RRSPs come front and centre for Investors

“Many real estate investors are unaware that (individuals) can use RRSPs or any other registered funds in debt-related vehicles, such as mortgages,” said Marcel Greaux, founder of the newly minted Toronto Real Estate Club and a mortgage agent specializing in private money placement using cash, RRSPs and TFSAs, etc.

“For the real estate investor looking to use private money, there is more than enough money available to do deals with a little creativity.”

That creativity may be increasingly called for as commercial banks such as CIBC use year-end reports to signal their move away from this year’s aggressive pursuit of mortgage deals. It means that investor access to deep discounting, especially on the variable rate side has come to an end.

Even experienced investors are looking to private money to meet short-term financing requirements, as a way of diversifying their funding streams.

Connecting with individuals looking to lend is increasingly attractive, given the growth in their numbers.

“Attracting RRSP-related funds for your second mortgages are great way to access untapped money,” said Greaux. “Everyone is chasing cash.

“Furthermore, it’s a lot easier value proposition to the lender, because the alternative vehicles for an RRSP holder typically provide inconsistent and poor returns, especially after management fees and are subject to market variables beyond their control.”

It’s important to understand how those funds can be accessed yet retain the protection of registered plans, he said.

While RRSP holders cannot access the funds within a registered account to use today, a creative real estate investor is often able to offer a slightly higher rate for annual or balloon term payments. This protects the investor’s monthly cashflow while offering the RRSP mortgage investor a higher rate of return than they would have received being paid monthly interest.

“For example if a lender on a particular deal is looking for 10 per cent interest paid monthly,” said Greaux, “a creative investor might pay 12 per cent annual payment or 13 per cent balloon payment at the end of the term (subject to deal conditions).”

Every deal is nonetheless different, he said, but, generally, using RRSPs for mortgages – whether first, second or third --  can present a win-win for both the individual lender and the borrower.

It’s a little known strategy for the borrower to access a lot of new or untapped money for their real estate deals,” said Greaux, “For the lender, it’s a way to make much higher, consistent returns in their register account with the security of real estate.”

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