Real estate investors are creative bunch of people, particularly when it comes to financing.
At the September Durham REI meeting, I shared how I used creative financing in order to get my truck for free in May of this year. These types of conversations usually happen when you attend events with a room full of active real estate investors, like at Durham REI meetings.
I dont look at vehicles as good assets because it doesn’t create a stream of income for me. So I had left money aside in my Corporation in order to purchase a new vehicle outright. In this case, it was a 2016 Dodge Ram truck. (And yes my wife did think I was a little manlier, driving this vehicle over my last one.)
In conversations with the salesperson I found out that I would be able to qualify for 0% financing on that new truck. Since I already have the funds available I knew what I was going to do.
I’d purchase the truck with 0% financing and I spread the payments over 72 months. Now I wouldn’t suggest that everybody do this and 0% interest doesn’t always mean that you’re not paying for financing but in this particular situation it worked out well. So I was able to take the funds that would have gone to the truck in this case let’s call it $40,000. I took those funds and invested them into second mortgages.
The results being that the $40,000 generated $400 a month in payments.
The monthly payment for my 0% financed truck is $400.
The net result of each month payment is $0 dollars out of my pocket.
At the end of the 72 months I will still have my $40,000 in the second mortgages and my truck will still be in my possession.
Because I purchased the truck in a corporation and my Corporation has an HST number, I’m able to deduct the HST from my purchase price. In addition, I am able to depreciate the asset over time based on the payments that I’m making on the vehicle and the cost of the vehicle.
Now, you could vary this process in many different ways using a line of credit or other debt instruments, as long as the interest + vehicle payment = returns on the investment. And truly, you are not getting the vehicle for free, as you already have the money in cash or the ability to use debt, but its a creative way for you to own a vehicle isn’t it.
Now I’m not an accountant, and I suggest that you contact your accountant in order to go over how this might work in your own business and any tax implications, but I found that it was a popular topic to discuss at our meeting. I think if you are in a position where you could purchase a vehicle outright, you may want to consider financing it, in order to do a little bit of interest rate vs returns arbitrage.
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate. And a Real Estate Investment Coach details at Real Estate Mastermind and Coaching.