Author: Paul Blacquiere
Category: Mortgages
Reading time: min

Question

I’m of the understanding, you and a like-minded friend could fund each others’ property investments using RRSP money – but can i use RRSP money to fund ‘my own’ property?  It seems odd that the ‘rules’ are created to make it easy to use someone else’s RRSPs – except my own. Any reason for this that you know of as i’m only curious is all.

Sorry, i’m just learning, but please don’t think you’re efforts in explanations fall on deaf ears. I have two cash-flowing properties of my own but have been stopped ‘DEAD IN MY TRACKS’. It appears i haven’t mastered the art of OPM, and the people i do speak to are ‘fearful’ of investing (as they’ve been burnt) and i’m not quite established. Even when i bring a deal that makes sense, and the numbers reflect as such i find people are ‘fearful’ to invest with me. So, my basis for asking these questions is because it looks like i’ll have to do more of my own deals, with my own money, at this point. If it’s easier for me to take out my RRSPs from the bank, pay the taxes, and use the remainder for a down payment would this be better?

With the way the US economy is going i’m sure there will be some problems that will have ripple effects into the Canadian economy. I figure the sooner i can put my RRSP money to use before it deflates in value, the better off i’ll be.

All your thoughts and efforts in explanation are greatly appreciated. I’m sure you’re a person with not alot of time for these questions but i do appreciate it.

Stan

 

Answer

Yes, you can use your own RRSP funds. However, the rules are very strict and there’s basically no big advantage over going to the bank. You have to qualify just like a regular mortgage, and you need CMHC insurance.  With other people’s RRSPs, they are very very flexible and no qualification is needed.

 

Your Own RRSPs

The reason the rules are more strict for borrowing your own RRSP money as a mortgage is because there’s a higher risk of default.  Consider the following situation…

 

You borrow your own RRSP funds secured as a second mortgage against your principle residence.

Mortgage amount – $50,000
Lender
– Your RRSP lends the $50,000
Borrower
– You borrow the $50,000, with your house as security
House
– now has a 2nd mortgage on it

When the transaction closes with the lawyer, you (as the borrower) receive a cheque for $50,000 (minus closing costs) and your house now has a 2nd mortgage on it.  You (as the lender) now have a mortgage appear on your RRSP statement from TD Waterhouse.

 

Let’s say you make payments on the mortgage for a while, but then decide to stop.  Your logic – since I’m the lender, I don’t mind if I skips a few payments to myself or I don’t pay myself back at all.  Seems reasonable, right?

The problem is that you’ve effectively withdrawn $50,000 of your RRSP funds tax-free (remember, when done correctly, there are no taxes owed when creating an RRSP mortgage).  If you decide to never pay yourself back, you can basically avoid paying taxes on that $50,000 advance.

Do you think CRA would be happy with this scenario?  Of course not.  That’s why the rules are so strict for these types of mortgages — you must qualify for the mortgage, have mortgage insurance, make regular payments, etc.

 

Other People’s RRSPs

When borrowing other people’s RRSP money, the chance of default (non payment) is much lower.  Do you think a lender would sit around and let you get away with borrowing $50,000 without making payments or ever paying back the loan at all?  Definitely not.  They would exercise their right to take your property or sell it – remember, they have a mortgage against it.

If you’re interested in finding out more about how to invest using other people’s RRSPs, you’ll find everything you need to know in my course…

Creative Financing Using
RRSP Mortgages

Discover how to use other people’s
RRSPs, RRIFs, LIRAs, RESPs and TFSAs
to finance real estate.

>> CLICK HERE to learn more <<

 

Finding Investors

If you’re having trouble finding people to invest with you, my experience shows it’s most likely something to do with what you’re doing or saying, especially if the investment is a good one.  Just reading your words in your question, I can tell that you aren’t quite confident in your abilities and if you aren’t confident in you, do you think investors will be?

I recommend listening carefully to any objections that potential investors have with you, and notice how you respond to them.  Do you have a good answer?  Do you pause and stumble with your words?  You need to practice this over and over again until you can address any concern that someone might have.

And finally, I recommend focusing only on people who are truly interested in investing.  You should be qualifying THEM, not the other way around.  If someone has been burned and is afraid of investing, chances are you won’t be the one to change their mind.  Start looking elsewhere for someone who is excited about investing and then qualify them to see if they are a fit.

 

Cashing in your RRSPs

Lastly, before withdrawing your RRSP funds to invest, you should do a full analysis and decide if it’s the best thing to do.  Also consider that you could team up with a couple of other investors and invest in each other’s RRSPs.  That way you can keep the full value of your RRSP and still have it invested (although not in your own property).

I hope this helps

Paul Blacquiere

About the author 

Paul Blacquiere

Paul is an entrepreneur, investor, speaker, educator and publisher. He is founder and editor at Spirepoint Wealth, a financial education company dedicated to helping people improve their finances, create more cash flow and build long-term wealth.

You May Also Like...

How To Present A Deal To Investors

How To Present A Deal To Investors
>