I procrastinate to use my HELOC to invest for a while. I long think to get some shares in private company (the one where I work for 5 years now) or maybe local real estate (fixer upper or foreclosure). Both plans would mean 100K$ to 200K$ investment, mostly from HELOC. But after waiting (for opportunity) and thinking (about collaterals) I'm now thinking about investing in the Canadian stock market instead.
Here's my situation: First, I'm in Canada, so, consider the taxes are quite different than the US in many ways. I’m 42 years old, + Mrs. and 2 kids (11 & 7). RRSP maxed out (425K$) and RESP (70K$). TFSA 5K$ (58K$ room). We bring 120K$ (gross) and put everything we can toward RRSP, RESP and mortgage principal (but nothing in TFSA). House value 340K$, mortgage 95K$ @ 3.5% with 5 years to go. HELOC available 125K$ @ prime (3%) and another personal credit line of 50K$ @ prime+2%. No other debt now and never in the future unless for investments purposes (cars and many others things are always bought used and for cash). When plan to be FI in 5 to 7 years.
Since buying some shares in a private company is very interesting because I'm an insider and taxes would be great, it’s a kind of commitment and I'm not sure anymore I'm willing to do it because of my early retirement plans. For the real estate, the market is expensive compared to the rent. I can find opportunities in the 150K$-200K$ bracket but the rent will just cover the loan and expenses (no positive cash flow) so I get exposed to debt just to build capital. I think this plan may be great in 5-10 years from now when the boys get older and it could be fun to do it together if they want to do so...
Since we have 500K$ in investment, all in low cost index ETF (25% bonds, 20% Canadian stock, 5% REIT, 25% US stock and 25% int. stock) and went through the market ups and downs with a grin over the years, I think when could handle a little leverage just fine. As an example, for the next 5 years, we can buy 20K$ of Canadian equity (XIU or ZCN) with the HELOC and claim the interest expenses. The total would be 100K$ when the mortgage principal is repaid. Domestic stock mean low taxes and over time, I would decrease their % in non-taxable accounts, increasing bonds or other stock ETFs.
Does this worth or it's just performance chasing?
Everyone around me, with same or lower salaries, have 2 car loans (2 x 25K$) and 200K$ mortgage, no money invested anywhere (no RRSP and no RESP), no pension plan and they don't know what is a TFSA! They complain about gas price but drive 2x to 3x more than us (wtf!), they head south every year, plan to get a RV (on credit) you see the picture? Their "leverage" is probably something like 5:1 and mine would be more like 1:10...
That’s why I can't talk about this with anyone I know. Now, Mrs. just get her eyes glazed over when I say words like: investment, taxes, rate of return, debt ratio etc (MMM ruining your marriage anyone?). She’s still recovering of an anti-Mustachian childhood, so I just try to stay on “the efficient frontier” with her because of the higher cause ;-)
Waiting for your comments fellow Mustachian !
Le Barbu
Now, I realise the title should have been "Crush mortgage fast then use HELOC to invest"