Comments on: DIY Smith Manoeuvre, Part 1 http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/ Helping you invest and prosper Sat, 11 Feb 2012 19:27:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Canadian Capitalist http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-210658 Canadian Capitalist Wed, 10 Feb 2010 04:01:17 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-210658 @Andy: I vaguely remember reading in The Smith Manoeuvre (the book) that you can pay the expenses of your business from the LOC and use the revenue to pay down the mortgage. It's many years since I read the book, so you may want to check it out. Also, it is wise to run it by your accountant to make sure everything is kosher. @Andy: I vaguely remember reading in The Smith Manoeuvre (the book) that you can pay the expenses of your business from the LOC and use the revenue to pay down the mortgage. It’s many years since I read the book, so you may want to check it out. Also, it is wise to run it by your accountant to make sure everything is kosher.

]]> By: Andy http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-210653 Andy Wed, 10 Feb 2010 02:44:01 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-210653 Can I use the SM like this: I have revolving HELOC on principal residence and have 3 rental properties. I use the entire HELOC only for business and actually pay all rental property expenses out of the HELOC as well as putting all rent cheques into the HELOC. (I use it like a rental property chequings account) Can I simply start putting 100% of my rent cheques towards my principal mortgage instead (which increases my HELOC more than enough to keep covering expenses)? Essentially putting gross investment income into principle residence and paying 100% of expenses out of HELOC... If so, I can pay down $4000 on principle residence each month.....please say yes... I'm waiting to hear back from my accountant and thought I'd love to hear what you think. Can I use the SM like this:

I have revolving HELOC on principal residence and have 3 rental properties. I use the entire HELOC only for business and actually pay all rental property expenses out of the HELOC as well as putting all rent cheques into the HELOC.
(I use it like a rental property chequings account)

Can I simply start putting 100% of my rent cheques towards my principal mortgage instead (which increases my HELOC more than enough to keep covering expenses)?
Essentially putting gross investment income into principle residence and paying 100% of expenses out of HELOC…

If so, I can pay down $4000 on principle residence each month…..please say yes… I’m waiting to hear back from my accountant and thought I’d love to hear what you think.

]]> By: Hopeful1 http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-122340 Hopeful1 Thu, 20 Mar 2008 05:38:18 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-122340 Hi CC, I just heard about this SM strategy on the radio and started searching about it on the net when I ran into your website. There seems to be a great in-depth discussion about it here. Unfortunately I don't have enough financial knowledge to understand half of the discussion. =) Although I'm really excited and wondering if this would be applicable at all to my unique situation. I'm posting my story here hoping that you or one of the financial experts here would be willing to give me a little advice and point me to the right direction before I go hunting for a financial planner. I reside in western Canada and just purchased my house about 2 yrs ago. My house is curently valued at 360K. I have a closed variable mortgage of about 80K (@prime - 0.8) and a "very flexible" personal loan from my brother who lives abroad of about 280K (@4%, open, fixed interest, no contract, no time limit) which I had used to fund the house purchase 2yrs ago. I am currently paying about 1300 monthly towards my personal loan. Could I use this SM strategy to convert my personal loan to a tax deductible loan? Or should I focus on trying to implement it to my 80K mortgage? Thank you very much in advance for any input or comment any one can give. Hi CC,

I just heard about this SM strategy on the radio and started searching about it on the net when I ran into your website. There seems to be a great in-depth discussion about it here. Unfortunately I don’t have enough financial knowledge to understand half of the discussion. =) Although I’m really excited and wondering if this would be applicable at all to my unique situation. I’m posting my story here hoping that you or one of the financial experts here would be willing to give me a little advice and point me to the right direction before I go hunting for a financial planner.

I reside in western Canada and just purchased my house about 2 yrs ago. My house is curently valued at 360K. I have a closed variable mortgage of about 80K (@prime – 0.8) and a “very flexible” personal loan from my brother who lives abroad of about 280K (@4%, open, fixed interest, no contract, no time limit) which I had used to fund the house purchase 2yrs ago. I am currently paying about 1300 monthly towards my personal loan.

