Mortgage Accelerators & Maximizing Your Net Worth Using The Smith Manoeuvre. Part 2 of 2

[@MoementumFinance]

This is a gem! Thanks for the part 2 interview, Darren. I'm definitely going to be reading the book and talk to a certified Smith Manoeuvre Mortgage Broker to assess my circumstance. Thank YOU! 🙏🙏🙏

[@DarrenVoros]

Glad you enjoyed it! I read Robinson's book and it's great.

[@Trader78413]

This content is mind blowing. Thank you guys so much for sharing this with me.

[@aadipai]

This might be a really dumb question but don't you have to pay off the line of credit eventually?

[@ivanW89]

Thanks Darren and Rob! I may be mistaken, but don't some of these accelerators only work if your HELOC is only a certain amount higher than your mortgage rate? Eg. If my mortgage rate is 1.35%, HELOC rate is 2.95%, and marginal tax rate is 50%. I'd be swapping my non deductible interest of 1.35% for 50% deductible interest at 2.95% so would end up paying more interest even after my tax deduction and there would be no change to the cash flow available to invest.

[@DarrenVoros]

These are good questions for Robinson or one of his advisors. You may want to get a copy of his book too.

[@ericam5422]

Could you help define 'rental receipts' (I assume this is incoming rental deposits from my rental tenants?) and 'rental expenses" (is this the mortgage payment or is this repairs, vacancy + mortgage payment?). I didn't find it was very clear what receipts and expenses includes in the Cash Flow Dam. Thanks for sharing, this is really great information.

[@AaDd-xp1bw]

you just saved thousands of years worth of people's life. Thank you!

[@nathanielbaker3602]

What happens to the investment loan? When does that get paid down?

[@serialmigrant]

@@nathanielbaker3602 whenever you want with whatever is in the portfolio, hopefully when the portfolio is "more" then the loan balance... It becomes a tax game after that.... U can take the dividends and pay down the loan...or pay capital gains and pay down the loan...

[@brenhancock7219]

@@nathanielbaker3602 this was always my thinking as well. With current rates around 6% as that investment loan grows. So does the interest payment and towards the end it's a few thousand dollars a month in interest. So you're really hoping to God that your investments exceed your debt. Interest. Tax return is nice as well so that's the little bonus but nobody ever seems to talk about how that investment loan ever gets paid off

[@kmac9736]

Did i miss something? Halfway through your mortgage would you not be paying double interest for remaining mortgage and interest from heloc? (Min. Payment for borrowing)

[@kellygt500]

This is really good stuff. I just sold a property in Cochrane and moved the family back to the Lloydminster area. We had a 6 figure profit and all credit debt paid off. Really think this style of financial vehicle is smart and looking forward to educating myself more. thank you for sharing!!

[@theresasmith1]

Hey neighbour I did same a decade ago lol 😂. So funny we’re on same site

[@TechShopi]

Where should we invest that money? Any video explaining that part?

[@DarrenVoros]

Depends on your risk appetite. If you're borrowing against your HELOC you'd want to find something you feel you could make at least 3-4% otherwise theirs no point.

[@tanyaiv8389]

I really want to see how the tax deduction works since you cannot get back 100% of the interest. Plus you have to invest in a cash account, which accrues more taxable income.

[@theresasmith1]

It’s a Smitty plan lol . 😂 I’ve been doing this for years haha . I would love him to update with the new underused properties and the higher interest rates . Soon homes and especially commercial properties will be in foreclosure

[@vishantpatel6990]

Smith mentions the amount borrowed from line of credit to be invested. What would be the typical investments look like?- Stocks, REITs? CRA mentions that you cannot claim interest rate charged if your investments only generated capital gains. Can someone wiser answer this please. 🙏🏽

[@DarrenVoros]

I wish I could give you a definitive answer here Vishant. I'd reach out to Robinson directly or connect with one of his specialists at www.smithman.net.

[@REALMAURUZO]

CRA regulations stipulate that interest expense will generally be deductible if there is a reasonable expectation, at the time of acquisition of the shares, that you will receive dividends. However, there is always a risk that if there is no history of paying dividends on the corporation's shares, then there could be a denial of the deductibility of interest on taxes. Especially since if a corporation expressly declares its intention not to pay dividends, or if the class of shares does not permit the payment of dividends.

