The banks know how to make money. Even in the low interest rate environment we’re enjoying at the moment, banks are still making money! Wouldn’t it be nice to make money like a bank?
If you have money that’s sitting in an under performing RRSP this could be a great solution for you. If you have more than $50,000 sitting there, this is a really good opportunity for you.
Mutual funds and stocks are not the only investments that are RRSP eligible.
A mortgage can be held in a self-directed RRSP (or RESP, LIRA, or RRIF) account. And, there are many real estate investors that struggle to access the capital from the banks because they don’t fit the banks really strict lending criteria, or they haven’t matched their investment strategy to their financing well, and now they need other options. So, there are plenty of potential investors that would be happy to make use of your RRSP funds AND give you a much better return than you’re making right now, backed by a cashflowing asset.
This is one of the largest untapped sources of almost guaranteed returns where you can make 5, 7, 10 or even 12% on your money, tax free, on cash you put in a self-directed RRSP.
And, unlike when your stock drops or your mutual funds do poorly, you have recourse if your borrower stops making you payments.
When holding a debt obligation in your RRSP; you have a lot more control over the risk, you have a say in the return you get, and you actually have recourse if you aren’t making the return you were promised.
There are a few rules around using RRSP funds that you should be aware of, but for now I thought I would cover the most important steps to follow to lend out your RRSP funds to a real estate investor:
1. Find a Borrower
The easiest place to find someone looking to borrow RRSP funds for an investment property is to head on out to a local real estate investors meeting. At the meeting if there is an opportunity to stand up and introduce yourself, do that and let folks know that you’re an RRSP lender looking for borrower(s).
2. Choose a Trustee like Olympia Trust. There are other trustee’s but that’s the one we’ve worked with and they are excellent.
3. Open a Self-Directed RSP Account: Can be RRSP, RESP, RRIF, LIRA, TFSA
You aren’t cashing out the funds you currently hold in that account, you are simply transferring it to you a self directed fund.
4. Fund the account with the amount you want to have in the self directed fund.
5. Complete the Due Diligence. There is a lot to cover in this but basically you want to do some research on the person who will be borrowing from you. Personally I would want to see a credit report for the borrower, a recent property appraisal and I would go and view the property. If I didn’t know the market area I would want some research and information on the market area to understand it’s economics (population growth, employment situation, vacancy rates, housing market condition).
6. Complete the Paperwork. This step isn’t as bad as it seems. The borrower, a lawyer and your trustee should be able to walk you through this.
7. Watch your wealth and retirement funds grow tax free until you need to use them.
Again, there is a lot more to RRSP lending than this. Your trustee will walk you through the steps.
The hardest part is going to be when you go to your current financial adviser and let them know you want to move your money into a self-directed account. You might find that there is some resistance to your move to self directed because commission advisers will no longer make money off your investments if you’re managing them in the self-directed account.
For now, I just wanted you to know it’s an option. It’s a heck of a lot better return than a GIC, it is backed by a cashflowing asset that you have recourse on, and once your money is in your self directed account, it’s actually fairly straightforward way to utilize those RRSP funds effectively.
If you are thinking of investing your RRSPs in real estate you may also like these articles:
- How to Use RRSP Mortgages to Finance Your Real Estate Investments
- 5 Ways to Finance Your Real Estate Deals
- How to Double Your Money with Real Estate