Home Equity????

[White Doors]

Originally Posted by Sylvanfan

Well if you already have debt, and a HELOC is at lower interest than what you're currently paying why wouldn't you use it?

Also when I hear Real Estate come back to Earth what does that mean? Houses are going to suddenly drop in value by 25%? I don't expect growth to keep up at it's current pace but unless some serious deflation occurs and people start leaving Calgary by the bus load, real estate prices will not be moving down. Even places that had their real estate markets get killed in recent years like Prince Rupert, and Prince George BC have had the prices come back to previous highs.

Agreed. Housing prices aren't going anywhere but up. The trnd up may moderate, but they won't go cheaper. Not here. Real Estate is one of your best bets for an investment, afterall, they aren't making anymore of it. All I was saying is that it's not 'free money'.

[White Doors]

Originally Posted by Red

The markets don't have to drop by 25% to make troubles for a lot of people. Most people live paycheck to paycheck, a 2% rate hike in addition to a 10-15% market decline could be a lot to handle.

True. Leave your home equity as a an investment and there will be alot less stress when interest rates go higher.
I do not see a 10-15% market decline however, but, then again, what do I know?

[Red]

Originally Posted by White Doors

Agreed. Housing prices aren't going anywhere but up. The trnd up may moderate, but they won't go cheaper. Not here. Real Estate is one of your best bets for an investment, afterall, they aren't making anymore of it. All I was saying is that it's not 'free money'.

Real estate is a great way to invest, but sadly HELOCs are mostly spent on new vehicles, vacations and other luxuries. People keep living in the same houses, have the same jobs etc, but were just preapproved for an interest only, 6 figure loan. They will spend money they don't have and that's never good. You and I agree on this, but a lot of people miss the point that they will have to pay it off at some point. Oh well, not my money :-)

[White Doors]

Originally Posted by Red

Real estate is a great way to invest, but sadly HELOCs are mostly spent on new vehicles, vacations and other luxuries. People keep living in the same houses, have the same jobs etc, but were just preapproved for an interest only, 6 figure loan. They will spend money they don't have and that's never good. You and I agree on this, but a lot of people miss the point that they will have to pay it off at some point. Oh well, not my money :-)

Exactly. bankruptcy auctions are a great time to get some good deals!

[Sylvanfan]

Originally Posted by Red

Real estate is a great way to invest, but sadly HELOCs are mostly spent on new vehicles, vacations and other luxuries. People keep living in the same houses, have the same jobs etc, but were just preapproved for an interest only, 6 figure loan. They will spend money they don't have and that's never good. You and I agree on this, but a lot of people miss the point that they will have to pay it off at some point. Oh well, not my money :-)

Well thats the fault of the individual who borrowed the money. I know I see a lot of people driving around St.Albert in nice fancy new $60k plus SUV's, and going on fantastic vacations every year. Some of them can afford this lifestyle and others are no doubt living on maxed out credit to do it.

But for those who know how to use their money I think theres some nice oppurtunities out there and tapping into your Home equity can give someone access to the capital they maybe haven't had to beef up their investment portfolio. For instance if you have a huge RRSP carry overs would it be a bad idea to get a HELOC and max up your contribution than take your tax refund and either reinvest it, or use it to pay off part of the loan?

[White Doors]

Originally Posted by Sylvanfan

Well thats the fault of the individual who borrowed the money. I know I see a lot of people driving around St.Albert in nice fancy new $60k plus SUV's, and going on fantastic vacations every year. Some of them can afford this lifestyle and others are no doubt living on maxed out credit to do it.

But for those who know how to use their money I think theres some nice oppurtunities out there and tapping into your Home equity can give someone access to the capital they maybe haven't had to beef up their investment portfolio. For instance if you have a huge RRSP carry overs would it be a bad idea to get a HELOC and max up your contribution than take your tax refund and either reinvest it, or use it to pay off part of the loan?

