I borrowed $25,000 from my RRSP to buy a house

I borrowed $25,000 from my RRSP to buy a house

There are generally three ways to deal with paying back the Home Buyer’s Plan.

Last year, I made the decision to use the Home Buyer’s Plan to withdraw money from my Registered Retirement Savings Plan (RRSP) for a down payment on my home in Vancouver. Now comes the difficult task of deciding what strategy to use to repay the money. 

With the Home Buyer’s Plan, you can borrow up to $25,000 from your RRSP without paying tax on the withdrawal. In the second year after the withdrawal, you start paying the money back over 15 years in 15 equal annual sums. 

 I took out the maximum $25,000 and originally planned to pay back the money as soon as possible. But after weighing the pros and cons, I’ve decided to stick with  minimum payments over the 15-year life of the loan.

There are generally three ways to deal with repaying the Home Buyer’s Plan: 

1. Pay the minimum  
The advantage here is that less after tax income goes into the repayment and you can keep contributing new cash each year based on your earnings. The downside is that the longer you take to repay the loan, the slower the RRSP rebuilds and and earns money tax-free.

2. Repay as fast as possible 
Since you're repaying quickly, this gives you a more money to grow in the tax shelter and so over time the compounding power is greater.  As well, if you pay more than the minimum in a given year, future payments will be reduced based on the remaining amount owing and the number of years left on the loan. 

3. Don’t repay the loan 
If you choose not to, or are unable to pay back the minimum required each year, that one-fifteenth payment will be taxed at your marginal rate for that year. 

This could be an option for those who find themselves in a lower tax bracket for any number of reasons, including becoming unemployed, taking maternity leave, or returning to school. The reason being is that people in a lower tax bracket will take less of a hit when the unpaid 1/15 amount is taxed as income. Then, when their income increases, they can start making their annual minimum payments again. 


There is no advantage for me to repay quickly. By repaying the minimum, I’m still receiving the tax benefit that comes with contributing to my RRSP and maintaining a balance that allows me to manage all my financial needs a little better.

What strategy would you use to pay back the Home Buyer’s Plan? 
Contributor/Guest Blogger: Krystal Yee lives in Vancouver and blogs at Give Me Back My Five Bucks and Frugal Wanderer. You can reach her on Twitter (@krystalatwork)

Barrie groups, charities get Ontario Trillium Foundation boost

Community groups and charitable organizations in Barrie are getting a boost after the Ontario Trillium Foundation (OTF) released its list of grant recipients, Tuesday.

The foundation has recognized and awarded 27 organizations in Simcoe-York region for their efforts in addressing local needs within communities.

“Ontario Trillium Foundation’s grants make a sustainable, lasting impact across the province. They help to create economically strong communities by funding projects that boost opportunities for employment and training and improve significantly the quality of life for families and individuals of all ages and abilities,” Ontario Minister of Tourism and Sport Michael Chan said.

The David Busby Street Centre was awarded $112,000 to help support its various outreach services and community-based programs.

The Kempenfelt Pipes and Drums received $23,500 to help purchase instruments and continue to teach young people how to play Scottish music.

Royal Canadian Legion Branch No. 262 in Elmvale was awarded $64,800 to complete renovations on the facility, including replacing an old elevator, repair a leaky roof and to repair electrical wiring so the community may still access the facility.

Springwater Township received $9,400 to help promote local artists and enhance tourism by increasing marketing, advertising, brochures, pamphlets and road signs.

“Volunteers and not-for-profit organizations work hard to meet the changing needs of the population they serve. Thanks to OTF funding, they can strengthen the fabric of their communities and make a much greater impact,” said Savi Singh, chair of the OTF Simcoe-York grant review team.

In addition to community-based grants, the OTF announced 33 provincial grants will be awarded to larger organizations in hopes of helping communities across Ontario.

Source: Barrie Examiner

Should you use RRSPs to go back to school? The Lifelong Learning Plan can help you afford to go back to school to further your education, or to try a completely different career path.

There are times when someone already established in a career decides to go back to school – whether it’s to further their education, or to try a completely different career path.

However, between leaving full-time employment, and saving up the money to go back to school, can be a challenge. This is where the Life Long Learning Plan (LLP) can be useful to those who have money invested in a RRSP account.

The Lifelong Learning Plan is a government program that is very similar to the Home Buyer’s Plan. But instead of taking an interest-free loan from your RRSP to help you pay for your first home, the LLP is used to help you finance your own education, or the education of a spouse or common-law partner.

