Question: Mortgage principal is not deductible on rental properties so does that not cancel out any implied savings of mortgage interest on the principal residence?
Question for Ron, what if the residence mortgage only allows 10% to 20% Lum sum payment per year, it will not allow you to prepay per month from your rental income plus the regular mortgage payment from your regular account. The steps you explained work for the first month only. If you only use your rental income to pay back the residence mortgage, purpose to get the investment line of credit available, then where is your regular payment for resident mortgage goes? Thank you!
Good question, a lender's prepayment privileges can cause friction with the strategy. Ie if the prepayment privileges are too low you might not be able to cash dam as much as you would like. Hopefully that answers your question. Please book in a time if you need more analysis completed!
This reminds me of the smith manoeuvre (which, as I understand it, has one pay one’s mortgage, take out an equal amount in a HELOC-like loan and buy paper investments). I am curious if there are bigger advantages in using this “cash damming” for rental property expenses over using it to buy paper assets.
Hey Chris, rental cash damming is a component of the full Smith Manoeuvre. Specifically for folks who have a rental property and a primary residence rental cash damming is a natural strategy because you have all the components ready to implement the strategy. You just need the proper mortgage structure and have clear follow through of the cashflow.
@@saskatchewanrealestate I appreciated the video. This approach seems like it would be a little less risky than buying paper assets with a similar tactic as one has more control over the rental investment. Or at least that is my sense of it. I had heard about the smith manoeuvre and kinda dismissed it. But this is more interesting for me at least. Thanks.
Hey great question. In most cases the payment is covered by the Home Equity Line of Credit. The reason this works is because mortgage payments have an increasing amount of prinicipal. Every time you pay your mortgage more of it goes towards the principal. This creates more room on the HELOC to service the increasing payments.
Great video! I have a question in terms of the ILOC . As it grows overtime won’t you have to pay an extra interest payment on it? So effectively you would pay your mortgage amount plus this new interest every month?
Hello. Great video!! I do have a question. Does the mortgage/HELOC have to be readvanceable? Or can this be done with a standard “lump sum” HELOC? Thank you.
Just to be clear here, is the principal portion of the rental mortgage payment an eligible expense to be able to pay from HELOC and the interest on HELOC be tax-deductible? Or it only the interest portion of the rental mortgage that would be eligible?
Capital reimbursments on a rental are not deductible. Only the interest portion is. Great video!
so far you are one of the few professionals that explained the strategy so clearly, Thank you!
Thanks for the kind words! Glad you found it helpful.
Great video Ron! How is this the first time I have heard about cash damming?? Very informative!
Glad you enjoyed the video and found some value!
Great explanation!
Thanks very much, you have a great video that I had watched previously on the Smith Manoeuvre as well. A really good resource related to this.
Question:
Mortgage principal is not deductible on rental properties so does that not cancel out any implied savings of mortgage interest on the principal residence?
Hey Mike can you send me an email to ron@ronqmortgage.ca. I want to make sure I understand your question correctly.
Question for Ron, what if the residence mortgage only allows 10% to 20% Lum sum payment per year, it will not allow you to prepay per month from your rental income plus the regular mortgage payment from your regular account. The steps you explained work for the first month only. If you only use your rental income to pay back the residence mortgage, purpose to get the investment line of credit available, then where is your regular payment for resident mortgage goes? Thank you!
Good question, a lender's prepayment privileges can cause friction with the strategy. Ie if the prepayment privileges are too low you might not be able to cash dam as much as you would like. Hopefully that answers your question. Please book in a time if you need more analysis completed!
This reminds me of the smith manoeuvre (which, as I understand it, has one pay one’s mortgage, take out an equal amount in a HELOC-like loan and buy paper investments).
I am curious if there are bigger advantages in using this “cash damming” for rental property expenses over using it to buy paper assets.
Hey Chris, rental cash damming is a component of the full Smith Manoeuvre. Specifically for folks who have a rental property and a primary residence rental cash damming is a natural strategy because you have all the components ready to implement the strategy. You just need the proper mortgage structure and have clear follow through of the cashflow.
@@saskatchewanrealestate
I appreciated the video.
This approach seems like it would be a little less risky than buying paper assets with a similar tactic as one has more control over the rental investment. Or at least that is my sense of it.
I had heard about the smith manoeuvre and kinda dismissed it. But this is more interesting for me at least. Thanks.
Hi, not sure if you mentioned it but the LOC is always getting bigger every month. When and how do you pay that back? Great explanation and video
Hey great question. In most cases the payment is covered by the Home Equity Line of Credit. The reason this works is because mortgage payments have an increasing amount of prinicipal. Every time you pay your mortgage more of it goes towards the principal. This creates more room on the HELOC to service the increasing payments.
Great video, any idea if you can use this against other non-deductible debts such as credit cards and LOC’s?
Hi there, not sure if I'm understanding your question correctly. Can you send me an email with a more details to ron@ronqmortgage.ca?
Great video! I have a question in terms of the ILOC . As it grows overtime won’t you have to pay an extra interest payment on it? So effectively you would pay your mortgage amount plus this new interest every month?
In most cases the structure of the strategy allows for your regular mortgage payments to service the cost of the HELOC portion. No added monthly cost.
Hello. Great video!! I do have a question. Does the mortgage/HELOC have to be readvanceable? Or can this be done with a standard “lump sum” HELOC? Thank you.
There is the potential for it to work, but in a lot of cases it needs to be a re-advancable line of credit.
Just to be clear here, is the principal portion of the rental mortgage payment an eligible expense to be able to pay from HELOC and the interest on HELOC be tax-deductible? Or it only the interest portion of the rental mortgage that would be eligible?
The interest cost on servicing the rental expenses. This would include the principal of the rental.
@@saskatchewanrealestate thanks for the reply. Appreciate it!
Very very good video. Definitely a strategy that most Canadians are missing out on. Thanks for the breakdown!
Thanks Ryan! I appreciate the support!