I can't wait until this real-estate market collapses.......

[Red]

Originally Posted by Flames in 07

No, the last sentance was in reference to others being 'risk adverse'

The rules I've always lived by are:

maximize RRSP contribution ... it's a free loan. The gov't gives you money now by way of reducing taxable earnings now, to be paid back later. You gain time value of money and maybe pay back when you are at a lower marginal rate
the second is to keep all of your money working. Including equity in a house and then structure it in a way where you can deduct the interest.

RRSPs don't always make sense. You need a good income to really take full advantage of them. For lower income people paying off their debt/mortgage will give them a better return. And it's guaranteed.

[V]

Originally Posted by Flames in 07

If you invest in something you can claim any cost associated with the investment against any earning.

IE if you borrow money ( can use your house to back the loan ) all borrowing costs can be written off. That way if you have a 5% loan (or say a second mortgage) and your marginal rate is say 30%, all you need is a 3% return to break even.

It is rediculous to say most people don't have the stones to invest available capital collecting dust in a home. I don't have the stones not to.

So here's my question, then. If I refinance my mortgage on my rental property, that's tax deferred income of course. So is the interest I'm paying on that new extra piece of my mortgage still tax deductible, even though I may not invest that money? It is, after all, interest from my rental property.

I don't know if I'm making this clear. Let's just say my one and only goal in all of this is to be able to pay off my principal mortgage, and never need to make another mortgage payment ever again. Let's say I have two houses right now, with mortgages of 200k for each of them (to keep it simple). I also have a HELOC of 125k (room to go up to 200k). I have a mortgage on my principal dwelling of 100k. What's to stop me from paying 75k from my HELOC onto my rentals, then refinancing my rentals and paying the money from that onto my principal dwelling? In the end, I have no mortgage, and all of that debt is now spread around my rentals and my HELOC, in essence, taking my non-tax deductible payments on my principal mortgage and turning them into tax deductible payments on my rentals.

[Flames in 07]

Originally Posted by Red

RRSPs don't always make sense. You need a good income to really take full advantage of them. For lower income people paying off their debt/mortgage will give them a better return. And it's guaranteed.

Only if you think your return on RRSP's is lower than your mortgage rate ... which over the long run means you'd have some brutal investments.

Now if you don't have enough money to both, then ya, get a house, watch it appreciate that is better than an RRSP because you have more money leveraged.

[Flames in 07]

Originally Posted by V

So here's my question, then. If I refinance my mortgage on my rental property, that's tax deferred income of course. So is the interest I'm paying on that new extra piece of my mortgage still tax deductible, even though I may not invest that money? It is, after all, interest from my rental property.

I don't know if I'm making this clear. Let's just say my one and only goal in all of this is to be able to pay off my principal mortgage, and never need to make another mortgage payment ever again. Let's say I have two houses right now, with mortgages of 200k for each of them (to keep it simple). I also have a HELOC of 125k (room to go up to 200k). I have a mortgage on my principal dwelling of 100k. What's to stop me from paying 75k from my HELOC onto my rentals, then refinancing my rentals and paying the money from that onto my principal dwelling? In the end, I have no mortgage, and all of that debt is now spread around my rentals and my HELOC, in essence, taking my non-tax deductible payments on my principal mortgage and turning them into tax deductible payments on my rentals.

I'm not positive, but if I understand your question completely, if you are borrowing by way of a second mortgage on an investment property, the interest expense is deductable because the cost is associated to the rental property ... for which you will pay tax on when you sell it.

[V]

Oh, and in the vein of the thread title, I can't wait either. There are some people out there that are some kind of scary overextended. I can't wait to take advantage.

[Flames in 07]

Originally Posted by V

So here's my question, then. If I refinance my mortgage on my rental property, that's tax deferred income of course. So is the interest I'm paying on that new extra piece of my mortgage still tax deductible, even though I may not invest that money? It is, after all, interest from my rental property.

I don't know if I'm making this clear. Let's just say my one and only goal in all of this is to be able to pay off my principal mortgage, and never need to make another mortgage payment ever again. Let's say I have two houses right now, with mortgages of 200k for each of them (to keep it simple). I also have a HELOC of 125k (room to go up to 200k). I have a mortgage on my principal dwelling of 100k. What's to stop me from paying 75k from my HELOC onto my rentals, then refinancing my rentals and paying the money from that onto my principal dwelling? In the end, I have no mortgage, and all of that debt is now spread around my rentals and my HELOC, in essence, taking my non-tax deductible payments on my principal mortgage and turning them into tax deductible payments on my rentals.

Thinking about this one some more, I'd just go get an accountant, good ones now how to structure this kind of stuff so that you can write everything off.