Under the LLP, you can withdraw $10,000 per calendar year from your RRSP, up to a total limit of $20,000. But unlike the Home Buyer’s Plan (where you can only qualify one time, as a first-time home buyer), with the LLP, you are eligible to participate in the plan again, starting the year after you have repaid your RRSP withdrawals, and the balance you owe is back at zero.

You must meet the following criteria in order to participate in the LLP:

• You must own an RRSP
• You must be a full-time student (or a part-time student, if you meet the disability conditions)
• You must be a resident of Canada
• You must be enrolled in a qualify educational program at a designated educational institution
• You must be done participating in the LLP before the end of the year you reach the age of 71.

It should be noted that you are responsible for making sure that you qualify for the LLP. If a condition is not met while you are participating in the program, you will have to include the RRSP withdrawal as income on your tax return for the year you received the funds. 

Plan rules:

• Starting the fifth year after your first LLP withdrawal, or the second year in which you have not been a full-time student for at least three months, you will need to start repaying the money back into your RRSP.
• You have up to 10 years to repay the full amount, where each year 1/10 of the total amount is due. For example, if you withdrew the entire $20,000, you would have to make payments of $2,000 each year for the next 10 years.
• RRSP contributions made less than 90 days before your withdrawal date cannot be used towards the LLP. This means you wouldn’t be able to make a last-minute contribution into your RRSP in order to take it out again for the LLP.

For more information on eligibility and rules, please visit the Canada Revenue Agency website 

The money you can withdraw from the Lifelong Learning Plan is not exclusive to just tuition and school fees – it can also be used to cover living expenses – which is why the LLP might be a great way to be able to afford to return to school full-time, without having to stress about leaving full-time employment. 

Have you used the Lifelong Learning Plan before? 


Krystal Yee is a marketing and graphic design professional living in Vancouver. She also blogs at Give Me Back My Five Bucks.

It’s Time To Pull The Trigger On Your Exit Strategy – Do You Want To Save A Penny Or Make A Dollar?

Guest blog by Don R Campbell of the Real Estate Investment Network (REIN)

When the time comes to make good on your exit strategy – whether it be your primary residence or an investment property – the question begs: Do I list on my own or hire a professional realtor? Last week we talked about the pros and cons of this critical decision, so let’s do a quick recap:

Pros of listing on your own:
• You will save on the seller side of the real estate commissions (and sometimes the buyer side as well)
• You have the freedom to ask for the price you want

Cons of listing on your own:
• Marketing costs and efforts are entirely in your hands
• Legal and Liability considerations come into play
• You will have to negotiate with the buyer or buyer’s representative directly
• You may still be required to pay the Buyers’ commissions

A sophisticated real estate investor will consider ALL of the above points before making a decision on how they will list their property. If you are comfortable tackling the marketing and negotiating on your own then self-selling may be the right decision for you.

So how does the sophisticated real estate investor sell their property in a timely fashion at a price they’re happy with? You wouldn’t be the first to inquire on this topic and certainly not the last. If you are comfortable with the considerations listed above, here is a strategy that more and more Canadians are employing to get their deals done and cut back on wasted time and lost profits.

Step #1 is to create the most compelling, attractive “For Sale” sign you’ve ever seen and make sure it is highly visible on your front lawn. You will place a few ads in the newspaper, online or elsewhere that showcase the benefits of the property for potential buyers as opposed to highlighting features, which are not as emotionally appealing to the public. “Cozy up next to your wood-burning fire-place” makes it sound like it could be a home rather than just another house and creates an emotional connection for a potential buyer.

Sometimes a neighbor or someone in your community will be interested in the property and your phone will be ringing right away. By starting down this path, you are finding out if there is any “low-hanging fruit” or easy sales in your close network of contacts.

Step #2 is your next bullet in the figurative gun. If the property doesn’t sell within 30 days (or the timeline that you’ve deemed acceptable for your sales plan): This is the time to list the property on a discount MLS site and keep in mind that you’ll continue to act as the chief marketer and negotiator of the property if interested buyers and offers come your way. If another 30 days goes by and you’re still waiting on a sale, do not pass go and collect $200, but instead fast forward to the next step in this plan.

