I have debt but I don’t know how to pay it down faster.
I make good money but I don’t know where it all goes.
I want to start building wealth but my mortgage and debt make me feel like I’m drowning.
This is often what we hear. Then…
…We introduce one simple concept:
Cash Flow Banking
This is step 1.
Specifically we take the cash flow banking debt technique and combine it with investing to create a positive circular flow of cash that increases wealth over time.
This helps people pay down their debt faster while building an investment portfolio.
Simply put, it is about using your income to pre-pay your mortgage every time you get paid and then slowly draw it back down as you go about your normal spending.
By combining your checking account with your mortgage you, pre-pay your mortgage ever time you get paid.
This is designed to reduce the interest you pay and therefore paydown the debt faster.
Ask us to see if this simple method is right for you!
That was step 1.
Now imagine using the stagnant equity in your home to build a portfolio of investments and/or real estate.
Further, now use the cash flows from those investments to pay down your mortgage faster.
Now imagine repeating this cycle of having your investments paying down your mortgage so that you can invest more to create more income and then pay down your mortgage faster.
1. Combine your checking account with your mortgage
2. Invest money
3. Use investment cash flows to pay down your mortgage
4. Repeat the cycle
This is often called the Smith Manuever or Tax Deductible Mortgage Plan.
Is this for everyone? NO
If you are not saving every month, even a little bit then this strategy is NOT for you. You must be disciplined enough to not spend the available credit.
If you will sell investments when the markets go down then this is NOT for you. You must remain invested as selling an investment when the value is down locks in that loss and you can end up owing more than you created.
What if my investments go down? Just like most savings plans, you are Dollar Cost Averaging into the markets and when the markets go down you are buying the investments for less than you could have previously bought them for.
Does this strategy work with investment properties? YES. Assuming that you are making the investments under your personal tax structure, we recommend that people take interest only mortgages on their rental properties so that they can take the increased cash flow and use it to pay down their primary residence debt. In most cases, debt on certain investments are tax deductible. Check with an accountant as to your individual circumstance.
WHO IS THIS FOR?
This method of intelligent debt is for someone looking to get ahead, is disciplined enough to not spend more than they make and stay invested throughout different market cycles.
This is intended for someone looking to increase their wealth above the traditional save in RRSP’s and pay down your house.
IS THIS RISKY?
Yes, there is risk in all investment, including cash as inflation is a risk to cash.
Using borrowed money increases the risk of investments as it creates leverage which may amplify the gains or losses. Further if you sell the investment at a loss you will still be liable for repayment of the borrowed money.
Does this sound like an amazing idea or perhaps its left you a little confused?
Answer these few questions and join us for a free 1:1 consultation to see if this strategy is right for you:
Still Not Sure?
If you have debt and own more than 20% of the value of your home then you are eligible to have a conversation about using intelligent debt and cash flow banking.
Don’t delay and contact us right away!
Have you considered changing HOW you live? The bigger house, the maintenance, the stress? Have you considered selling your luxury home and buying a luxury condo? With the proximity to the lifestyle you love and none of the maintenance it can be a beautiful move for...
2020-03-02 Normally I don’t like to talk about the news as I focus on reports and data however there is a lot of reports and data in the news last week. Coronavirus has been all consuming to the markets and the developments have been quick. To me the difference is...
Coronavirus, Canadian delinquencies, CP rail disruptions, Canadian job numbers and the recently proposed changes to the mortgage stress test. This is on the economic backdrop of extremely high consumer debt, high corporate debt on the negative side and low housing...