[Red]

Originally Posted by Flames in 07

Only if you think your return on RRSP's is lower than your mortgage rate ... which over the long run means you'd have some brutal investments.

Now if you don't have enough money to both, then ya, get a house, watch it appreciate that is better than an RRSP because you have more money leveraged.

If you average 6% on your mortgage then you'd need to top that plus some every year. Over long term that would be a good investment. Let's not forget that mortgages were at around 10% on the 90s. Not saying that they will get there again any time soon, but if they do go up to 8% then you'd need a pretty good track record to beat that. And that's not taking in to account the risk, remember, paying off debts is a guaranteed investment.

So in short if you can average 7% on your investments and that's a big if, you're only beating a guaranteed return by 1%. Year after year after year. Any down year puts you in a hole. You lose 4% one year the next you need to be up by 11% and so on. Is it worth the risk?

Not saying it's not possible to make a better return, but anyone who says that 6 or 7% long term is crappy has read too many crappy "get rich quick" books.

[Flames in 07]

Originally Posted by Red

If you average 6% on your mortgage then you'd need to top that plus some every year. Over long term that would be a good investment. Let's not forget that mortgages were at around 10% on the 90s. Not saying that they will get there again any time soon, but if they do go up to 8% then you'd need a pretty good track record to beat that. And that's not taking in to account the risk, remember, paying off debts is guaranteed investment.

So in short if you can average 7% on your investments and that's a big if, you're only beating a guaranteed return by 1%. Is it worth the risk?

No if your mortgage is 6% you'd need 6% less your marginal rate ... so more like 4%.

Further, even if it was 6%, just about everything does better than 6% in the long term. Shoot I think I get 6% by leaving money under the bed in a box.

Mortgages in the 80's are not relevant. Today is 2007. Mortgages are in the low 5's. Worst case 6. If interest rates rise well then re-evaluate.

[Flames in 07]

Originally Posted by Red

Not saying it's not possible to make a better return, but anyone who says that 6 or 7% long term is crappy has read too many crappy "get rich quick" books.

I don't have the data on this computer but I seem to remember that in the last 50 years the TSE has never done worst than about 7% over a 5 year period ... NEVER DONE WORSE. Pretty much anyone with a pulse can earn 6 or 7 percent ... but again remember it's not 6, it's more like 4.

Just checked, every mutual fund I am in has done better than 6% in the last 5 years. Each and every one.

[Red]

Originally Posted by Flames in 07

I don't have the data on this computer but I seem to remember that in the last 50 years the TSE has never done worst than about 7% over a 5 year period ... NEVER DONE WORSE. Pretty much anyone with a pulse can earn 6 or 7 percent ... but again remember it's not 6, it's more like 4.

Just checked, every mutual fund I am in has done better than 6% in the last 5 years. Each and every one.

4%? How do you figure? Include the management fees and put a cherry on top to make it worth it. Remember, you don't just want to break even with what a mortgage costs you, you want more.

And 5 years is not long term. I have a fund that's done double digits in the last 3 years, but that's not a rule for all funds. Also don't forget, some funds have up to 2% management fees.

[Flames in 07]

because you are going to write off a third of the interest expense if you are borrowing against your house to invest.

Making money is easy ... especialy Calgary in the 2000's. Just need to know the rules.

[Sylvanfan]

Originally Posted by Flames in 07

Making money is easy ... especialy Calgary in the 2000's. Just need to know the rules.

You also have to be able to get access to it. Granted this last real estate boom has suddenly given people 50% equity in houses they had less than 5% in 18 months ago.

[Slava]

Originally Posted by Red

4%? How do you figure? Include the management fees and put a cherry on top to make it worth it. Remember, you don't just want to break even with what a mortgage costs you, you want more.

And 5 years is not long term. I have a fund that's done double digits in the last 3 years, but that's not a rule for all funds. Also don't forget, some funds have up to 2% management fees.

You should be looking at your returns net of fees anyway. I don't see the point of including them into the equation! The long-term average of most funds is over 5% (as I mentioned earlier), so people can make money with leveraged investments, end of story.

The fact is that buying a house is the exact same thing as a leveraged investment. You put some money down, borrow a lot more and pay onto this every month. If the market falls out from under you then you have a few choices; buy more houses, sell at a loss, hold and pay the loan more in hopes that things go up. This is the same for an investment.

[Flames in 07]

Pretty hard to find an equity that has done worse than 5% in the last decade ... still haven't found one.

http://www.altamira.com/altamira_en/...tory+chart.htm

[Red]

Originally Posted by Flames in 07

because you are going to write off a third of the interest expense if you are borrowing against your house to invest.