Could I use this SM strategy to convert my personal loan to a tax deductible loan? Or should I focus on trying to implement it to my 80K mortgage?

Thank you very much in advance for any input or comment any one can give.

]]> By: Maxwell http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-96254 Maxwell Thu, 27 Dec 2007 09:44:26 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-96254 Hey Phil S, thanks for your ideas. You make some excellent and valid points that I will be looking into. Do you have a blog? please drop me a line at ( n_o_o_b_t_r_a_d_e_r_0_5_@_g_m_a_i_l_._c_o_m) excuse the _, I don't want to get spammed by webbots. As for the SM, as far as I can tell it works with any investment that provides a real ROI. So even if equities go down the tubes, you can still invest in other ventures. I really like Phils ideas, thanks for sharing Phil. Happy new years to everyone. Hey Phil S, thanks for your ideas. You make some excellent and valid points that I will be looking into. Do you have a blog? please drop me a line at ( n_o_o_b_t_r_a_d_e_r_0_5_@_g_m_a_i_l_._c_o_m) excuse the _, I don’t want to get spammed by webbots.

As for the SM, as far as I can tell it works with any investment that provides a real ROI. So even if equities go down the tubes, you can still invest in other ventures. I really like Phils ideas, thanks for sharing Phil. Happy new years to everyone.

]]> By: DIY Smith Manoeuvre, Part 4 http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-92817 DIY Smith Manoeuvre, Part 4 Mon, 17 Dec 2007 03:22:32 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-92817 [...] part in a series on implementing a do-it-yourself Smith Manoeuvre. You may also want to check out Part 1, Part 2 and Part 3 of the [...] [...] part in a series on implementing a do-it-yourself Smith Manoeuvre. You may also want to check out Part 1, Part 2 and Part 3 of the [...]

]]> By: DIY Smith Manoeuvre, Part 3 http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-91911 DIY Smith Manoeuvre, Part 3 Thu, 13 Dec 2007 00:20:51 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-91911 [...] part in a series on implementing a do-it-yourself Smith Manoeuvre. You may also want to check out Part 1 and Part 2 of the [...] [...] part in a series on implementing a do-it-yourself Smith Manoeuvre. You may also want to check out Part 1 and Part 2 of the [...]

]]> By: ThickenMyWallet http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-91826 ThickenMyWallet Wed, 12 Dec 2007 15:04:00 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-91826 Phil S- some good points. I agree with you- finding a multi-unit premise in Toronto with an attractive cap rate is very difficult. There's simply too much supply to have a high enough rental revenue to cover your cost of acquisition. I have begun looking outside Toronto for that reason. Good luck in your search! Phil S- some good points. I agree with you- finding a multi-unit premise in Toronto with an attractive cap rate is very difficult. There’s simply too much supply to have a high enough rental revenue to cover your cost of acquisition.

I have begun looking outside Toronto for that reason. Good luck in your search!

]]> By: telly http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-91810 telly Wed, 12 Dec 2007 13:54:48 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-91810 Phil, Some goood points, especially re: repair & reno. As far as living in a multi-unit building, if you live in a 20 unit building, you can only "write off" the expenses for 19/20 of your expenses as far as I'm aware. More importantly though, I know very few rental property owners (myself included) that would live in their rental properties for more than a few short years, if at all. :) Phil,
Some goood points, especially re: repair & reno.
As far as living in a multi-unit building, if you live in a 20 unit building, you can only “write off” the expenses for 19/20 of your expenses as far as I’m aware.

