I remember seeing this 10-15 years ago but I was young and didn't know any better and listened to the "old wise people". I wish I would have just gone outside the box and followed this plan back then.
I think this is my very 1st comment on TH-cam :-). This was really insightful and helpful. I will be watching the other part of this video. Great coming across your channel Darren.! Thanks!
This is a simple tax rule (cost of borrowing can be written off if funds were borrowed to invest) made complex. This might work for some and doesn’t for some. If your investment from borrowed funds doesn’t beat the cost of borrowing you are at a loss at the end of the day. You’ll have more tax write offs but you’ll be at a net loss.
Thanks Darren! Great topic and I am going to be doing some more reading on this. Have you had a part 2 to this episode yet, as you mentioned in the video?
Great video and. thanks. What about the scenario when the mortgage is 90% paid out and line of credit is available? Can it be used to buy a new property? Does it produce the same impact?
Hi Darren! Thanks for the great content. I am really confused with one of the concepts here and hoping you can clarify this a bit. Questions: 1. Let's say a Rental Property income is $2000/month & mortgage is $1600 ($500 Principal $900 Interest) Rental Expense is $400, and it ($2000) is first used to pay $1600 Mortgage + $400 (extra principal payment). Hence $0 cashflow from rental income. 2. You take out ($500 Principal + $400 Extra paid) from HELOC 3. Use $500 for the stock portfolio and the extra $400 to pay off the rental expenses. Q: Is the $400 (from HELOC) to pay off rental expenses, tax-deductible? (since it is used for rental property expenses?) I really appreciate your time and thanks!
Great video I’d like to see you separate yourself from the others on TH-cam in this subject and have Mr Fraser breakdown the flow of cash from into the mortgage then to the heloc then to the investments and then the gains and interest Payments. There is nothing like this out there and it would be great to go in-depth much more to get a better idea of where money goes to and from which accounts. Thanks!!
question, if your intentions are to buy a rental property with the smith maneuver, but you also qualify for a new mortgage on an rental property, then there is no benefit to the smith maneuver, is that right?
Great video! Would be curious to see the comparison/argument between the smith Manoeuvre VS. buying a rental with your access equity in your home. With low rates, principal pay down, cash flow & appreciation I'd be curious to see which option is best to maximize your net return.
How could I safe taxes? I also get punished because I have my house as an investment property rented out but live overseas. Could I increase my equity? How can I get that new money you are talking about? Who would consult me what to do?
So I own a property in AB Canada 🇨🇦 and have a 7% rate. Also my mortgage is a homeliness of credit and because I pay 7% I can’t pay anything off from my mortgage.
Great video! Rookie question, if you use this to invest in rental property (not primary residence), how to the capital gains tax implications relate to your overall investment upon selling the property? Is it still worth it?
i wouldnt buy a rental with a smith manouvres. by dividend paying stocks.the smith manouvre strategy requires extensive work in tracking down your transactions for tax purpose. you dont want to add a hustle of managing a rental property
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 ?
What about the tax paid on the investment income? Is it factored in the final net worth improvement? It doesn't take a lot to exhaust one's RRSP amd TFSA contribution limit.
Most people have no money saved at all. Best case they'll have a few hundred dollars in their savings account and keep withdrawing it. This is a way to start investing immediately while converting your mortgage into a tax deduction. The income from the non registered investments do add to your income so you do need to deduct that from the return. This is money that you wouldn't have otherwise and shouldn't impact your cashflow. For your RRSP, making a contribution will help reduce your tax burden on the income being earned and your TFSA can be used as well for a rainy day fund.
Is there are source you can recommend. I am confused. I though he said pay down the principle with the tax refund. However, then he seemed to be describing paying principle with principle. I apologize if this is a dumb question. I was just a bit confused. Can you clarify? I see the presenter has a much longer video based on the Smith Manoeuver. I'll watch that in the meantime. Hopefully I get some clarity. If you have any insights I'd love to hear it. Thanks.
I thought we could only take out a home equity line of credit in Canada if we had 35% equity and above but he said he does it right away, can you please advise if this is something that can be utilized with little down on the home?
You have to have accumulated equity in your home of 20%. So if you put 5% down you would need to get a property appraisal and see if you can get another 15% equity on your property. You would have to purchase the property 15% less in market value if possible.