Step #3 is to get a professional realtor on your side. You’ll want them to provide you with a comparative market analysis so you can be sure that your property value and asking price is up to snuff with the Johnson’s house down the street. This is an absolute must: You will also want them to provide you with a complete marketing plan. If the marketing plan sounds like “I’ll list your property on the MLs and work hard for you…” that is not going to cut it as you’ve just done that! You need more than the basics from your professional realtor. Part of the plan has to include managing the MLS listing so that it stays fresh for new buyers to land their eyes on and to ensure it does not get lost in the hundreds of other listings out there.

If you decide to work with a realtor, choosing the right one is absolutely critical to the success of your sale. A choice made out of convenience (a friend, family member or office location that is nearby) isn’t always the right choice. This is one of the biggest financial transactions you will make and having the best person on your side could make the difference in time and/or money. You want someone who has a proven track record and someone you can hold truly accountable, which can be a more delicate situation when working with friends or family.

How do you find the best person for the job? Ask around. Get referrals and stories on the realtors who are in tune with your neighbourhood. If they’ve had success working with someone in your area, chances are they will be able to deliver for you. A geographic specialist is always your best bet and one with many quality referrals (from people you know) is vital.

In every case, you have to be brutally honest with yourself about your ability to maximize the dollars in your pocket – if you can market the pants off your property and you don’t flinch at the negotiating table, going it alone could be the right call. For those who aren’t as comfortable in the driver’s seat, paying a professional a fee to market your property can put the same ‘net’ in your bank account at the end of the day and save much of the hassle of taking numerous telephone calls, showing the property and negotiating the deal.

When all is said and done, your house is only worth the price that you and a willing buyer can agree upon and is often not the number that gets thrown around in discussions around the water cooler. No matter which path you take to get to the sale, make sure you’re comfortable with the process and the expected results. It truly comes down to what ends up in your pocket when the deal is done.

Selling a house: Can you evict a tenant? Guest blog : Mark Weisleder

One common question asked by landlords are the rules that surround the sale of their property and tenants. The main question is “Can I evict the tenant before I sell, so that I can fix it up?” The short answer is no.
If you want to sell a rental property, the first issue is does the tenant have a lease? Let’s say there is a lease and the tenant has eight months remaining. They cannot be evicted before the end of their lease, just because you want to sell. You can sell, but the buyer must agree to let the tenant stay. In addition, if the tenant has the right to renew their lease, then you and any buyer will have to honour that as well.
If the tenant is on a monthly tenancy the only way to evict them is if the buyer is moving into the house on closing. Therefore, you must sign an agreement with a buyer before you can start the eviction process. Then you must give the tenant at least 60 days notice before the end of a month, assuming the tenant pays on the first of the month.

Related: How to avoid renting to a tenant from hell
For example, you sign an agreement with a buyer on June 15. On June 16, the owner can serve the tenant with a 60 day notice to terminate, that cannot take effect before Aug. 31. The closing date in your agreement should be scheduled for Sept. 30 to make sure the tenant has vacated.
If there are concerns the tenant will not leave, a hearing should be scheduled before the landlord and tenant board as soon as possible so that an order for eviction can be obtained, if necessary. Tenants are often suspicious that the buyer will not move in, and will merely find a new tenant who will pay more rent. If a seller or buyer is caught tricking the tenant into leaving early, then the penalty can be as high as $25,000.
There are also rules relating to showings and open houses. A tenant must be given 24 hours written notice before an owner can show the property to a potential buyer. The time period must occur between 8 am to 8 pm. The tenant does not have to leave the home. However, if the tenant agrees to a different time, or a shorter notice period, that is OK. In my opinion, an open house that typically lasts two or more hours would not be permitted unless the tenant agrees to it.

Related: Court denies realtor $11,000 commission
If you want to evict the tenant before you put the house up for sale, the only way is to reach an agreement with the tenant to leave early. You may be able to accomplish this by assisting the tenant in finding another place to live and paying part or all of the moving costs. By doing this, you will have the opportunity to then fix your home up before putting it up for sale, thus potentially attracting more buyers. You will also not have to worry about notices or eviction notices.
In all cases, it is best to inform the tenant in advance of your plans to sell the home. When you work with the tenant, then you should have no problems with showings and then closing your home sale.
Buyers, if you are assuming any tenant and you are thinking of moving in later, make sure you find out all of the details of any lease in advance, as you will have to honour it as well.
When all parties are properly prepared and informed, selling properties with tenants becomes a less stressful process for buyers, sellers and tenants.

