Did you know that in today’s uncertain economy there's a safe, solid way to protect your RRSPs?
With a mortgage-based security, you can place your money into tangible assets with a solid record of return: Property. Don't let the mortgage mess south of our border scare you. Canada’s real estate market is much more stable than that of our southern neighbour. In fact, one statistic states that every Canadian could own one or more of the houses in the United States currently in foreclosure.
But, aren't values are falling across the country? Yes... to some degree. However, investors across Canada are finding very good deals in today’s economy. They're buying properties with positive cash flows. When an investor has positive cash flow and he/she is holding for the long term, it doesn't matter if the value of a given property drops slightly in the short term.
SO, WHAT IS A MORTGAGE-BACKED RRSP?
To use RRSPs for mortgages, the process is really quite simple. First, there are four team members involved in mortgage backed RRSPs:
1. The Real Estate Investor/Entrepreneur
2. RRSP Planholder Investor/Lender
3. Institutional Trustee (bank or trust company)
4. The real estate lawyer
With those team members established, the process is as follows:
1. Open a self-directed RRSP account
2. Contribute funds to that account, either new or transferred money
3. Prepare instructions to your Institutional Trustee to place mortgage
4. Transfer the funds to the lawyer for mortgage registration
That is it! Note that you want to work with lawyers and trustees who know and understand the process, who can give you quality advice. (I wouldn't suggest just asking your lawyer brother, unless he specializes in this type of law!)
WHAT ARE THE ADVANTAGES OF A MORTGAGE-BACKED RRSP?
* Solid, safe, consistent, and predictable rate of return
* Low set up costs
* No management fees (unlike mutual funds)
* You have control of the plan, and can set up short term or long term investments
* The investment is in solid and tangible physical assets… not ideas
* The Trustee who holds and administers the plan for you acts on your behalf and your direction
* You see the projected income and expenses, and appraisal prior to making your decisions
* The property is insured with an Insured Interest
TWO SIMPLE RULES TO FOLLOW
Mortgage backed RRSP securities are simple to use and easy to understand. Here are the basic rules:
1. The transaction must be with someone at arm’s length to you (cannot be related by blood, marriage, or adoption)
2. The mortgages must be placed on real property (residential or commercial) in Canada and registered in the local “Land Titles
Office”. Raw land does not qualify.
WHO CAN CONTRIBUTE?
There are three categories of Canadians who can participate in an RRSP mortgage plan.
1. Those who are currently RRSP contributors
2. Those who are new RRSP account owners
3. Those who have unused RRSP contribution room
While we can own mortgages secured by RRSPs, we cannot own real estate directly in our RRSPs.
WHO ACTS AS THE TRUSTEE?
At the time of this writing, there are two banks or trust companies who will act as Trustees under this program: Canadian Western Bank, through its trust subsidiary Canadian Western Trust, and Laurentian Bank, through its trust company, B2B trust. There are rumours that RBC has gotten into the program, as well.
This is just a basic outline of how RRSP mortgages work. If you would like more information, feel free to contact me.
