Reducing Tax Deductions at Source

[SSmino]

Hi,
In looking at increasing my available capital to invest into real estate and reduce taxes (actually defer paying them) I am looking at doing at the source using CRA form T1213 - Request to Reduce Taxes Deductions at Source Form. My plan is to have all of my taxes (max 18%) put into the RRSP account. Previously I have used after tax dollars to invest into the RRSP but am finding it difficult to contribute more. My goal is to accumulate enough funds in the RRSP, then transfer them to a self-directed account once a sufficient enough capital is accumulated and invest into second mortgages. Does anyone know of any potholes I need to avoid, things I need to be aware of in what I have explained above? Feel free to shoot holes in the idea.

Thank you

 

[Thomas Beyer]

QUOTE (SSmino @ Mar 31 2010, 06:08 AM) ...and invest into second mortgages. Does anyone know of any potholes I need to avoid, ..
Ensure that the 2nd mortgage rate is in line with the risk of the underlying asset and/or 1st mortgage !

Ensure appraised value is real value. Drive by property and ask yourself: is this worth XXX as the appraisal states ? Am I happy to own this asset at this value .. perhaps with a 1st mortgage in arrears ?

2ND mortgages can be very RISKY .. and may require more capital to bail out a struggling asset and a 1st mortgage in arears !

 

[SSmino]

Thank you very much Thomas. I have already sent in the paper work to the government to get this started.

When you say "Ensure appraised value is real value", I assume you are pertaining to residential properties as opposed to commercial since commercial is valued on the net income it produces. I think it would be difficult for me to drive by a 10 unit building and ask myself that question without seeing the financials. I also see the importance of understanding who is managing the property and their track record.

 

[Thomas Beyer]

QUOTE (SSmino @ Apr 7 2010, 12:12 PM) Thank you very much Thomas. I have already sent in the paper work to the government to get this started.

When you say "Ensure appraised value is real value", I assume you are pertaining to residential properties as opposed to commercial since commercial is valued on the net income it produces. I think it would be difficult for me to drive by a 10 unit building and ask myself that question without seeing the financials. I also see the importance of understanding who is managing the property and their track record.
I mean that appraisals can be misleading / to high .. thus: if you lend $50,000 in 2nd position behind a first mortgage at $250,000 .. for a total debt of $300,000 ensure property is worth at least that or far more as you may have to take the asset back AND re-finance the asset with a new 1st mortgage !

and yes, absolutely, check their track record !

If you lend on commercial you must be able to assess value without financials .. at least ball park within +/- 5% !

2nd mortgage lending is high risk especially once over 75% LTV .. and n some construction deals you lend on FUTURE appraised value i.e. land is worth X and build cost are Y and future value is Z .. and you lend for a total loan somewhere between Y and Z on land worth X !!

See also here: 8 mistakes to avoid in real estate syndications: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-13817-Real_Estate_Syndications_-_A_Good_Idea_.html

 

[Nir]

QUOTE (ThomasBeyer @ Apr 7 2010, 08:46 PM) 2nd mortgage lending is high risk especially once over 75% LTV ..
Doesn`t the fact that even large banks still lend up to 90% LTV 1st mortgage (for some properties), tell us it is still not generally considered high risk between 75%-90%. well, at least it wasn`t in the pre-USA crash era. Regards.

 

[Thomas Beyer]

QUOTE (investmart @ Apr 7 2010, 09:34 PM) Doesn`t the fact that even large banks still lend up to 90% LTV 1st mortgage (for some properties), tell us it is still not generally considered high risk between 75%-90%. well, at least it wasn`t in the pre-USA crash era. Regards.
actually they do NOT !

They lend up to 80% .. and a cent over that requires CMHC insurance for the entire amount due too risk !

Getting 80% for investors is getting much tougher these days, plus they lend far less on commercial projects (65% usually) and even less on land or development projects than they used to.

Thus, frequently bonds are offered to the innocent investing public as "secured by real estate" at 8% or 12% with enormous risk of total capital loss to lender !

Ensure that risk and reward are in line !

 

[Nir]

QUOTE (ThomasBeyer @ Apr 7 2010, 10:03 PM) actually they do NOT !

They lend up to 80% .. and a cent over that requires CMHC insurance for the entire amount due too risk !

Getting 80% for investors is getting much tougher these days, plus they lend far less on commercial projects (65% usually) and even less on land or development projects than they used to.

Thus, frequently bonds are offered to the innocent investing public as "secured by real estate" at 8% or 12% with enormous risk of total capital loss to lender !

Ensure that risk and reward are in line !

THANKS. Good points!