Mark Weisleder is a Toronto real estate lawyer.

Why CRA wants $30,000 HST rebates back - Guest blog: Mark Weisleder

Some investors who bought new homes or condos in the past few years planning to flip them in a hot Toronto market are facing HST bills of up to $30,000.
That’s because they didn’t read the fine print on the purchase agreement and they now have a problem that relates to the HST rebate that is available to buyers of new homes under certain conditions.
When you buy a new home or condominium, there are rebates for the federal 5 per cent portion of the HST and in Ontario, the provincial 8 per cent portion.
You can qualify for a rebate of 36 per cent of the federal portion of the HST if the home costs $350,000 or less. If the home costs between $350,000 and $450,000 there is a sliding scale. At $450,000 the rebate ends. For the provincial portion, everyone can apply for up to 75 per cent of the HST paid, to a maximum of $24,000. You can also apply for the rebates if you build your own home as well.
It can add up to a sizeable sum. If a new home costs $300,000 and there was no rebate, the HST would be 13 per cent of the price or $39,000. With the rebates, you’d pay $15,600 for a saving of $23,400
The catch is that in order to qualify, the new home or condo has to be your primary residence, or you must prove that you have rented it out for at least a year. If you move in on closing, the builder often builds the rebate into the sale price and then applies to the Canada Revenue Agency for the refund on your behalf. Before the builder will do that, you have to sign a document saying that you will move in. If the builder suspects you will not be moving in, they have the right to ask you to pay the rebate on closing.
If you bought the house as an investment and plan to rent it out, you can apply for the rebate immediately as well, but will have to send proof that you closed your deal and a copy of the lease agreement. If you sell the investment property within a year, you have to pay the tax.

Many investors who bought new homes or condominiums several years ago from plans are trying to take advantage of the hot real estate market by selling without moving in. However, these same investors signed papers with the builder promising that they would move in, so the builder applied for HST rebates on their behalf. Now CRA wants the HST rebate back with interest. That can be as much as $30,000.
I’ve heard plenty of stories from realtors about investor clients receiving demand letters from CRA about the HST.
The lesson is that buyers must understand their obligations if they intend to apply for any HST rebate on a new home or condominium. Either you must move into the home as your primary residence on closing, in which event you can immediately apply for the full rebate, or you must rent it out for at least one year and then apply for the rebate. If you are intending to immediately re-sell your home without moving in, then just pay the full HST amount when you buy the home from the builder, and don’t apply for any rebate.

This article has been changed from an earlier version to clarify the HST rules regarding investment properties.
Mark Weisleder is a real estate lawyer.

The Three Pillars of Joint Ventures: A Pinnacle of Real Estate Strength -guest post Don R. Campbell

So you’ve made it your mission to attract money for your real estate investments through joint ventures, and you have also likely thought about how you are going to do it efficiently and effectively. But what is the best way to attract partners with the investment capital needed to meet your goals and theirs? By using the three pillars of real estate Joint Ventures to showcase your expertise that will ensure their money grows while in your capable hands.

Give your partners the peace of mind they deserve by focusing carefully on building a system that you can repeat over and over in all of the investment opportunities you engage in. Build a relationship first and a partnership second – both parties stand to gain from this critical piece of the puzzle. Following through on your plan and your intentions is the best way to cultivate the aforementioned relationships – you show respect for your partner by respecting your own promises and you have the opportunity to earn a partner for many years and many deals.

An impenetrable real estate business starts with a sturdy foundation, solid walls and a roof to keep out the inclement market ‘weather’. If you can create this synergy, there is no limit to what you can achieve through real estate investing. Let’s take a closer look at the three pillars of Joint Ventures.

Systems
Systems take the guesswork out of the day-to-day operation of running a real estate investment business. Score cards and checklists help you find and assess potential properties. They also speed up the process whereby you discard properties that do not fit your system and help you identify joint venture money worth pursuing (or not worth pursuing).

Bookkeeping systems ensure you know where every last receipt is and where every piece of paperwork is filed. Why rely on the memory of a hard-working investor who is juggling multiple properties when you can put filing systems in place that will never let you down?

