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CRA allows you to use RRSP money to buy investment property.

Sherilynn

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You betcha! We were just discussing the possibility of withdrawing our RRSP's $5000 at a time. Now we may have a better option.
 

BarryMcGuire

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Here's what Mr. RRSP, Valden Palm, had to say about the new ruling:



I think it is HUGE!! It puts more control of people's retirement future in their hands. It unlocks potentially hundreds of thousands of dollars in unperfoming or underperforming in one's portfolio and allows you to set up what the returns will be. We've always known that as real estate entrepreneurs we feel better controlling investments that we know are good deals. With traditional MF and stock RRSP's, you are trusting what other "fund handler's" are doing.. and as "transparent and accountable" history has shown lately, they haven't been handling things properly or ethically in some cases.






  • I hope this ruling would extend to corporations owned by those same RRSP holders, or have the controlling interest in..







    My only other caution to folks would be to resist the "parental loan temptation" syndrome, and that is to be sloppy with the re-payments because it's YOU loaning to YOU. Still treat it like a business loan just as if you were loaning to a stranger..
 

Rickson9

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In my opinion, an individual who is placing 'underperforming' assets into their RRSP will not have the sophistication to do any different with real estate investments. There may be exceptions, but they will be few.
 

Thomas Beyer

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The article's title is very misleading. Nothing has really changed. You can (and always could) LOAN money from your RRSP to a borrower, and that borrower can be (or could have been) you, if the mortgage is CMHC insured. In first position.



Thus the RRSP $s are NOT suitable for purchase, but as a loan.



You still need a 20% cash downpayment.



Due to the setup, insurance and ongoing fees this is of interest only for large amounts, say $150,000 and up assuming the investment property is $200,000 and up. Other RRSP eligible real estate related investment exist and I have posted about this elsewhere here at myreinspace.
 

moparcanuck

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Thanks Thomas,



I read this thread this morning, and have been pondering it today. I don't think anything has really changed either. CRA has always allowed non-arm length mortgages in your RRSP, with 2 stipulations:



1. It has to be an insured mortgage

2. It has to be at 'commercial interest rates' meaning no lending to yourself at 0%, nor at 30%.



I had never really looked into it for investing purposes due to the fees involved, but I knew this capability existed on your own owner occupied house (but again, fees make it unreasonable).



I've really stayed away from lending to myself through my RRSP given the very low rates currently as well. I don't know exactly what range CRA would consider commercial rates right now, but I assume it would be similar to what I could get a nice standard 5 year mortgage from a bank for (3-ish percent). I know there's always a debate about the volatility of the market, etc, etc, etc, but when I can get 4 or 5% for a dividend yield from a blue-chip company, why would I lend at 3% with no capital appreciation potential (yes, I know, much less risk of downside though).



I do have to admit, I have done some looking into RRSP mortgages lately, but more the higher rate second mortgages where I could get say 10% (and no CMHC required)
 

TangoWhiskey

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As has been pointed out you have always been able to lend to yourself and I don't see anything in the article that suggests anything has fundamentally changed. It is called the non-arms length mortgage, the kicker being you have to buy mortgage insurance and the bank sets the terms to avoid you cutting "great" deals with yourself ie interest only at 1%. You've always been able to write interest costs off so long as the costs were incurred generating revenue.



Two alternatives are possible as ways to extract cash from your RRSP. I have used one and am likely to try the second.



The first is to sell a property you own, either to yourself or an arms length buyer, and write a mortgage on it. The advantage of the arms length buyer is that you can negotiate anything you like between you to meet both parties needs as the bank does not have to approve any terms or conditions of the mortgage.



The second is to use your RRSP funds to write a mortgage on a property that has a low LTV. This could be a family members, or your own. Then the borrower gives you the money back and you go use it to buy an apt building say and cover the costs of the mortgage with the cashflow and split the net proceeds or some other combination.
 

Thomas Beyer

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[quote user=moparcanuck]I do have to admit, I have done some looking into RRSP mortgages lately, but more the higher rate second mortgages where I could get say 10% (and no CMHC required)
Ensure return OF your capital before you look at promised return ON your capital, as many a second mortgage is now worth 0 or substantially less, especially if lent via some questionable MICs or construction projects or secondary locations.



A lower LTV loan as a first mortgage from your RRSP certainly is a good option to explore if you are satisfied with a 4-5% return/year.
 
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