Thanks. First I hear of readvancable mortgages. Can you get one for investment properties? I assume the investment has to be made outside of a registered plan in order for you to make the interest tax deductible? Maybe I missed it but I assume you’re paying the standard monthly mortgage + interest on the readvancement amount you pull to invest so you would need extra cashflow to cover this too, right? At the end of the amortization, you would just be paying the interest on the total readvancement amount, right?
October 2022 - I'd love for this subject to get a revisit now and in about 6-12 months. markets and real estate are down and have not hit the bottom, interest rates are up, are correcting, and continuing to rise. Inflation is beating everyone up. How is the Smith Manoeuvre doing in this kind of market and environment and how does one recalculate / reassess this strategy?
@@DarrenVoros See if Robinson can come back on and revisit this with you. It would be really valuable and interesting. I went through the book and was really interested to implement this but I also pre-calculated a few simple variables like interests rate changes. The answers concerned me. Now we're seeing changes from multiple angles so I wonder how resilient the Smith Manoeuvre is in these conditions. I suspect that only Robinson can answer that. I believe the system weathered this in the past under his dad's watch so there must be some empirical insight into this. Thanks Darren!
Hello, thanks for the great video!! I have a couple questions: - how do you know that the first interest payment (at the end of the month) on the heloc is going to be fully covered by the second principal payment and so forth? -If i make a lump sum payment, how do i reajust the interest for my HELOC? -when the mortgage is completely paid off and i want to take out my money from the un registered account, there are going to be taxes that have to be paid for capital gains?
Hey Theo, I think it would be best for you to read Robinson's book or connect with a Smith Manoeuvre specialist to answer these questions for you. I'm not an expert with this strategy and would hate to give you the wrong information. Go to www.smithman.net for more into.
1) check the amortization table which in all cases shows that principal portion grows over time so the bank makes its profit first (interest takes priority over principal) -- every following payment has an increasing portion of principal (vs interest). 2) unclear wording but will try to answer -- your lump sum payment pays down principal and increases your LOC limit -- your reinvestment of that new room increases the balance owing -- your LOC statement should show interest payments charged -- your accountant could use such line entries to confirm the summary total on an annual/quarterly statement. At tax time you'll use your LOC statement/s to see how much interest was charged/paid and should go on your tax return. 3) Yes but cap gains are taxed with a 50% exemption then you apply your applicable personal tax rates... is your self-directed TFSA full? Use that.
Are you familiar with the mortgage lending company First National? That's who I am currently using. They only offer something called a 'home equity secured credit card'. It has a credit limit of up to $150,000, and the set up fee for it is 2% of the credit limit amount. To anyone familiar with this, can it be used successfully with the Smith Manoeuvre?
Excellent video. What kind of investments you would buy in margin account that generate 7% consistently as shown in his calculator demo , once you have principle available by making mortgage payment .
This scheme is not that easy as he makes it sound. Federal Tax law in Canada requires qualification to four criteria in order for the interest on a loan to be deductible. 1) the borrowed cash must be used to generate income (capital gain from appreciation of a security/share does not qualify as business income). 2) interest must be paid in the same year as the deduction claim (except Quebec where interest deduction can not be greater than the business income for the year but allows unused interest for arrear or future years). 3) legal obligation to pay interest at arms length. 4) interest charge must be reasonable and according to the day’s market. So to sum it up interest deduction of borrowing money to invest into securities/stocks market on the income tax would only work if the securities/stocks pay interest/dividends. Or maybe doing day trading. A capital gain on stocks sell off does not meet the business income criteria.
rebuttal to 1) actually capital gains is *personal* income but it's passive *businesss* income, not active *business* income and the example is meant for **personal** income not within a corporate structure (which theoretically could deduct interest portion of mortgage payments as well as the interest from investment loan).
LOL. Robinson Smith says that stocks without dividends are eligible as long as their is a reasonable expectation of income (prospectus cant say there will never be dividends). Source: www.tawcan.com/the-smith-manoeuvre/
Thanks for the information. Say I make a prepayment of $2K from my rental income to my mortgage on my principal residence, I then I take the full $2K from the HELOC (re-advanceable loc) and pay the mortgage on the rental property? Or do I take $2K minus the interest and pay for the mortgage for the rental property? If the latter is true, then I have to come up with my own money to pay the difference, correct? Thanks
Skip to 9:40 for "how does the smith manoeuvre work" talk to begin.