The same holds true for every other aspect of your business. Systems help you find and keep quality tenants. They help you track which suite’s bathroom needs a new washer in the faucet and which one needs new fluorescent bulbs. They let you monitor an investment’s financial performance and guide decisions about what you need to do to keep your business on track. All of this information – and knowing where to find it and what it means – will be critical to making sure your JV partners understand how real estate investing works. It will also build JV partner confidence in your management decisions because it shows that you’re taking the necessary steps to keep a shared investment on track.

Relationships
To the sophisticated investor, positive relationships are the people side of systems. You fine-tune systems that promote business success and you nurture the relationships that grow your business. You also wean yourself away from the relationships that cost your business in terms of time, frustration and money.

When you are investing with other people’s money, these relationships are even more important. Believe it or not, even the newest real estate investor comes into the business already knowing most of the people he or she will need to raise money for his real estate deals. The key to a successful business is harnessing these relationships and nurturing them in order to secure the capital needed for that next real estate deal.

Follow-Through
Follow-through implies doing what it takes to make sure every one of your real estate deals goes through and is successfully managed. You can’t reach your goals without taking action, and if you need other people’s money to grow your portfolio then you also need to do what it takes to find that money.

Think about it: You can’t buy a property without securing a mortgage and signing the legal documents. You can’t find quality tenants without securing a quality property and you can’t attract other people to your deals without following up on conversations with those who are interested in expanding their personal long-term wealth. Without follow-through, that money will find a home somewhere else!

This does not mean relentlessly pursuing every property that meets what your system demands or every JV dollar that might make your next deal happen – due diligence still matters. You must close the deals you can and move on from the deals you can’t. You must open discussions about JV deals, but only commit to those that fit your systems and your long-term goals.

Once you are clear about the systems of your business, the relationships that surround you and the follow-through needed to close the loop, you are ready to become a money magnet. Build an impenetrable real estate business ‘fortress’ out of the Three Pillars of Joint Ventures – your financial future rests in your hands alone.

If you’re interested in learning how to raise money for your personal real estate portfolio, join the REIN team on June 16th for the inaugural Raising Capital Training Event being held at the International Centre in Toronto. You can contact me, Shannon Murree for your VIP link

Four common types of RRSPs

Four common types of RRSPs

With any of these plans, you have the option of paying for the help of a professional adviser. An adviser can help guide you to choose investments that are right for you.

1. A basic RRSP
   
   • For people who want a simple account in their own name
   • Available at a bank or other financial institution
   • Offers a smaller range of investment choices, with some advice from the staff
   • You may or may not pay fees for the plan; investment costs are extra and may include commissions and other charges.
2. A self-directed RRSP
   
   • For people who feel they know enough to choose their own investments
   • Available at a brokerage firm
   • Offers a wider range of investment choices, without advice
   • You pay the costs of the plan and investment costs.
   • Learn more about self-directed RRSPs.
3. A group RRSP at work
   
   • For people who have this option at their workplace
   • Each member of the group has their own RRSP, but they are all looked after by the same life insurance company, bank or mutual fund company
   • May offer a range of investment choices
   • The money you put into the plan is often taken out of your pay; your employer may add to your savings
   • Your employer pays the costs of the plan; you pay investment costs.
   
   Note that if your employer does pay into your RRSP account, there may be policies that make it hard for you to take the money out before you retire. Before deciding to join a Group RRSP, find out how it works, what you can invest in, and what fees you may have to pay. Also, find out how much your employer will put in, and ask about any rules for when and how you can get your money from the plan.
   
   Tip: When you get a new job, it’s a good idea to check your employee benefits and see if you can join a group RRSP plan.
4. Spousal or partner RRSP
   
   • For people who want to contribute money to their spouse or partner’s RRSP to balance their incomes and reduce taxes at retirement
   • The person who contributes gets the tax break
   • To qualify you must have lived together as a couple for at least 12 months, have a child together by birth or adoption, or share custody and support of your partner’s children from a previous  relationship.

Note that the money you contribute to a spousal RRSP belongs to your spouse or partner. If a couple breaks up, family law generally requires spouses to divide assets equally. This is not the case for common-law partners. You might consider drafting a joint agreement to cover this.

Tip: If for some reason you and your spouse need some of your RRSP money before you retire, you may have to pay tax when you take the money out. Having a spousal RRSP gives you the option of taking the money from the RRSP that is in the name of the lower-earning spouse. That way, you will have a lower tax bill.

Remember: A basic RRSP is not the only choice.
Make sure you choose the kind of plan that fits your personal situation and the way you like to invest your savings.