As a Real-Estate investor, I attend a lot of networking groups to meet like-minded investors, make new connections and of course learn something new that will help me improve or increase my portfolio.
As a mortgage agent, I have been researching how to help myself and others get access to 2nd mortgages but most people don’t know that you can use any of your registered accounts (RRSP, RESP, RIF, TFSA, etc) to invest in an arm’s length mortgage.
The distinction is arm’s length – which simply means that you cannot invest in your own mortgage or somebody that is related to you by blood. An arm’s length mortgage is one where you invest in another investor, a friend, a colleague, etc.
The process to use your RRSP, TFSA or other registered account is very simple.
You start by setting up a self-directed mortgage RRSP with a trustee that allows 2nd mortgages. There are only 3 in the market today, which include Olympia Trust, B2B Bank and Canadian Western Trust.
Once that fund is set up with the trustee, you then convert the assets to cash within the existing account. At this point, you can direct the trustee to transfer the cash to a new account within the RRSP – the key is that the funds must be in the RRSP.
Things that you must consider:
-the mortgage that you are investing in cannot hold a title in the RRSP
-it must be administered by the trustee
-you can only lend on Canadian real estate
-only Olympia Trust will allow a position of 1st, 2nd or 3rd mortgage, which simply means that you can have other funding in place behind or in front of the fund as you are lender
-if the mortgage lending amount is over $50K, each side must have a lawyer
-all costs (appraisals, lawyers fees, commitment fee, etc) are borne by the borrower not by the lender (you)
This is a great way for borrowers or investors to grow their portfolio’s as it provides funding from people who have money in their RRSP’s . We all eventually run out of two things – the availability of capital and the ability to qualify for funding. You don’t have to go through the bank as you are dealing directly with the investor who is lending you money. Furthermore, if can work with your lender, it benefits you as the borrower to pay only the minimum for the first year and then the balance after the term is over + the principal as it helps with your cash flow. For the lender (private investor), they also benefit as the full payment at the end of the term allows them to roll out the money again into another investment without incurring any extra fees.
As the borrower, you are more than likely to keep getting a loan from the same investor once you show you can be trusted and keep to the payment schedule set out at the beginning of the term.
For larger projects you can consider syndicated mortgages. It works similarly but this is a pool of RRSP funds and is registered as one mortgage – the share of the amount paid back is split as to the amount that was contributed. So if one person put 10%, another put 20% and another put 70% – it would be split accordingly.
In this situation, you can also defer the payments from the borrower as it is a win-win for both the lender and the borrower.
In any situation – you want to make sure it’s a win-win for both parties. Especially when it comes to real estate investing.
Would you like to learn more about how to put your RRSP to work for you? Please contact me today if I can help you or if you know of somebody who can use my help!
I can be reached at amina@aminas-ms.ca or 416 697-5443.
To Your Wealth! Amina
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