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the smith maneuver

piperella

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looking for matter of fact info from real investors that have tried the smith maneuver using an investment property. does it work?
 

MrHamilton

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Hello,



Amongst my clients in Hamilon, over 80% of them are using home equity lines of credit (HELOC for short) for downpayments on investment property. I used to do this too and deducted the interest expense from my HELOC against my income.



Speak to your accountant and work with your bank on how to structure this correctly. For example, ManulifeONE allowed me to create a sub account for each downpayment so tracking the downpayment and interest expense was clear cut for the accountant and in case you are ever audited.



Hope that helps!

Erwin
 

DonCampbell

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It is a financing strategy that changes your non-deductible debt into deductible debt (over time).



Most banks now offer mortgages designed for this strategy (re-advanceable mortgages, STEP mortgages etc) where the Access to Line of Credit increases as your mortgage gets paid down.



It take discipline (DO NOT mix consumer spending and investment cash access in the same HELOC), it takes time but for many it has worked well.



Take a search of this forum for others who have used it for their tips (use search box up on top right of screen)
 

piperella

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i'm looking into this for my mother at the moment she recently bought a rental property but used her rrsp to pay for the down payment. so im assuming because she did it this way instead of using her heloc that she has just sitting there this may not benifit her. would paying the mortgage payments and expenses for the rental from the heloc and putting the rental income into her own home work?
 

Al Verwey

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I hope your mother did not withdraw from her RRSP and instead holds a second mortgage within her RRSP.



Anyway, I use a Smith Manoeuvre with my rental properties. Each month, my rental income gets deposited against the principal remaining in my principal residence mortgage (one segment in a Royal Bank HomeLine). The resulting credit room is transferred into the segment used only for investment/business. Then, I transfer an equivalent amount into my business chequing account from which the mortgages and bills are paid.
 

piperella

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yes she did withdraw from her RRSP. She has no investing experiance. I'm learning from her mistakes but unfortunatly im also worrying about her future she is 65 now with only 500k in equity to retire with so im trying to figure out things and help her how ever i can and use that as experiance for myself.
 

Rickson9

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No investing experience, rental property, and the smith maneuver is one of the best ways to go broke and maximize losses.
 

Thomas Beyer

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You have to separate income property income and associated expenses, like interest paid on a HELOC, from personal use.



The best way to do this is

a) have a LOC used entirely for the purchase of an income property, or

b) use a bank that allows sub-accounts, so that you can show that money in sub-account 1 is for investment purposes, and sub-account 2 for life's other joys !
 
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