Reinvest? Perhaps... But only if you can have a reasonable expectation that you 'investment' can offset your loan at a rate that is advantageous to you - especially considering taxes. You start to wade into complex financial matters here where you should have someone who knows what they are doing - which means commisions and pressure. Be your own person is all I'm saying. The banks almost never lose. Just keep that in mind.

[Sylvanfan]

Well an HELOC is pretty much the lowest interest loan you can get. If put in an RRSP, you get a tax break plus the money gets to grow interest free. Putting an extra $10k into your RRSP today should yield better results than putting $100k in 30 years from now. The interest that the average person would pay on a $10k loan is peanuts compared to what that money would be worth down the road if managed properly, especially considering 4k of it should be returned in income taxes. Of course the key is if the money is managed properly. I'm sure Moneyguy can help people out with that.

[V]

Originally Posted by Red

Real estate is a great way to invest, but sadly HELOCs are mostly spent on new vehicles, vacations and other luxuries. People keep living in the same houses, have the same jobs etc, but were just preapproved for an interest only, 6 figure loan. They will spend money they don't have and that's never good. You and I agree on this, but a lot of people miss the point that they will have to pay it off at some point. Oh well, not my money :-)

I think you need to qualify that more often Red. Because you sometimes come across as someone who says "borrowing is bad".

I love it that people are throwing their credit away on frivolous items. There are going to be people to take advantage of in some time, and it'll be their own fault, not mine. I won't feel bad plundering.

I think investing with your HELOC is the best possible thing you can do right now. It's virtually free money, may as well get it to work for you. 5 years ago I could never have dreamed of having $150k available to play with. Now I do, so I get to have 3 houses. The HELOC hasn't changed my personal finances one iota. I don't spend more, or less, just because I have equity. I just invest more with the bank's money. I love it.

[Red]

Originally Posted by Dominicwasalreadytaken

I think you need to qualify that more often Red. Because you sometimes come across as someone who says "borrowing is bad".

I love it that people are throwing their credit away on frivolous items. There are going to be people to take advantage of in some time, and it'll be their own fault, not mine. I won't feel bad plundering.

I think investing with your HELOC is the best possible thing you can do right now. It's virtually free money, may as well get it to work for you. 5 years ago I could never have dreamed of having $150k available to play with. Now I do, so I get to have 3 houses. The HELOC hasn't changed my personal finances one iota. I don't spend more, or less, just because I have equity. I just invest more with the bank's money. I love it.

Well, I do think that borrowing is bad:-), but I am not ignoring the advantages it can have. I just don't agree that it works for majority. People rely on credit for too much. Just like Sylvanfan said, getting an RRSP loan can be beneficial, but there's a far better way to get even better benefits. Save for your RRSPs and pay cash. Sylvanfan, to get a 40% return you need to earn more than 73K. People in that tax bracket should have no problem buying RRSPs for cash. And borowing 10K on a fixed loan is a lot different than HELOC. With HELOC most people would not pay the principal every month, they'd spend it elsewhere. On average it would probably take 15 or more years to pay it off. Yes, people are that irresponsible :-(

[Red]

Originally Posted by fotze

How is it being a landlord. That is the #1 reason I am not doing the heloc thing. I have no interest doing it and I would be too nice.

Being a landlord sucks. Didn't you watch Three's Company? :-) My friends had an up and down house, renters in the basement, when he pressed for rent they put grease in his dryer. Yikes... Little extreme, I know, but it's hard to find nice, punctual and loyal renters.

[V]

Well fotze, I'm a good Christian boy, and I go to a church with other good Christian boys and girls. I've got a couple of young women from my church in one place, and a nice family in the other. They're excellent renters, but I gave them a deal on the rent because I knew I could trust them. Some things are more important than money, and my sanity is one of those things.

My buddy that owns 13 properties says it isn't as bad as people make it out to be. Especially now that people are terrified of losing their place. It's pretty hard to find somewhere to move to, so it seems right now the mentality is to not **** off your landlord.

