Do You Really Have No Money To Invest?

Most people go through life simply focusing on all the bills they have to pay and at the end, mistakenly come to the conclusion that they have nothing left to use for investing.

In most cases, this simply isn’t true.  There are many, many ways to come up with money to invest.  We will go into this in further detail shortly.

The question you must ask yourself first though is if you did have the money, what would you do with it?  If, at this point, you’re already thinking about what depreciating asset you could buy, such as a new car or big screen TV, then this article is not for you as it may simply put you further in dept.  If you have a desire for something better for the long run, feel free to read on.

Did You Know That There Is Likely Money Sitting Right In Your Home? 

Did you know Banks will lend you up to 75% of the loan-to-value on your home in the form of a Home Equity Line of Credit (HELOC)?  This is considered Secured Lending.

For example, if your home (which has likely appreciated over the past few years as you’ve paid down the mortgage) is appraised by the banks at $200,000, you would be eligible for up to $150,000 on a HELOC, being 200,000 x 75%.  So, if you currently only owe $120,000 on your mortgage, the banks would give you a $30,000 HELOC to invest with.

The Best part, if you’re following some of the responsible investor principles outlined in the column “How To Become A Real Estate Investor” on www.advantageinvestment.com , is the HELOC is set up as Interest Only payments (typically prime +1%) and that interest is tax deductable against your personal income.  Also, interest only begins when you transfer the money out of the HELOC account and you can transfer in and out a freely as you wish.  Now you just need to find an investment that pays you a consistently better Return on Investment (ROI) than your interest payments are. (Can you say, Real Estate?)

Did You Know That There Is Likely Money Sitting Right In Your Home - Part 2?

Did you know Banks will lend you up to 80% of the loan-to-value on your home on a new or early renewed mortgage?  This is also secured lending.  This may be a more attractive option if “interest only” on the HELOC scares you a bit.  Payment for this would be in the form of a deposit right into your chequing or savings account.

Using the same example as above on the $200,000 home, refinancing would make you eligible for a new mortgage up to $160,000, being 200,000 x 80%.  So, if you currently only owe $120,000 on your mortgage, the banks would give you a cheque for $40,000 you could use towards an investment.

Benefits of this option, in comparison to HELOC, is that it allows you to borrow 5% more, restructure some of your existing debt with higher interest rates, and receive a more structured payment plan than interest only.  The only negatives are that interest begins immediately upon transaction and, depending on the structure of the mortgage; there might be a potentially higher interest rate.

Now again, all you need to do is find an investment that pays you a higher ROI than your interest rate.  Yes, we’d be more than willing to help you with that.

Ever Thought To Ask The Bank If They’ll Simply Give You An Unsecured Line of Credit (Unsecured LOC)? 

Most of the big banks (BMO, TD, RBC, etc.) will give you an Unsecured LOC if you have a history of being responsible with your money.  Although the rules pertaining to this type of unsecured lending have tightened, this is still a viable option.

Want an example of how you might know if you’d be eligible?  Let’s say your credit card has a credit limit of $20,000, which is typically much higher than a person needs month-to-month, the banks will usually be willing to reduce your card limit to say $10,000 and provide you with an Unsecured LOC for the other $10,000 so you can actually use it.  Borrowing rates are typically prime +1 on this option, same as the Secured LOC.

Can’t really hurt to ask can it, the worst they could say is no.  Remember, the banks are in the business to borrow so if the first one says no, simply ask another until you find one that will.

Ever Thought About Partnering Up With Someone? 

You’d be surprised at how many like-minded people there are out there that would be interested in partnering on a real estate project.  Would it really be so bad to split the profits on a real estate project if someone else put up the down payment on the property and you facilitated the financing and all the project work?  Making a profit by putting no money of your own in sure does sounds like a pretty good deal to me.

Back to the $200,000 home; see if someone you know has $50,000 (25% down.  Note: there are ways to put only 5% and 10% down instead, ask us how) to put down as the down payment.  They can use any, or a combination, of the options outlined above to do so.  You would then put them on title as 50% owner, making it a Secured investment opportunity (exactly as banks do when providing a mortgage) and you would establish the financing, either conventionally through a bank or privately.  If the $50,000 is too rich for one person’s blood, find two people that would provide $25,000 each and split title 3 ways at 33.3% each.

All that is required now is finding an attractive real estate opportunity.  Partnering with an established real estate agent, preferably one that’s also an active real estate investor himself, is the best way go as more than 50% of the really good deals never even hit the market.

Has Asking Someone To Simply Lend It To You In Return For Providing Them With A Specific ROI Ever Crossed Your Mind? 

If not, why not?  With Mutual Funds in the tank and GIC’s only provide roughly a 1% return (nowhere near inflation) why wouldn’t someone consider lending you some money to invest in real estate if you’re providing them with a favorable return on that money?

Let’s say you needed $25,000 for the down payment and close on a piece of real estate.  You could ask someone to provide you with the $25,000 and in return you provide them with a legally binding promissory note stating you will give them back $28,000 ($25,000 + 12%) at the end of 12 months.  That would provide them with their money back plus $3000 in silent income for that year (which is $250 per month) and you would have the property which you could flip or rent for cash flow.

Did You Know You Can Self-Direct Your RRSP’s Into A Real Estate Investment In The Form Of A 2nd Mortgage? 

Yes it’s true.  Why not be the bank, they seem to do ok financially.

If you, or you and a partner, were able to come up with the down payment to buy a real estate investment property, another Investor can provide you money from their RRSPs as a Secured investment against the home in the form of a Second Mortgage.  This money could then be used to do upgrades on that home or, even more creatively, to use as a down payment on another investment property.

In Summary:  there is no shortage of creative ways to come up with money, you just need to take action and get in the game. 

Kevin Ziolkoski

Professional Investor