In this episode of Get Real Wealthy Season 2, Quentin talks about using registered funds to lend or borrow as a mortgage.
Quentin says that a lot of people know that registered funds, such as RRSP, RSP, TFSAs, LIRA, can be put in a self directed account and lend those funds as a mortgage and get a fixed amount of return. He further says that it is a great tool to use, “I borrowed hundreds and 1000s, from different people on our projects, and I’ve lent out hundreds of 1000s to different people through my registered funds…”
Talking about how this works and the things that you need to keep in mind, he says “Number one, it has to be arm’s length. Now, arm’s length means that it can’t be my wife, or anybody that is immediate family.” The second thing is that you will have to use a trustee, adding “keep it in your RSP, but move it to cash inside the RRSP, then transfer the funds into Olympia Trust, into your self-directed account.” When you do that, you never removed the funds out of your registered funds, and that’s how you’re not going to pay taxes.
Quentin adds that you should do your research about which company to use as a trustee. Once you have those funds into that account, there are going to be some fees associated with it such as a setup fee and an annual fee. Legal and realter’s fee can also incur if you use them. One of the steps of doing this, he says is getting an appraisal on the property. The only challenge with doing mortgages is the time it takes between when you have a mortgage that’s finished and a mortgage that starts.
He says it’s really important that you’re doing due diligence on the investor who’s borrowing the funds and the business plan that they have. you want to see somebody who has a depth of experience, not the person who’s just doing this for the very first time, because that may be a warning sign for you. In conclusion, he adds that using registered funds is a great tool for somebody who has money in registered accounts, but is not happy with the stock market.
Important Links and Resources
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Action Taker's Real Estate Investing Planner, The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords, The Filling Vacancies Toolbox: A Step-By-Step Guide for Ontario Real Estate Investors and Landlords for Renting Out Residential Real Estate, and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.