Tax Efficient Mortgages for Real Estate Investors
Presented by:Jason Henneberry
Grow | Protect | Optimize
Background
Personal RE Investment Portfolio
Mortgage Planning for > 10 years
Focus on Advanced Mortgage Strategies
2008 VP Sales Tax Deductible Mortgage Plan
2011 Launched MORTGAGEPAL.CAJason Henneberry
Founder, MortgagePal
Overview
Optimize Rental Portfolio Cash Flows
Generate Tax Refunds via Debt Conversion
Use Refunds to Pay off Mortgage Faster
Reduce Amortization & Save Interest Costs
Increase Rate of Return of RE Portfolio
WITHOUT BEING OUT OF POCKET $
Who is it for?
Homeowner (with a mortgage)
+Real Estate Investor (eligible expenses)
Optimize for Greater Efficiency
SAVE TENS OF THOUSANDS OF DOLLARS
Convert Primary Mortgage to a deductible Investment LoanCanada Revenue Agency’s “Cash Damming” Guidelines
Greater ROI
IncreaseReturn on Investment
Without Increasing Investment Risk
Higher Rate of Return = Greater Investment Risk
Income Sources Employment Income Self Employed Income Real Estate Portfolio
Income
Principal Residence(Mortgage Payments)
RE Portfolio Expenses Mortgage Principal & Interest Property Tax & Insurance Strata & Property Mgnt Fees Maintenance & Upgrades
$Mortgage Payts
$Portfolio Expenses
$Debt Reduction $RE Portfolio Expenses
Debt Conversion
How it Works
CRA RENTAL CASH DAMMING
Principal Residence
Bad DebtMortgage
Good DebtInvest Loc
STEP II: MORTGAGE RESTRUCTUREProperly structured “multi-component” mortgageTrack tax deductible interest accurately
STEP III: DEBT CONVERSIONImplement CRA Cash Damming techniqueAccelerated debt conversion
Implementation
STEP I: PORTFOLIO REVIEW / ANALYSISIdentify eligible rental expenses &Evaluate strategy financial benefits
• $350K Mortgage• 25 Year Amortization• $1937 Monthly Payment at 4.5%• 39% Marginal Tax Bracket
Case Study
Principal Residence
• SIR 6 Unit Strategy• Annual Expenses: $25,000• Annual P&I Payts: $43,000• Total Eligible Expenses:
$68,000
Rental Portfolio
Free Tax Refunds (used to pay down mortgage): $59,571Interest Savings (Primary Residence Mortgage): $41,199Total Savings (Tax Refunds + Interest): $100,770
Pre Tax Income (39% Marginal Tax Rate): $165,196
Debt Conversion Primary Residence = 4.2 years
Questions
Strategy II
Fixed Rate Variable Rate
Payment Shock Protection
Are Your Ready?
What Are The Experts Saying?
“What if your mortgage rate went up by 2 points?” – Garry Marr, Financial Post
“Interest rates have nowhere to go but up”- Jim Flaherty, Canada Finance Minister
Advantages
The Benefits of Payment Shock Protection
Prepare for Rising Rates / Inflation
Protect Investment Cash Flows
Pay Off Your Mortgage Faster
Increase Return on Investment
Case Study
Today (2013) At Maturity (2018)
Outstanding Balance $350,000 $299,103
Rate 2.99% 5.47%
Payment (Monthly) $1,654.56 $2,042.10
$350,000 Mortgage DebtYour Payment
Shock at Maturity would be: $387.54
Forecasting Payment Shock at Renewal
Case Study
Forecasting Payment Shock at Renewal
Amortization Reduction Savings Future Payments Pre Tax Income 14 Payments $19,422 $31,839
Benefits of Payment Shock Protection
Gradually Increase Payments
Minimize Payment Shock
Pay Off Additional Principal
Save Thousands in Interest
Regular Payment Increase
Payment Shock Protection
Questions
