In this episode of Get Real Wealthy Season 4, Quentin D’Souza discusses using registered funds for private mortgages to create an income source and the associated risks.
Quentin notes that the public is generally unaware that they can use registered funds, such as TFSAs, RESPs, and LIRAs, to lend as mortgages and earn a fixed return. The reason for this lack of awareness is the mutual fund industry’s focus on managing portfolios and not providing information on alternative investment options. People are not aware that this option is available.
He adds that the mutual fund industry earns money based on their management expense ratios, regardless of the portfolio’s performance. As a result, they prefer that people keep their funds in mutual funds instead of lending them privately and earning higher returns.
Quentin recommends placing registered funds with a trustee, such as Canadian Western Bank or Olympia Trust, to lend to third parties while adhering to specific criteria, such as not exceeding 100% of the property’s appraised value. For instance, $300,000 can be moved to an Olympia Trust account to lend as a private mortgage.
He emphasizes the importance of transferring funds directly between registered accounts to avoid taxation. Due diligence is crucial when lending funds to third parties, and it is recommended to focus on investors. The loan-to-value ratio should not be too high, as this increases the risks associated with the investment. Mortgage brokers can help with private lending and bring together multiple investors for a single mortgage.
When lending, understanding the borrower’s exit strategy, the loan-to-value ratio, and the property’s risk is essential. Retail properties are riskier than residential properties at the same loan-to-value ratio. The area, person’s experience, and returns should also be considered. Understanding that a good return may not be achieved if the funds are returned earlier than expected and there is no other project to invest in is essential for private lending using registered funds.
In conclusion, Quentin advises that there are numerous resources available to learn more about using registered funds for private mortgages. You can also contact him at firstname.lastname@example.org to learn about his own experiences using registered funds.
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.