[@paulpear3590]

The 2nd part was very interesting. However, if I take my $3000 rent cheques and put it on my mortgage to bring it down and then take out the same $3000 to pay all my rent expenses, I have to pay interest on that $3000 taken out of my HELOC at 2.95% right now (prime 2,45% + 0,5%) but my mortgage is at 2,54% so would this not cost me more in interest? I cannot deduct the interest on my HELOC if I am using it to pay my rental expenses? thanks Richard

[@DarrenVoros]

Great question Richard and to be honest, I need to see this in operation to fully understand it. I will try my best to explain it the way I see it. The $3000 you pay to your mortgage goes straight to principal which reduces your amortization. The $3000 credit now appears on your LOC and you pay your expenses out of that. The difference being that your LOC only requires interest only payments which will be less than your mortgage payment which is principal and interest.

[@stephanel4770]

Also, Wouldn't the interest on the HELOC be tax deductible? the interest rate after deduction would therefore be around 1.45%?

[@trevorthegreat]

@@stephanel4770 Do you mind sharing the math to get to 1.45%? Is that equal to (2.95% - marginal tax rate on eligible rental expenses)? But yes the HELOC funds used to pay rental expenses would be tax deductible. Similarly if they are used to invest in incoming producing funds in an unregistered account. So Richard: You would have $3000 less principal being amortized on your mortgage (reducing the amount of interest you will pay on your mortgage = shortening amortization period/mortgage length) in exchange for a tax deductible line of credit payment.

[@stephanel4770]

@@trevorthegreat Trevor, not sure if interest on HELOC could be deducted? If so... a 2.95% HELOC interest rate would be 1.45% after deduction (assuming 50% marginal tax rate)

[@trevorthegreat]

@@stephanel4770 Check out this CRA link: www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22100-carrying-charges-interest-expenses.html "most interest you pay on money you borrow for investment purposes but generally only if you use it to try to earn investment income, including interest and dividends. However, if the only earnings your investment can produce are capital gains, you cannot claim the interest you paid"

[@dazisgud]

Darren, you deserve more subscribers. Thanks. Is this something you you implement for every rental you own?

[@Elli-Kelli]

Okay great, so how do you pay off that ever growing HELOC or LOC?

[@brandonb1972]

This is what I am wondering too.

[@viper8608]

From.what I am understanding. At the end you will have a lot of money invest. You can take this out all at once and pay it off

[@viper8608]

While keeping the difference in the investments and have that continue to grow

[@gavinhassett479]

@@brandonb1972 also you are only paying down the principal on your mortage by 8$ ect a month.... must have implications somewhere else right? Like 200yrs to pay off? 🙄

[@gavinhassett479]

Not only that but along the way you are having to pay %% of dollars on the borrowed side, say 3 or 4%. Plus inflation... so your investments had better be earning at least 7% to keep even with inflation.

[@montoniman]

13:20 The text on the screen says you invest the difference between the rental income and the expenses. But in the example he put the entire rental income ($3,000) on the mortgage. How do the expenses get paid then? Is it because the whole $3,000 goes to principal (because it's a prepayment) and that gets loaned back to him?

[@timiadetona]

Bought his book earlier this year and had studied it. Will be implementing this strategy soon for sure! Also waiting for the course he promised

[@DarrenVoros]

Ya I just bought the book as well. I"m anxious to dive in and move a few of my mortgages into a position where I can capitalize on the strategy.

[@jonathansaindon788]

@@DarrenVoros Did you try the strategy?

[@mattpope6184]

8:26 this is above and beyond the normal payment.... so if I get $2000 in rent and I put that as an extra payment on my mortgage, a couple weeks later when my mortgage needs to be pay $1600, where does that money come from?? I'm just supposed to have an extra $1600 per month laying around?

[@itissrinivasan]

Haha. I was wondering the same too ! Most people use the rent to fund the mortgage. But in this case they seem to assume one is paying the mortgage and then also has “income” from the rental haha

[@fredericproulx4741]

Would it make sense to max out my TFSA account before I start the Smith maneuver?

[@DarrenVoros]

I don't think it's necessary but you definitely could. Anything you can invest inside of your TFSA is going to be a benefit.

[@magfortunate3285]

Awesome perks. I'm buying the book. I want you in my inner circle.

[@pranayadash9901]

Which part is tax deductible ? Is it the interest paid on the borrowed amount from HELOC OR the entire amount taken from HELOC ? At present the HELOC rate is 7%. Does it make sense to borrow and invest ? If so, which investment, that can earn more than 7% ?

[@DarrenVoros]

I believe it's the interest portion that's deductible not the full amount. We are doing secured private lending at 10-12% right now.

[@Ericktuin1]

How do I get the calculator?

[@DarrenVoros]

It's on the website I believe.

[@rickymagicanada]

Fantastic presentation. Thank you

[@DarrenVoros]

You're very welcome, thanks for the positive feedback Ricardo!

