Author Topic: Leveraging a rental to put in RRSP/TFSA ? ( Canada)  (Read 157 times)

fireforfun

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Leveraging a rental to put in RRSP/TFSA ? ( Canada)
« on: August 13, 2019, 06:34:42 AM »
Hello, new to the forum and to the concepts, not new to loving money and trying to make/ save more and more of it. I just need some opinions on my plan as no one in my social circle cares about investing/ early retirement/ etc.

I have a rental property I can leverage up to 164k of equity on. My wife and I's RRSP's are not maxed out nor are our TFSA's due to me always being a fan of debt avoidance rather than investing ( working to correct that).

My plan is to leverage 40k of the rental equity at 2.79% interest and top up my wifes RRSP contribution carry forward. This will giver her a refund of 14k at tax time which we will put towards her TFSA carry forward. We then are able to write the interest (2.79%) off against our rental income on the place next year making our real borrowing rate of around 1.7%. We can afford the payments to leverage the debt no problem as its only an extra ~200 a month and the place is for sale so if it sells in the next year or two it should cover this anyway.

I plan to average in her 40k over about 18 months and I will likely do this again with 50k more for me next year. The property is worth about 330k and we currently owe 120 on it with 23 years remaining.

Any input/ changes I should make to this? Thanks in advance

Lews Therin

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Re: Leveraging a rental to put in RRSP/TFSA ? ( Canada)
« Reply #1 on: August 13, 2019, 07:18:47 AM »
Why not remove the whole Equity value and do it for both RRSPs and TFSAs?

Also, what are your tax rates / incomes? (If below 60k, it`s not all that useful to fill RRSPs)

I also recommend reading up on the Smith Maneouvre. (Turning a mortgage into a tax-deductible investment vessel)

https://www.milliondollarjourney.com/the-smith-manoeuvre-a-wealth-strategy-part-1.htm
http://therichmoose.com/smithmanoeuvre/

fireforfun

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Re: Leveraging a rental to put in RRSP/TFSA ? ( Canada)
« Reply #2 on: August 13, 2019, 07:32:52 AM »
Why not remove the whole Equity value and do it for both RRSPs and TFSAs?- a little too scared at this point, its a niche property and I don't want to get backwards on it if I ever need to sell it in a hurry. Also would like to average the money into the market over 2-3 years in total instead of dropping it all in now. Thoughts?

Also, what are your tax rates / incomes? (If below 60k, it`s not all that useful to fill RRSPs)- We are ~37 and ~39 percent tax rates. Plan on dropping to part time and taking substantial pay cuts in the future so trying to fill RRSP's in our higher income years and will be optimizing RRSP withdrawals in our FIRE years. No intention to withdraw from RRSP's for 20 years and will likely stop contributing to them in the part time years when they become less attractive.

I also recommend reading up on the Smith Maneouvre. (Turning a mortgage into a tax-deductible investment vessel)- thank you for this :)

https://www.milliondollarjourney.com/the-smith-manoeuvre-a-wealth-strategy-part-1.htm
http://therichmoose.com/smithmanoeuvre/

Lews Therin

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Re: Leveraging a rental to put in RRSP/TFSA ? ( Canada)
« Reply #3 on: August 13, 2019, 08:00:32 AM »
That was hard to read! Change colors if you want to answer in the quotes themselves!

Whole Equity averaging: https://personal.vanguard.com/pdf/s315.pdf    You can just read the summary if you want, but Lump sum investing is statistically better than averaging. You could simply invest it in the same way you are currently investing (same proportion of bonds and stocks)

Also, your money will be invested outside of the value of the home, or you could invest in a bond that returns more than 2.75% and you'd be making profit, rather than simply leaving it in the mortgage. Since it`s a rental property, it`s very easily to make a safer return than leaving it in the mortgage.

RRSP: Might as well fill them to the brim as quick as possible then.

Cheers.