Making money is easy ... especialy Calgary in the 2000's. Just need to know the rules.

I was fortunate enough to buy a house here long before the craze which in turn gave me a very nice net worth, but I can't say that I made that money. It just happened. I'll never say that making money is easy.

As for the rules; if you borrow 100K and invest it you need to take in to account the tax you pay on the earnings as well. So you right off 5K of interest paid (5% for the sake of argument) at your income rate, but then you have to pay tax on 50% of your dividends which greatly reduces your tax advantage. Add the management fees and you're even worse off. Definetely not 30% saving like you say.

If you have the money locked in an RRSP then you don't pay the taxes now at your current tax rate, but you pay it later at a hopefully much higher tax rate. Afterall you will be older and earning a lot more money. Thus my comment about RRSPs not working that well for lower income people. They don't pay much taxes right now so there's not much gains. When you get older and earn more you jump to a higher bracket so unless you're really earning a lot on your investments in the end you're not really gaining that much.

I stick to my comment that people that aren't in a high tax bracket are better off paying off their mortgage. Save the RRSP room for when they have more to gain. By then they should be mortgage free and have cash to put away. Plus of course there is the freedom of not sharing your paychecks with banks and credit unions.

[Flames in 07]

Originally Posted by Red

I was fortunate enough to buy a house here long before the craze which in turn gave me a very nice net worth, but I can't say that I made that money. It just happened. I'll never say that making money is easy.

As for the rules; if you borrow 100K and invest it you need to take in to account the tax you pay on the earnings as well. So you right off 5K of interest paid (5% for the sake of argument) at your income rate, but then you have to pay tax on 50% of your dividends which greatly reduces your tax advantage. Add the management fees and you're even worse off. Definetely not 30% saving like you say.

If you have the money locked in an RRSP then you don't pay the taxes now at your current tax rate, but you pay it later at a hopefully much higher tax rate. Afterall you will be older and earning a lot more money. Thus my comment about RRSPs not working that well for lower income people. They don't pay much taxes right now so there's not much gains. When you get older and earn more you jump to a higher bracket so unless you're really earning a lot on your investments in the end you're not really gaining that much.

I stick to my comment that people that aren't in a high tax bracket are better off paying off their mortgage. Save the RRSP room for when they have more to gain. By then they should be mortgage free and have cash to put away. Plus of course there is the freedom of not sharing your paychecks with banks and credit unions.

True, investment earnings are taxed, but my point was that your break even rate is not whatever your mortgage is at.

Different strokes I guess. I've been quite assertive over the last 2 years and made about 1/2M. And I very much feel like I earned it, largely from utilizing 'dead money' in my primary residence.

Lastly for anyone keeping track of this thread that are looking to buy their first house, many people will get a 4 bedroom and rent out to three others. They pay a good part of your mortgage, and you are now 'long' real estate.

[Red]

Originally Posted by Flames in 07

Pretty hard to find an equity that has done worse than 5% in the last decade ... still haven't found one.

http://www.altamira.com/altamira_en/...tory+chart.htm

Really? Look at some of the Global funds. Or the Precision Euro. There are plenty of them if you look around. And again with 5% return, why even bother?

[Flames in 07]

Originally Posted by Red

Really? Look at some of the Global funds. Or the Precision Euro. They are plenty of them if you look around. And again with 5% return, why even bother?

The first ten that caught my eye were all above ... and most above 10%.

at 10% + ... I bother.

[Red]

Originally Posted by Flames in 07

True, investment earnings are taxed, but my point was that your break even rate is not whatever your mortgage is at.

Different strokes I guess. I've been quite assertive over the last 2 years and made about 1/2M. And I very much feel like I earned it, largely from utilizing 'dead money' in my primary residence.

Lastly for anyone keeping track of this thread that are looking to buy their first house, many people will get a 4 bedroom and rent out to three others. They pay a good part of your mortgage, and you are now 'long' real estate.

3 tenants in your own home? Great, with all that stress you won't have to worry about retirement. You'll be a goner long before :-)

[Flames in 07]

Originally Posted by Red

3 tenants in your own home? Great, with all that stress you won't have to worry about retirement. You'll be a goner long before :-)

Well, if you were 25 and that was your only option then you just deal right?

Anyway, we have way different philosophies that fine, my original point was that you cannot create nor destroy risk. You just choose how you want to shape it.

Re-investing home equity is not 'risky' you are just choosing a different kind of risk. IE If I didn't reinvest money that was borrowed against my house in 04, I would have had a large opportunity cost. I wouldn't have seen it on a statement anywhere, so for some people that feels better, but it is still a loss.