All Forum Posts by: Huong Luu

The banks want you to take the refi because you will take the 25 year amortization to pay them back. This is how they make their money (via the interest). With the refi you can only pay back so much and at certain times. If you want to pay off more, there is a penalty. 

Whereas, with the HELOC, you can pay this back at any point and in any amount. If you do not anticipate paying the HELOC back within a certain amount of time (ie 1 year) then doing the refi with a revolving heloc may be the better option.

Also, you mentioned 'mortgage free home'. If this 'mortgage free home' is your primary and you take a mortgage on it, then you will not be able to use the Smiths Maneuver on the interest you paid, however, if you get a HELOC, then you will be able to use the Smiths Maneuver.

@Jonathan Yeh Great question and so much great advice from everyone! I didn't read all the comments, but things that jumped out were:

1. Yes, you can definitely do mortgages in Canada at 9%. (I got a client out of a 14% mortgage... ) . Message me separately if you want to know how. 

2. Use the money as your golden geese -- the principle doesn't decrease but you invest it and it makes money for you. If you don't need the money now, then let compound interest work in your favor. It will double in 7.2 years at 10%.

3. Look at what kind of life you want and make decisions, using the money to get you to the life. 

4. Don't use that money to pay off your primary if you are in Canada, unless you are close to retirement. Use that money to invest and then use the profit to pay off your primary. 

5. Put the funds into an IFA then use the money from the IFA to buy investments that give you 10%+. 

Send me a message and I will connect you with someone closer to Lethbridge. However, this might be a deal you walk away from. If the owner is 'drunk', the contracts he signs may not be binding. Thus, you make the payments to get him out of foreclosure and he doesn't move. Then you would stand to lose all your money and or have a house with a drunk tenant who doesn't pay rent. 

@Zaher Muhareb, Definitely talk to a RE lawyer (I would recommend Barry McGuire, who is also located in Edmonton) about AFS (Agreement for Sale). If there is enough equity in the property and there is value, then you should be able to structure the deal that will benefit both of you. 

@Ammanuel S. using HELOC's for long term is what the banks want b/c that's how they make their money from you. As long as you can pay your parents back and you are comfortable with the risk. Be grateful you have parents who are willing to give you money without interest. When you do your calculations, include a 5% (min) interest repayment. If you parents won't take that money, then put that towards the mortgage/HELOC paydown. Look for the revolving HELOC kind. Also, it sounds like you want to be CEO, why not look at a 10+MFU right off the bat? It takes the same amount of effort to think big as it does small.

In order to ensure you are analyzing properties right, you might want to consider including an interest on the loan to ensure you will positive cash flow. Keep in mind, there really is no such thing as a secure job or a promises that a growing economy will be growing in 5 years. Lastly, make sure your parents understand they have to pay interest on the HELOC (and if the HELOC is not secured, it could be as high as prime +4%) and there should be a legal way for them to get the money back should something happen to you.

From the MLS listing, it looks like there are 2 units with an unfinished basement, although your report notes it as a triplex. One thing you are going to want to confirm is permits exist (although there are postings on the windows so it looks like they were done), along with confirming property zoning for a legal duplex or triplex. From the pictures, it looks like the bathroom doesn't have a stand up shower, ceiling requires repair, exterior will need repairs (ie eaves),etc. Refi is based on banks appraisal (which normally is lower than expected as it is to protect the bank) so looking at the comps in that area, houses are selling for $155K-$220K. If the bank comes back with the appraisal at $155K you will lose money. If the bank comes back at $200K (your estimated ARV), and gives you 80% LTV, or $160K, which you put in $150K+holding cost. This means you make almost $0. Realizing you can do the renos yourself, this looks like a lot of reno, so 2 months full time minimum. This project doesn't look like a good FLIP candidate but may be worth looking at as a BRRRR. My comments haven't even looked at renting yet. Message me if you want more info on the above or if you want to talk about BRRRR strategy.

My accountant told me I couldn't do this 10 years ago in Ontario. AHAH. However what he did tell me was to deduct the expenses I needed to travel there for inspection/repairs/maintenance/research, etc, all expenses, and that I could use the cottage during the off season without an issue. The first 3 years, I rented the majority of the long weekends out and had about 50% occupancy, so I was able to use the cottage the rest of the time while getting it ready to rent. After the 3rd year, the summer rental was hot so I maximized on that and only used the cottage in the off season when there were no renters. Now that cottage is paid off and I rent it to a long term family. Keep in mind renting to cottagers is a lot more work if you do it yourself, which is why I went to long term. Message me if you want to know how I can still take a summer cottage trip every year and use that as a tax deduction. 

I just started toying with the idea of moving to Montreal or Gatineau when we return to Canada from our extended trip. So I would be interested to meet others from that area too. 

@Chase Jipson Welcome to BP. To answer you questions, I am going to include them here:

Current plan is to put down ~$25k (first time home buyers). See if you and your partner can maximize on the RRSP first time home buyers. Since you are currently saving, it sounds like you have time. If you max on your RRSP, you will be able to recognize a tax deduction.  

Tad bit of a curveball here, we will be living in the home while renovating - Many investors and 1st time home buyers do this. This is not a curveball.

when beginning the refi process, how much will the bank give you? The banks will use their own appraisers and usually will come in under value as this is to protect them. The banks will usually lend you upto 85% of the appraised value (depending on your debt load). If you plan to refi within a few months, then you want to get a variable-open mortgage as some banks will charge you to break a fixed mortgage when you refi. 

Does it matter how much equity you currently have? The more equity you have, the more funds you will be able to access.

What are the factors? Does the refi amount simply get added to your mortgage? It can be. Depends on the bank. They might just offer you a HELOC for the increase. 

For now (could be totally off) let’s say the bank gives us enough for a down payment on another home. That is great. You still need to quality for a mortgage (on the other home). Your 1st property will now show as debt on your balance sheet. Some banks will use 50% of rental income, some use 0%. 

We buy the home, live in it while doing the Reno, and continue repeating this process, all while renting out the previously reno’d home. You will have to weigh out the pro and con. If you buy the place as a prim residency, you may be able to use the 5% downpayment over and over, but then the cost of buying and renos will not be a tax deduction. When you buy an investment property, all the cost and interest associated with that purchase is a tax deduction. 

Message me and I will send you the documents from my laundromat business. The important factors are

1. Tenants pay rent, utilities and all maintenance fees (this is called triple lease). Really, your parents should be cash flowing.

2. Rent increases are not capped once the term is up. So review the rents and increase them appropriately. Annual increases are documented in the lease. 

3. current mortgage and rate.