[photon]

Plus there are things you can do to help with tenants as well. You can buy out of town so that forces you to use a property management company (which makes you take that $ into account and treat it more like a business). Or you can go into a joint venture with someone else that is the real estate expert and you're the silent money partner. You won't make quite as much, but it's hands off, you let the other person worry about tenants and rent and crap, you just get a big cheque when you sell.

[MoneyGuy]

Originally Posted by Sylvanfan

...I'm sure Moneyguy can help people out with that.

I'm willing to give free advice on stuff I know about as long as you folks don't mind getting advice from an Oilers' fan.

[STAMPEDRED]

Originally Posted by photon

Plus there are things you can do to help with tenants as well. You can buy out of town so that forces you to use a property management company (which makes you take that $ into account and treat it more like a business). Or you can go into a joint venture with someone else that is the real estate expert and you're the silent money partner. You won't make quite as much, but it's hands off, you let the other person worry about tenants and rent and crap, you just get a big cheque when you sell.

Ahhh, well said there Photon!

I just finished putting a deal together using an investor. He fronts all the money needed to get the loan (not much really), I pay him 15-20% return... we negotiate on this part. Sure I am taking on the headaches but I cash in when we sell (unless the freakin market tanks!)

The whole key to it is I me and my wife got into our first house after the market surged. So we don't have $150 G's laying around in our house yet, but there is still ways to make deals using the banks and OPM! You just have to be creative and willing to do the legwork sometimes.

If you are lazy, then that is why you take home a return of 10-20%. It's nothing near what the other guy makes, but he's making lots of money to "babysit" you!

It's all in what kind of investor you are and what works for you! Then you should have a basic idea on how to use you HELoC if you need it!

[Sylvanfan]

Originally Posted by Red

Sylvanfan, to get a 40% return you need to earn more than 73K. People in that tax bracket should have no problem buying RRSPs for cash.

Yeah, but what if you didn't start making that type of money until just recently or you have big carry overs from previous years. I know I wasn't able to contribute much for a couple of years after my fiance was laid off, than getting married and having to send her to school. Yeah, I can afford to put away my revenue Canada maximum monthly allotment, but I also have 6 months from earlier this year where I was playing catch up.

So in order for me to get my 18k max for this tax year I have to put away $3000 a month starting now, than I'd have to go down to $1500 a month in March and go forward. So the best way for me to get the maximum tax benefit is to look at a time frame of 18 months and two tax years to save 36k, and half of it has to come in the next 6 months. So for me it makes sense to put my $1500 a month into long term savings and use the extra $500 to borrow the diffence and pay it back over that time frame. In the end I'll pay like $400 in interest and I'm pretty sure that 9000 extra in my RRSP will bring me back more than $400.

My biggest regret in the past 10 years is that I was waaaaay too conservative with my money. I had a buddy who made less than me, and spent much more cavalier than I do. But he got into buying second properties and that type of thing, basically using borrowed money to try and earn extra money. Well 7 years later guess which one of us has a net worth 200k higher than the other guy. It's not me.

[STAMPEDRED]

Hey Sylavan fan,

My advice to you would be to do what works for you! You are wise to invest, even in an rrsp. At least it is something! I personally hate them and have never put drip into them but that is my personal look on them.

What you need to look at is where you want to be financially 10,20,30 so years down the road and figure out what makes most sense for you to get there. If it's through a vehicle of rrsp's or real estate or what have you, the key is your doing something.

Use your friends success as encouragement that you can make your money grow... but don't let it eat away at you thinking "if only I..."

Your friend has done well for himself (from the little that you have said). Ask him to show you the ropes and help you out... if you wish of course! Your best way to learn I think is to be thrown in the fire, but to have someone beside you that can walk you through it who has been through there a couple of times already and knows the way through!!

Just my thoughts!

[V]

Originally Posted by Sylvanfan

My biggest regret in the past 10 years is that I was waaaaay too conservative with my money. I had a buddy who made less than me, and spent much more cavalier than I do. But he got into buying second properties and that type of thing, basically using borrowed money to try and earn extra money. Well 7 years later guess which one of us has a net worth 200k higher than the other guy. It's not me.

