Investing with RRSPs

With the RRSP season fast approaching, we wanted to share with you a powerful strategy to get your RRSPs working harder for you. The strategy is about how to use your RRSPs to invest in real estate, an asset class that has performed very well for many investors.

Let us start by saying that you do not need to collapse your RRSPs to make this happen, and we are not talking here about the First-Time Home Buyers Program either.
Through this strategy alone, we have helped investors:
  1. Make 15 per cent or more in returns for their RRSPs.
  2. Acquire properties beyond what they would have qualified to buy through traditional lenders.
  3. Grow their portfolio from zero to millions with little or no money from their own pocket, bruised credit or little income
Here is a quick summary about what you need to know about this strategy.

Real estate is just another asset that you can hold within your RRSPS, similar to stocks or bonds. Here is how.

Using your RRSPs on a property you own

If you use your RRSPs against a property that you personally own or someone related to you owns, then the property must be a primary residence. It can also have a rental component up to four units. This type of usage is referred to as non-arms-length RRSP investing. Under this arrangement:
  1. The Canadian Mortgage and Housing Corporation (CMHC) will charge an insurance premium that gets added on to the RRSP total amount. The premium will differ depending on the amount invested in relation to the value of the property
  2. The return that your RRSPs makes must be paid to your RRSPS every month
  3. The interest return to your RRSPs has to be in line with market interest rates and cannot exceed 30 per cent
Let’s look at an example:

Jane owns a home that is valued at $600,000 with a first mortgage of $400,000. She would like to pull out some equity from home to invest in Real Estate. She has about $100,000 in RRSPs.
We helped Jane setup an RRSP second mortgage on her home and release $100,000 in cash to invest while paying an excellent return back into her RRSPs.

Using your RRSPs on a property that you don’t own

You can lend your RRSPs to someone (not related to you) who owns real estate. By the same token, they can lend you their RRSPS on properties that you own or would like to purchase.
Under this setup, mortgage insurance is not required and the terms of the loans are negotiable between the two parties as long as the minimum interest is in line with market rates.

Let’s look at another example:

Jack is a successful investor who owns three investment properties. His friend William has $50,000 in RRSPs that he would like to invest.
We helped William setup an RRSP loan to Jack on one of his investment properties; with William reaping an attractive return on his RRSPs and Jack releasing $50,000 in equity from his existing properties to put as a down payment for his next property.
Why didn’t my investment advisor tell me about this?

For a simple reason: banks and investment companies do not offer this product and as a result they are better compensated by retaining the clients’ RRSP funds in house.
Putting it all Together

In order to invest your RRSPs in real estate, the funds must reside in a self-directed RRSP account and be administered by a third party (called a Trustee). The loans have to be structured in a manner that protects you whether you choose to lend your RRSPs or borrow other’s RRSPs.

If you have any additional questions, please feel free to email us at [email protected].

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