More importantly though, I know very few rental property owners (myself included) that would live in their rental properties for more than a few short years, if at all. :)

]]> By: DIY Smith Manoeuvre II - The Readvancable Mortgages | Million Dollar Journey http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-91677 DIY Smith Manoeuvre II - The Readvancable Mortgages | Million Dollar Journey Wed, 12 Dec 2007 07:31:15 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-91677 [...] Part 1 more or less introduces The Smith Manoeuvre  [...] [...] Part 1 more or less introduces The Smith Manoeuvre  [...]

]]> By: Phil S http://www.canadiancapitalist.com/diy-smith-manoeuvre-part-1/#comment-91608 Phil S Tue, 11 Dec 2007 22:22:21 +0000 http://www.canadiancapitalist.com/2007/12/10/diy-smith-manoeuvre-part-1#comment-91608 While I agree that it is infinitely better to be making enough rental income from a property to offset all of your expenses and depreciation, my point is that a breakeven proposition isn't bad from a taxation point of view. In that situation, you can live in one unit of a multi-unit residential building which you own in a tax efficient manner, as compared to owning a home outright and paying for all of the upkeep out of your earned income. That said, I haven't made the plunge into the rental property market because I haven't found a property with a cap rate that I'm comfortable with - the prices of rental properties in Toronto are pretty astronomical in my opinion as compared to the rental rates. It certainly seems like a renter's market and that's bad news for landlords. If I ever did acquire rental property within a corporate structure, I couldn't imagine selling it unless some developer offered me enough cash to make it worth my while and in that scenario I'd be laughing all the way to the bank so I wouldn't be as concerned about whether it is classified as income or capital gains... If the sale is at the beginning of your fiscal year, then you have an entire year to find business expenses to write off against it - I'm sure I can find plenty if I put my mind to it! Finally, the difference between a repair and a renovation is often very vague. If the pipes burst and you replace it, it is a repair not a renovation, but if you upgrade it after it burst, then it's kind of renovation done but written off as an expense for repair. That is only one example, but in my experience most landlords will wait until something is totally gone before replacing it - my father was a prime example of that for me when he owned rental property. Where I work, we refer to that as "run-to-failure". The big difference is when using the same example, if the pipes burst in a house that you own and don't rent as a business, then you can't write off any of the cost of fixing it - it is 100% out-of-pocket expenses for you. Now that I just talked about that for an example in this blog, I hope my pipes don't burst!!! Especially since the place I currently own isn't a rental property in a corporate structure... While I agree that it is infinitely better to be making enough rental income from a property to offset all of your expenses and depreciation, my point is that a breakeven proposition isn’t bad from a taxation point of view. In that situation, you can live in one unit of a multi-unit residential building which you own in a tax efficient manner, as compared to owning a home outright and paying for all of the upkeep out of your earned income.

That said, I haven’t made the plunge into the rental property market because I haven’t found a property with a cap rate that I’m comfortable with – the prices of rental properties in Toronto are pretty astronomical in my opinion as compared to the rental rates. It certainly seems like a renter’s market and that’s bad news for landlords. If I ever did acquire rental property within a corporate structure, I couldn’t imagine selling it unless some developer offered me enough cash to make it worth my while and in that scenario I’d be laughing all the way to the bank so I wouldn’t be as concerned about whether it is classified as income or capital gains… If the sale is at the beginning of your fiscal year, then you have an entire year to find business expenses to write off against it – I’m sure I can find plenty if I put my mind to it!

Finally, the difference between a repair and a renovation is often very vague. If the pipes burst and you replace it, it is a repair not a renovation, but if you upgrade it after it burst, then it’s kind of renovation done but written off as an expense for repair. That is only one example, but in my experience most landlords will wait until something is totally gone before replacing it – my father was a prime example of that for me when he owned rental property. Where I work, we refer to that as “run-to-failure”. The big difference is when using the same example, if the pipes burst in a house that you own and don’t rent as a business, then you can’t write off any of the cost of fixing it – it is 100% out-of-pocket expenses for you.

Now that I just talked about that for an example in this blog, I hope my pipes don’t burst!!! Especially since the place I currently own isn’t a rental property in a corporate structure…

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