Invest Your RRSP in Real Estate Using this Trick
Happy Holidays, I hope your 2019 was amazing! I'm winding down from a great 2019 and am looking forward to starting 2020 with a bang! 2019 was a year full of awesome real estate projects - including this most recent one where Shelby and I built our first house! Turns out gingerbread houses also have "construction delays" if the icing temperature isn't quite right.
I wanted to share with you some interesting investment options with your RRSP that I’ve been looking into. I didn't know creative options were available with RRSP funds until recently. Right now I have an employee matching RRSP plan at work which is great, except for the fact that I have to invest in the mutual funds that my company's benefits provider has available. I’ve been looking for ways to get better use of my RRSP funds and wanted to share one interesting way I’ve discovered.
The simplest way to use your RRSP funds is as a first time home buyer, as you can use your RRSP for a down payment. There is a good explanation for that HERE. By using this strategy you can leverage your RRSP funds to purchase real estate, this is the most typical way I’ve heard of people using RRSP funds.
I recently picked up a book called the “RRSP Secret'' by Greg Habstritt.
The author outlines strategies on how you can get better use of your RRSP funds than the typical mutual fund market. He states that these strategies are not promoted very much because the financial industry has little to gain from a self- directed RRSP transaction. Only the people within the transaction are benefiting as you are cutting out the middle man handling your registered funds. I think that's pretty cool, as I’m paying significant fees in my mutual fund! There are many ways to use your RRSP in real estate, but I’ll outline one common scenario: a second mortgage to fund a renovation.
By using RRSP funds as a mortgage, you get paid back principle and interest like a bank would, by providing someone a second mortgage. To do this with RRSP funds you must set up a self-directed RRSP with a trust company, and fund the new account from wherever your registered funds are now (beware of fees). Then you must find someone in need of funds; someone like a real estate investor that is going to take that money and do a house flip or something similar. I’ve seen 2nd mortgages on a 1 year term for secured rates of return in the range of 8-15% depending on the circumstances for that loan. Those rates of return are much larger than what I’ve been seeing in my RRSP mutual fund. Furthermore, in this scenario the lender/investor has some control over the transaction and terms of loan, rather than no control compared to a mutual fund.
You may ask, why would someone take a high interest loan? One explanation could be it simply is their best option, and they can take that money and invest it or leverage it for a project at a higher rate of return.
Let me know if you found this interesting!
Happy New Year!
Spencer Brown Brown Properties www.gobrownproperties.com