Smith Manoeuvre and Real Estate Investing: 3 questions re. Peter Kinch`s accelerated strategy #1

[EdWhittingham]

I have three questions based on an accelerated Smith Manoeuvre strategy that Peter Kinch presented to REIN in April of 2007. Consider this hypothetical scenario:

• I have a $250K advanceable mortgage on my principal residence.
• I have 5 income properties, each renting for $1000/month = $5000/month gross.
• I take the $5000/month in rental income and use it to make a lump sum payment on my principle mortgage in addition to my regularly scheduled monthly payment.
• The same amount is advanced as a line of credit.From my LOC, I pay my rental property expenses (e.g. $4500) for the same month. Payments actually follow exact expense amounts and are made through transfers to separate accounts per property.Were this pattern to repeat itself every month, at the end of the year I would have reduced the principle of my mortgage on my principal property by an extra $60K, all of which has been readvanced to my LOC. Continuing this year after year would rapidly decrease my principal residence mortgage balance and related interest charges, which are not tax deductible.At the end of the year I have also spent $54K from your LOC on rental property expenses, with the interest charges of that $54K being fully tax deductible.

I have three questions further to this scenario:

i) Have I got any part of the accelerated strategy in the above scenario wrong?

ii) My accountant recently suggested that I can only use net, not gross rental earnings to pay down my principle mortgage. Were this the case the paydown process would be greatly slowed down. I think she is wrong, based on the above example from Peter`s presentation. Thoughts?

iii) She also suggested that I`m limited to using my share of revenue for jointly owned properties, e.g. half of rental income for the two JV properties of the 5 that I have. I think she is correct here. Thoughts?

Many thanks for your advice,

Ed Whittingham

 

[NorthernAlex]

As you are a Rein member, wouldn`t it make sense to post this to the "ask an expert"-board?

Very interesting topic, though.

 

[EdWhittingham]

QUOTE (NorthernAlex @ Aug 10 2009, 10:00 AM) As you are a Rein member, wouldn`t it make sense to post this to the "ask an expert"-board?

Very interesting topic, though.

A good point Alex. I posed that same question to Peter Kinch by way of email at the same time as the post, to get his thoughts. He`s replied quickly with the suggestion that we chat.

Ed

 

[jarrettvaughan]

QUOTE (EdWhittingham @ Aug 10 2009, 10:14 AM) A good point Alex. I posed that same question to Peter Kinch by way of email at the same time as the post, to get his thoughts. He`s replied quickly with the suggestion that we chat.

Ed

Please post your findings from you conversation with Peter Kinch as it would be helpful to many.

 

[NorthernAlex]

Indeed, it would be great if you could share Peters answers to you (even if you want to in the above mentioned "ASK AN EXPERT" board).