Thanks Saurabh.
Thank you very much.
I remember seeing this 10-15 years ago but I was young and didn't know any better and listened to the "old wise people". I wish I would have just gone outside the box and followed this plan back then.
I think this is my very 1st comment on TH-cam :-). This was really insightful and helpful. I will be watching the other part of this video. Great coming across your channel Darren.! Thanks!
Awesome! Thank you Tobi!
@@DarrenVoros Wheres the follow up video lol??
This is a simple tax rule (cost of borrowing can be written off if funds were borrowed to invest) made complex.
This might work for some and doesn’t for some.
If your investment from borrowed funds doesn’t beat the cost of borrowing you are at a loss at the end of the day. You’ll have more tax write offs but you’ll be at a net loss.
Does this only work in a low interest environment? If interest paid on HELOC is higher than portfolio growth, i assume this strategy falls apart?
This is smart.
And if you read the tax act too, you’ll learn paying taxes is not a much, it’s actually a ‘shall’
This was really good - very informative. I'll register for your course very soon, as I come closer to my first purchase.
Thanks Darren! Great topic and I am going to be doing some more reading on this. Have you had a part 2 to this episode yet, as you mentioned in the video?
Thanks for watching. Part 2 is up and in this same playlist.
Great video and. thanks. What about the scenario when the mortgage is 90% paid out and line of credit is available? Can it be used to buy a new property? Does it produce the same impact?
Hi Darren! Thanks for the great content. I am really confused with one of the concepts here and hoping you can clarify this a bit.
Questions:
1. Let's say a Rental Property income is $2000/month & mortgage is $1600 ($500 Principal $900 Interest) Rental Expense is $400, and it ($2000) is first used to pay $1600 Mortgage + $400 (extra principal payment). Hence $0 cashflow from rental income.
2. You take out ($500 Principal + $400 Extra paid) from HELOC
3. Use $500 for the stock portfolio and the extra $400 to pay off the rental expenses.
Q: Is the $400 (from HELOC) to pay off rental expenses, tax-deductible? (since it is used for rental property expenses?)
I really appreciate your time and thanks!
Sounds great but I didn’t quite understand the strategy 🤔 well . Where to start and how to do it
Thank you for the great video. This is a game changer. Can I use this Strategies with any financial institution?
Great video I’d like to see you separate yourself from the others on TH-cam in this subject and have Mr Fraser breakdown the flow of cash from into the mortgage then to the heloc then to the investments and then the gains and interest Payments. There is nothing like this out there and it would be great to go in-depth much more to get a better idea of where money goes to and from which accounts. Thanks!!
Ya I'd like to go into more depth on this topic. I'm going to try it myself on a few properties and that will give me more insight.
question, if your intentions are to buy a rental property with the smith maneuver, but you also qualify for a new mortgage on an rental property, then there is no benefit to the smith maneuver, is that right?
Great video! Would be curious to see the comparison/argument between the smith Manoeuvre VS. buying a rental with your access equity in your home. With low rates, principal pay down, cash flow & appreciation I'd be curious to see which option is best to maximize your net return.
Thank you, great information
How could I safe taxes? I also get punished because I have my house as an investment property rented out but live overseas. Could I increase my equity? How can I get that new money you are talking about? Who would consult me what to do?
So I own a property in AB Canada 🇨🇦 and have a 7% rate.
Also my mortgage is a homeliness of credit and because I pay 7% I can’t pay anything off from my mortgage.
thank you! so helpful to see it all work out in the smith-man calculator!
Glad you enjoyed the video Veronica. Thanks for watching.
Wow! This is amazing!! I would like yo know more for sure!! Wow!! Thank you so much!
You are so welcome. Grab Robinson's book. It's in the description.
How do I get access to the smith manoeuvre calculator. Very easy to punch in numbers and getting results. Thanks Darren!!!!
Go to his website. smithman.net
Great video! Rookie question, if you use this to invest in rental property (not primary residence), how to the capital gains tax implications relate to your overall investment upon selling the property? Is it still worth it?
i wouldnt buy a rental with a smith manouvres. by dividend paying stocks.the smith manouvre strategy requires extensive work in tracking down your transactions for tax purpose. you dont want to add a hustle of managing a rental property
Question: If I am mortgage free already, is the smith maneuver something i can do still in order to invest more?