I hear ya. I was the same way, basically taking all of my free money and putting it down on my mortgage and a little bit into RRSPs. Then I came to this company and had a few conversations with the one guy in the office that owns 13 properties. He suggested a few books to challenge my theories on making money, and I was hooked.

It's ridiculous, really. By borrowing 100k I've been able to purchase 2 rental properties, which are both worth 25k more now than when I bought them, and I've only owned them for 1 1/2 months (I bought them in June and July). Things are suddenly looking a whole lot rosier, that's for sure. Sure, I'll lose everything if the market collapses, but I think pretty much everyone can agree that the collapse won't be happening for another 5 years or so.

Now instead of scrimping and saving my loose change and throwing it on my mortgage to have it paid off by 2017 (the original goal) I just need my two rental properties to appreciate by 5% per year for the next 5 years and I'll have my principal mortgage paid off by 2011 with some spare cash on the side. And that's all I really want from my investing. Pay off the damn mortgage and go from there.

[Sylvanfan]

^^^
Not only that, but you now have two income sources to draw from in the future if you choose. Like you say, your spending hasn't been affected by acquiring these two properties at all, as you're offsetting it with income to pay off the extra money borrowed. You just have to put in a bit of effort to get renters, keep up the property etc.

Getting a HELOC on my house and purchasing a rental property that just covered costs for now will cost me almost nothing. But 15 years down the road I can potentially own 2 properties instead of 1 plus make all my RRSP contributions in the mean time.

Besides it would basically take a global economic collapse for house prices in Calgary or other places that I'm considering buying to fall so far down that it would bankrupt me if I was to take a HELOC and purchase a rental property. So either way my net worth would be screwed and I'd be looking at working till the age of 75 to keep myself alive. Given that I have a good 45 years till that happens I think I can take the risk as I'm pretty sure my plan is conservative enough that I could get by in the mean time and I'm giving myself enough time to ride out any cycles.

[DementedReality]

id like to more about the strategy ..

if i have $200,000k in equity, how do i use that purchase a $300,000 home? how do the #'s shake out? i am trying to wrap my brain around it, but thought you experts could give me a head start.'

[V]

Well, I'm not an expert by any means, and I know there are far more effective strategies available than the one I use. I just do what I do because it's easy, stress free and fairly conservative.

This is how it all went down for me. Again, there are better ways to go ahead, but here's what I did.

Phoned up ATB, asked them what kind of a product they have for a HELOC. We set up a time for ATB to send an appraiser to my house to determine its worth. The value came in at 336k. My mortgage is approximately 160k. So after reviewing my credit (sparkling, btw) they decided that they could lend me 75% of 336k (252k) minus my current mortgage (162k) which worked out to be 90k. Now, the important thing to remember about HELOCs is that you only have to pay the interest on them every month. So a negative cash flow, if you have one, will not affect you, as the HELOC will just swallow it up.

So I signed the papers, became the proud owner of a 90k HELOC and went house hunting. I managed to find a great deal on a house, the purchase price was 237k. I wrote a cheque for $59,250 as a downpayment on the property. -Aside- the banks don't seem to like giving mortgages for second properties if you can't put 25% down on the purchase. And assumables are not what they used to be, so it's hard to get away from putting 25% down as a downpayment.

Anyways, as far as that one house is concerned, I signed a mortgage with Scotia for the amount of $177,750, and have a balance on my HELOC of about 62k (there were lawyer fees, renovations, etc involved). Scotia takes each monthly mortgage payment directly out of my HELOC, and the rent money I take in goes directly into my HELOC.

The rent money does not completely cover the mortgage plus the interest on the HELOC, so my HELOC increases by about $150 every month. At the same time, though, my mortgage decreases by a couple hundred every month, so I'm getting ahead on the mortgage (barely).

So, in the end, I've got a mortgage and a HELOC tied into that house, but they take care of each other, so that my personal finances are not affected whatsoever.

I've done another deal since that first house, but getting into that will just confuse the issue. The above is the easy, stress-free way of doing it.