[@domalbe51882]

Hi Darren, I'm from Vancity also, I didn't quite get if Mr Smith, do exactly, will he advice personally or does he Broker a loan? And how can I contact him directly. Thank you, Domingo

[@KhoiTruong]

Amazing! thanks so much

[@DarrenVoros]

Glad you found it valuable.

[@saurabhgore5572]

Does this maneuver work with 5% down payment on a property ?

[@vincentchuvc]

You need at least 20%

[@prashanthchandroth8108]

This Smith Maneuver strategy is so cool and tempted to apply on my new rental property mortgage. Let me give an example as below: My property value - $800,000 Mortgage amount - $600,000 Now I have $40,000 in HELOC ($800,000*80% - $600,000). Can i use this Heloc money for increase frequency of my Monthly mortgage to weekly mortgage with double payment and $20,000 annual prepayment without investing on any high interest investment? Based upon above scenario, I will get some tax refund based on the Heloc interest and also # of mortgage years will come down faster. Is it works with Smith Maneuver strategy and save money in the long run ?

[@whitefox8291]

Did you get an answer to your question? I don't think you can pay credit with credit.

[@elviraunger8836]

Would this work for someone that no longer has the oil company job and is now semi retired?

[@prasadm3]

Hey great video! Is the interest from the LOC serviced by the investment income? I'm assuming this only works if you're earning a higher interest rate from your investments than the interest rate of the LOC?

[@zackshepley2158]

It’s explained in part one video. As each payments is made you’re making less in interest since your loan is less. Instead of using the extra money to put toward the principal and going toward servicing the line of credit interest. As each payments made you have a larger and larger amount. Hope this helps.

[@goldenzhong5046]

my mortage bank will only calculate every 6 months for my mortage pricinples and interestes. I have no choice to do the extra payments to my mortagage monthly if I have extra money.

[@goldenzhong5046]

if you have extra money to invest, how can you get 7% retrun? the bank interest rate is under 2% now for 5 years fixed. why the banks could not get that 7% return for their money? Mutual funds or stocks are not secured invests.

[@DrRich2]

They recommend Canadian dividend paying stocks for the income. Then use the income to pay your primary resident mortgage. Now that mortgage in down resulting in increased HELOC available. It will accelerate your gains but a market downturn will also be magnified.

[@vanessal5146]

Thank for a great video

[@DarrenVoros]

Glad you enjoyed it Vanessa :)

[@myfinancialtips9191]

Excellent!

[@DarrenVoros]

Many thanks!

[@n8fk672]

unbelievable content! planning on being mortgage free in 2 more years so this is something we are looking at to build up our portfolio

[@DarrenVoros]

Awesome, I hope you succeed in making that timeline!

[@rogervicentino1107]

Super!!!!! Thanks

[@hotingpong]

I am confused with @8:30 where it says put the rental income of $2k back into the non-deductible mortgage loan, then take that $2k out to pay for rental expenses. Isn't rental expenses tax deductible already? or if you take HELOC out to pay for the rental property mortgage principle payment that would include it as an expense?

[@mikehammond89]

Yes but if you prepay your own mortgage first, it all goes to the principal, unlike your monthly mortgage payment that is part principal part interest. Thus your paying down your mortgage an additional $2000 a month before reborrowing to then service rental expenses, which is tax deductible anyways. It saves years off your primary mortgage

[@lorenbalon495]

Hi Darren, have you tried the smith maneuver? I am new to all this. I am currently looking at getting into my first rental property. Is this something that would be a benefit on a rental property? I have been doing lots of research but it depends what you come across everyone has different strategies. My ultimate goal is to start small with a rental and BRRRR here in Alberta. I’m from central Alberta so plan to do most of my investing in central Alberta. Just starting out there is so much information to take in. My goal in the end is to have as many rental properties as I can by the time I retire. I obviously don’t know all the ins and outs and have watched about 3 of your videos now here on KZbin. I appreciate every one of them so thanks for that.

[@michelefisher5171]

I had Manulife. We need the rest of the info. I’m not there now.

[@DarrenVoros]

Not sure what you mean here Michele.

[@michelefisher5171]

I used to be with Manulife. It would have been awesome if I knew then what I know now.

[@mari2fel]

Could you connect or provide the telephone no’s of those professionals that I could to talk to in connection with these video?

[@chenair6613]

Amazing strategy.

[@DarrenVoros]

It's been eye opening for many people. Thanks for commenting.

[@whoguy4231]

Australians have been doing this for decades but we call it debt recycling.

[@Fzegeye]

No words how to thank you. Great presentation and giving us the key to our life. THANKs