You could put a HELOC on your property and invest the funds.
@@DarrenVoros Thanks for the reply, does that make the interest on the HELOC tax deductible still?
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 ?
The new prime rate is 7%. Is this method still feasible?
What about the tax paid on the investment income? Is it factored in the final net worth improvement? It doesn't take a lot to exhaust one's RRSP amd TFSA contribution limit.
Most people have no money saved at all. Best case they'll have a few hundred dollars in their savings account and keep withdrawing it.
This is a way to start investing immediately while converting your mortgage into a tax deduction. The income from the non registered investments do add to your income so you do need to deduct that from the return. This is money that you wouldn't have otherwise and shouldn't impact your cashflow.
For your RRSP, making a contribution will help reduce your tax burden on the income being earned and your TFSA can be used as well for a rainy day fund.
Your house won't be paid at the end of amortisation though you will still be paying the mortgage?
Is there are source you can recommend. I am confused. I though he said pay down the principle with the tax refund. However, then he seemed to be describing paying principle with principle. I apologize if this is a dumb question. I was just a bit confused. Can you clarify? I see the presenter has a much longer video based on the Smith Manoeuver. I'll watch that in the meantime. Hopefully I get some clarity. If you have any insights I'd love to hear it. Thanks.
Get his book. It lays things out very easily. Or reach out to a certified smyth professional and they can help you.
I think you missed a ZERO in the $400,000 lol hahahahahahahaha
Does this only work for rental properties and not on your principal residence witht the basement being rented?
Awesome!
Looking forward to the next part :)
Thanks
Thanks for watching! Part 2 is up now. th-cam.com/video/-eTrt88Jzb8/w-d-xo.html
I thought we could only take out a home equity line of credit in Canada if we had 35% equity and above but he said he does it right away, can you please advise if this is something that can be utilized with little down on the home?
You have to have accumulated equity in your home of 20%. So if you put 5% down you would need to get a property appraisal and see if you can get another 15% equity on your property. You would have to purchase the property 15% less in market value if possible.
Loans to value on a conventional mortgage is 80 percent. You just need a mortgage from Manulife "One".
Where would I find part 2
Thank you so much! Great content
Glad you liked it!
Thanks. First I hear of readvancable mortgages. Can you get one for investment properties? I assume the investment has to be made outside of a registered plan in order for you to make the interest tax deductible? Maybe I missed it but I assume you’re paying the standard monthly mortgage + interest on the readvancement amount you pull to invest so you would need extra cashflow to cover this too, right? At the end of the amortization, you would just be paying the interest on the total readvancement amount, right?
Hi my question is what if HELOC interest is more than mortgage interest still does it make sense lower mortgage and making line of credit high?
Hi Darren
I have questions for you.
Can I take that same procedure under cooperation company or just it work for principle property?
October 2022 - I'd love for this subject to get a revisit now and in about 6-12 months. markets and real estate are down and have not hit the bottom, interest rates are up, are correcting, and continuing to rise. Inflation is beating everyone up. How is the Smith Manoeuvre doing in this kind of market and environment and how does one recalculate / reassess this strategy?
Great questions. It's definitely a different landscape we're in now when you're borrowing from your HELOC at 7% versus 3%
@@DarrenVoros See if Robinson can come back on and revisit this with you. It would be really valuable and interesting. I went through the book and was really interested to implement this but I also pre-calculated a few simple variables like interests rate changes. The answers concerned me. Now we're seeing changes from multiple angles so I wonder how resilient the Smith Manoeuvre is in these conditions. I suspect that only Robinson can answer that. I believe the system weathered this in the past under his dad's watch so there must be some empirical insight into this. Thanks Darren!
So that 728 should I put in a dividend ?
Hello, thanks for the great video!!
I have a couple questions:
- how do you know that the first interest payment (at the end of the month) on the heloc is going to be fully covered by the second principal payment and so forth?
-If i make a lump sum payment, how do i reajust the interest for my HELOC?
-when the mortgage is completely paid off and i want to take out my money from the un registered account, there are going to be taxes that have to be paid for capital gains?
Hey Theo,
I think it would be best for you to read Robinson's book or connect with a Smith Manoeuvre specialist to answer these questions for you. I'm not an expert with this strategy and would hate to give you the wrong information. Go to www.smithman.net for more into.
