Investment discussion
03-21-2018, 12:27 PM
#1
Rennlist Member
Thread Starter
Investment discussion
Lots of savvy folks here, interested in hearing your ideas and counterpoints.
How many of you use your home equity to borrow (tax deductible) for investments? I don't mean the occasional use of a HELOC, more of a deliberate and organized leverage play vs. owning a home 100% debt-free.
Why or why not? And what types of investments do you believe have a worthwhile spread at very low risk - if such a thing even exists.
Always interested to learn from others.
Cheers
Matt
How many of you use your home equity to borrow (tax deductible) for investments? I don't mean the occasional use of a HELOC, more of a deliberate and organized leverage play vs. owning a home 100% debt-free.
Why or why not? And what types of investments do you believe have a worthwhile spread at very low risk - if such a thing even exists.
Always interested to learn from others.
Cheers
Matt
03-21-2018, 06:42 PM
#2
Rennlist Member
Lending out for mortgage at 8-10% while paying around 3.5 on heloc makes dollars and sense to me. 70% LTV guaranteed by good individual reduces the risk to very low. Housing market could crash and have to go after home owner.
pm me if you are interested in doing same.
pm me if you are interested in doing same.
03-21-2018, 06:49 PM
#3
03-21-2018, 11:27 PM
#4
Rennlist Member
Makes good sense, if you buy good quality stocks and investments. I do mortgages and 8-9% is what I have consistantly done.( its a difficult concept to understand for most but it really makes sense if you look at it for what it is,). Toronto market is more volatile so Im not sure if I would want to be there with interest rates only heading up and having been so low for so long. That being said if the market tanks your value goes down where as the house price has to drop 20-30% depending on exposure before you start losing any money. That cannot be said about the market. But yes 20 years ago I took out a 60k heloc and now its over 8x with conservative financial blue chips mainly. Even getting a 30k sting by nortel. I only look at it occasionally as I am in for the long term and look at a correction as a sale and reinvest profite when it happens. The blip in january had no reason to occur other than some greedy profit taking......I bought heavily when that happend with my earnings. Dont sink it all in at once 25% in 4x over a year or 2 is a good strategy to start with little risk. I always have cash a cash reserve for those sale days. Just my .02
03-22-2018, 09:57 AM
#5
I had been using that strategy (along with the Smith Manoeuvre) for almost a decade but I pulled my cash back out of the market last year. Overall I don't think it was really worth the risk.
The obvious challenge is making enough money on the stock market to cover the interest. This was pretty easy for the past few years since interest rates were extremely low and the returns have been relatively high, but because the net gain is low all it takes is one or two years with a negative return to erase many years of gains. On the bright side you can deduct the interest on your federal taxes which helps.
There is a good forum called "Canadian Money Forum" where this has been discussed in the past. It might be worth posting the question there.
My only tip is that if you are planning on deducting the interest, try to make the paper trail as clean as possible. For example use a separate investment account that only holds the stocks or ETFs that were purchased with the borrowed money and ideally use a separate loan account for the mortgage. That makes it much simpler to explain if you ever get questioned by the CRA.
The obvious challenge is making enough money on the stock market to cover the interest. This was pretty easy for the past few years since interest rates were extremely low and the returns have been relatively high, but because the net gain is low all it takes is one or two years with a negative return to erase many years of gains. On the bright side you can deduct the interest on your federal taxes which helps.
There is a good forum called "Canadian Money Forum" where this has been discussed in the past. It might be worth posting the question there.
My only tip is that if you are planning on deducting the interest, try to make the paper trail as clean as possible. For example use a separate investment account that only holds the stocks or ETFs that were purchased with the borrowed money and ideally use a separate loan account for the mortgage. That makes it much simpler to explain if you ever get questioned by the CRA.
03-22-2018, 05:23 PM
#6
Lots of securities on sale today both here and south of the border.
I suspect this sale could last a tad longer given the time of year and ongoing circus down south.
Focus on after tax returns as well to make it worth the risk.
I suspect this sale could last a tad longer given the time of year and ongoing circus down south.
Focus on after tax returns as well to make it worth the risk.
03-22-2018, 10:22 PM
#7
Race Car
Markets balance risk and returns. Most don't perceive/understand risks but basically the more ya make the more ya risk. With interest rates on the rise this is a particularly dangerous time. Find a qualified (MBA plus years of experience) fee based investment advisor and ignore anyone who makes commission. Good luck.
Last edited by ronnie993tt; 03-23-2018 at 04:49 PM.
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03-23-2018, 05:53 AM
#8
Rennlist Member
Markets balance risk and returns. Most don't perceive/understand risks but basically the more ya make the more ya risk. With interest rates on the rise this is a particularly dangerous time. Find a qualified (MBA plus years of experience) commission based investment advisor and ignore anyone who makes commission. Good luck.
An exception would be scenarios where a person wants to essentially leverage beyond 100% equities—perhaps appropriate for someone in their 20s, or who has a DB pension that will cover all expenses and is making the choice to attempt to maximize additional funds, at the risk of ending up with less. In those cases, since no risk-free assets would be held, it may make sense to keep a mortgage in order to increase holding in equities.
03-23-2018, 10:18 AM
#10
Race Car
I feel that number 1 is paying off your own debt.
After doing that, why would you borrow against your house on anything that had risk?
You know what they say about the quickest way to double your money ....
After doing that, why would you borrow against your house on anything that had risk?
You know what they say about the quickest way to double your money ....
03-23-2018, 12:59 PM
#11
Nordschleife Master
A national carbon tax will be an insane drag on the economy and make us even less competitive. Fortunately, our interest rates will likely remain quite low giving folks some space to reduce debt. Our dollar is heading down compared to the US$. We just paid off all our US$ debt.
03-23-2018, 04:00 PM
#12
03-23-2018, 04:02 PM
#13
03-23-2018, 04:30 PM
#14
Always an interesting topic....
As I have explained to my financial advisor, if I make an extra $50k on investments this year, my life will be unchanged. I wouldn't even think about it. If I lost $1k, I would be really upset. This is my issue and I am very risk averse.
That being said, by age 36, I had my Toronto home and Kawartha 90 minutes from 401/404 cottage paid off. I am a dink. Nonetheless, wife and I worked really hard.
I think the key to financial success is quite simple. Do not finance depreciating assets. Corollary is to pay your debt as soon as possible. Pay cash for everything. I have never financed a car, a boat or any of my toys.
My first world problem is promised myself a 911.....and there is no inventory! (my own fault, too picky).
As I have explained to my financial advisor, if I make an extra $50k on investments this year, my life will be unchanged. I wouldn't even think about it. If I lost $1k, I would be really upset. This is my issue and I am very risk averse.
That being said, by age 36, I had my Toronto home and Kawartha 90 minutes from 401/404 cottage paid off. I am a dink. Nonetheless, wife and I worked really hard.
I think the key to financial success is quite simple. Do not finance depreciating assets. Corollary is to pay your debt as soon as possible. Pay cash for everything. I have never financed a car, a boat or any of my toys.
My first world problem is promised myself a 911.....and there is no inventory! (my own fault, too picky).