETF, but withdraw from my fixed income?

I have some renos planned for the house, the money for which I have have already planned for and put aside in my taxable account since I bought the place.  I plan to do these renos in the next 12 months.  I have been noodling around with the idea of paying for the renos from my LOC instead of pulling out the money from investments so that the investments can continue to ride the Trump train.  I really like the idea of having the interest on the LOC being tax deductible though. 

It feels too good a deal to be true so I assume I am missing something.  My taxable investments far exceed what I would owe on my mortgage and LOC, and I don't plan on moving any time soon, so am not worried about a real estate meltdown causing me to be underwater on the house debt. 

 
« Last Edit: February 02, 2018, 01:01:04 PM by FIRE Artist »

Free Forever

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Re: Smith Manoeuvre
« Reply #1 on: February 02, 2018, 06:22:33 PM »
http://therichmoose.com/smithmanoeuvre/

Apparently this guy does the SM and has a guide. I can't vouch for his guide though, not sure if it'll work the way he says.

jambongris

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Re: Smith Manoeuvre
« Reply #2 on: February 02, 2018, 06:39:31 PM »
http://therichmoose.com/smithmanoeuvre/

Apparently this guy does the SM and has a guide. I can't vouch for his guide though, not sure if it'll work the way he says.

Interesting idea but it seems like a lot of work with many potential pitfalls. The whole article is worth a read if you're interested in learning about it but the flow chart really stands out:


FIRE Artist

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Re: Smith Manoeuvre
« Reply #3 on: February 02, 2018, 08:15:35 PM »
Thanks, I think I will order the book before I give it a try.

Free Forever

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Re: Smith Manoeuvre
« Reply #4 on: February 03, 2018, 09:26:19 AM »
One thing to remember about a HELOC is that it's not a mortgage, it's almost always a variable rate demand loan. Interest rates generally fluctuate all the time and the bank can call the entire loan in at a moments notice. I think it's pretty rare for a bank to call in a secured demand loan from a good customer but it's a risk and I wouldn't want to pull the trigger on SM unless I knew how to manage that risk (I don't but maybe someone here does). For example if you're houses market value took a dive due to a big price correction or you lost your job the bank might call the loan (fully or partially) to limit their risk, if your investment portfolio also got whacked you might get forced out of your investment portfolio at a very bad time.

daverobev

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Re: Smith Manoeuvre
« Reply #5 on: February 03, 2018, 11:48:52 AM »
There is a big thread on RFD http://forums.redflagdeals.com/smith-manoeuvre-150279/

I'm not. I think I'm just wrong in the cycle, and wrong in terms of risk aversity. Rates are going up, and we're long into a bull market. Of course with hindsight... Actually I did start doing this 3 years ago or so but got cold feet for exactly those reasons - risk vs reward. I would've been up significantly on the borrowed funds. But our house is modest, and we didn't know what we would be doing in the near future (ie, moving - not a good idea to have a large HELOC if you want to move to a more expensive house).

If you're in your forever home, have a stable job, and a long time to retirement then I'd say go for it.

What I think I'll do is get to debt free, and then rather than sell stuff to meet expenses, just borrow instead. I'm not 100% sure. But moving cash from cheap offers (eg the MBNA platinum plus, occasional low rate cheques from the bank) around rather than borrowing at normal rates can be ridiculously cheap.