1) check the amortization table which in all cases shows that principal portion grows over time so the bank makes its profit first (interest takes priority over principal) -- every following payment has an increasing portion of principal (vs interest).
2) unclear wording but will try to answer -- your lump sum payment pays down principal and increases your LOC limit -- your reinvestment of that new room increases the balance owing -- your LOC statement should show interest payments charged -- your accountant could use such line entries to confirm the summary total on an annual/quarterly statement. At tax time you'll use your LOC statement/s to see how much interest was charged/paid and should go on your tax return.
3) Yes but cap gains are taxed with a 50% exemption then you apply your applicable personal tax rates... is your self-directed TFSA full? Use that.
Are you familiar with the mortgage lending company First National? That's who I am currently using. They only offer something called a 'home equity secured credit card'. It has a credit limit of up to $150,000, and the set up fee for it is 2% of the credit limit amount. To anyone familiar with this, can it be used successfully with the Smith Manoeuvre?
Where can I get a read a cable mortgage
Merci, très intéressant. Thank you sir!
Excellent video. What kind of investments you would buy in margin account that generate 7% consistently as shown in his calculator demo , once you have principle available by making mortgage payment .
S&P or TSX averages 10% annually
is this line of credit HELOC?
A Hiloc isn't 100% the mortgage. The bank only gives 60% of the equity in your house.
80%
@@francisracette244 Not where I live.
This scheme is not that easy as he makes it sound. Federal Tax law in Canada requires qualification to four criteria in order for the interest on a loan to be deductible. 1) the borrowed cash must be used to generate income (capital gain from appreciation of a security/share does not qualify as business income). 2) interest must be paid in the same year as the deduction claim (except Quebec where interest deduction can not be greater than the business income for the year but allows unused interest for arrear or future years). 3) legal obligation to pay interest at arms length. 4) interest charge must be reasonable and according to the day’s market.
So to sum it up interest deduction of borrowing money to invest into securities/stocks market on the income tax would only work if the securities/stocks pay interest/dividends. Or maybe doing day trading. A capital gain on stocks sell off does not meet the business income criteria.
rebuttal to 1) actually capital gains is *personal* income but it's passive *businesss* income, not active *business* income and the example is meant for **personal** income not within a corporate structure (which theoretically could deduct interest portion of mortgage payments as well as the interest from investment loan).
correction: cap gains are not eligible; income producing investments are eligible (within non-registered acct)
LOL. Robinson Smith says that stocks without dividends are eligible as long as their is a reasonable expectation of income (prospectus cant say there will never be dividends). Source: www.tawcan.com/the-smith-manoeuvre/
@@virajdance Would an index ETF qualify as long as it has a yield?
Wow. Thank you.
So isnt this almost the same as a heloc?
No heloc no smith maneuver
*Runs to call CIBC to stop fortnightly mortgage payments and move to monthly*
Haha good call Matthew!
Makes a lot of sense! gotta set this up..
Ya I need to adjust a few of my properties to include this as well.
@@DarrenVoros have you readjusted to include this technique?
This sounds remarkable.
So as ur balance owing on the heloc grows how does it eventuslly get paid off? You always use your tax return to decrease it?
Great question. You can cash out your investments to pay off your heloc at any time.
I don't get it. Your house would never be paid off if your constantly taking it out to invest
Thanks for the information. Say I make a prepayment of $2K from my rental income to my mortgage on my principal residence, I then I take the full $2K from the HELOC (re-advanceable loc) and pay the mortgage on the rental property? Or do I take $2K minus the interest and pay for the mortgage for the rental property? If the latter is true, then I have to come up with my own money to pay the difference, correct? Thanks
Actually it was a man called david ingram who came up with this idea.
Thanks for the info and thanks for watching and commenting.
Amazing
Can we hire this man?
Reach out to him at smithman.net
@@DarrenVoros yep. I have an appointment next week. But they sell that, so I wanted to hear your objective opinion. Thanks
Is this even real? 😯
Thank you for sharing!
Yes 100%, glad you enjoyed the video!
Cool!!!!
Wow! Mind blowing
Ya I'm surprised this information isn't more main stream. Thanks for watching.
Wow!
Right!
Wow...
Ya I love this strategy.
dont listen to this crooks
Why?