Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
I want to start pitching the idea to some family and friends to lend money to me at x%, secured by properties that I am buying under value and instantly investing money in to improve.
Trying to search the internet for TFSA mortgages brings up a thousand blogs about whether you should invest in your TFSA or pay your mortgage, so I can't find any information for what I'm after.
The question is, what are the mechanics of a lender lending this money to me? Do they need a financial institution to register the TFSA? Are they bound by the same mortgage regulations as if it were an RRSP (forced CMHC on non-arms-length and max 80%LTV on arms length)?
I expect that I'll be paying one of our lawyers to draft the mortgage doc according to our terms, establish the lein, etc.
Can someone either feed me a document explaining all of this, or write it down in step-by-step instructions for who needs to get what done by whom?
Keywords to set off all the Canuck alerts: Canada Ontario Toronto Vancouver RRSP
Yes, there are only four (CWT, Olympia, Laurentian B2B, Eastern Trust) remaining providers of trustee services for registered accounts which allow arm's-length mortgages to be held/serviced within the account (of which I am aware). Registered accounts include {self-directed} RSPs, RIF/LIF, TFSAs.
Olympia or CWT would not be originating the loans (@Stanley Kong), they would merely be the trustee (of the registered account) and servicer (of the note). It is up to the lender (the registered account, or, in reality, its beneficiary) to do their own diligence, write the note and subscribe to the mortgage. Olympia is saying they'll allow the originator of the loan complete autonomy (enough rope to hang themselves) while CWT is offering a little less rope.
While a non-arm's length mortgage (i.e. if you lend to yourself or to (or for the benefit of) an immediate family member) must be insured (via CMHC, Genworth or Canada First), this is not (necessarily) a requirement of an arm's length mortgage (if the borrower was placing the mortgage on their primary residence, I am not certain if it would be necessary to insure it over an LTV of 80% - but would be prudent to do so). If you were writing a commercial note at 90% LTV, it would not need to be insured, but generally the interest rate climbs along with the risk.
When choosing a trustee, be aware of the liquidity requirements they may impost. B2B recently (2-3 years ago) increased their liquidity requirements such that you must retain 50% (RSP) - 75% (LIF/RIF) of the mortgage value in your account.
BTW: It appears that Community Trust Company Ltd in TO is offering trustee service (and servicing) for arm's-length mortgages in a registered account.
The same rules w/r to arms-length lending apply to all registered accounts.
A registered account whose beneficiary is a close relative could not make an arms-length loan (secured by a mortgage) on a property you owned. The definition of who is considered non-arms length is in the regulations.
On top of that there are only 3-4 institutions remaining in Canada who will act as administrators / custodians for registered accounts holding arms-length mortgages (none of the Big-5 are among them). I use Canada Western Trust and I believe Olympia Trust and Laurentian's B2B Bank and Eastern Trust offer custodial and servicing for arms-length mortgages in registered accounts.
Real Estate Educator, Mentor, Investor · Toronto, Ontario · Member since 2015 · 206 posts · 86 votes
10y
@Matt Geerts I believe someone can register an instrument against your property, for any amount, with your consent. For example, you could have a VTB for 120% of the sale price of your property (again, as I understand). It is when you involve regulated entities (such as large lenders and banks), when you become limited to a certain maximum LTV ratio.
@Matt Geerts I believe someone can register an instrument against your property, for any amount, with your consent. For example, you could have a VTB for 120% of the sale price of your property (again, as I understand). It is when you involve regulated entities (such as large lenders and banks), when you become limited to a certain maximum LTV ratio.
Or when you employ regulated instruments such as registered accounts, then the CRA also gets a say in what you can and cannot do,
If a relative wants to write you a note and take a 100% LTV mortgage and the do it from capital not in a registered account, they are free to do so.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Thanks, Claude... So the question then is, can one lend a mortgage within a TFSA without involving a regulated entity? I gather that someone can write a note and lein a property, but T would like my generous high-LTV lender to gain the benefits of tax shelter.
Also, most people with investing sense don't have 80k laying around outside of tax shelters.
Investor · St. Thomas, Ontario · Member since 2015 · 692 posts · 312 votes
10y
Great links, Roy, thanks.
But the question remains... Does a TFSA based mortgage even have to be related to these orgs?
I'm a pain, I know.
Also, that particular doc didn't mention CMHC, but I am guessing that if they are originating it, you must add mortgage insurance like you would with an rrsp mortgage.
Yes, there are only four (CWT, Olympia, Laurentian B2B, Eastern Trust) remaining providers of trustee services for registered accounts which allow arm's-length mortgages to be held/serviced within the account (of which I am aware). Registered accounts include {self-directed} RSPs, RIF/LIF, TFSAs.
Olympia or CWT would not be originating the loans (@Stanley Kong), they would merely be the trustee (of the registered account) and servicer (of the note). It is up to the lender (the registered account, or, in reality, its beneficiary) to do their own diligence, write the note and subscribe to the mortgage. Olympia is saying they'll allow the originator of the loan complete autonomy (enough rope to hang themselves) while CWT is offering a little less rope.
While a non-arm's length mortgage (i.e. if you lend to yourself or to (or for the benefit of) an immediate family member) must be insured (via CMHC, Genworth or Canada First), this is not (necessarily) a requirement of an arm's length mortgage (if the borrower was placing the mortgage on their primary residence, I am not certain if it would be necessary to insure it over an LTV of 80% - but would be prudent to do so). If you were writing a commercial note at 90% LTV, it would not need to be insured, but generally the interest rate climbs along with the risk.
When choosing a trustee, be aware of the liquidity requirements they may impost. B2B recently (2-3 years ago) increased their liquidity requirements such that you must retain 50% (RSP) - 75% (LIF/RIF) of the mortgage value in your account.
BTW: It appears that Community Trust Company Ltd in TO is offering trustee service (and servicing) for arm's-length mortgages in a registered account.
I've been disenchanted with my RSP for many years and decided 3-4 years ago that I would start writing small second mortgages (mostly for rehab/retrofits) as a means to earn a better return.
I spent several months researching the subject before jumping in (it's the engineer in me). These nuggets are bits of what I collected (so some may be out of date).
Edmonton, Alberta · Member since 2016 · 13 posts · 2 votes
10y
@ Roy N
Canadian Western Trust as in Canadian Western Bank? I've never heard of them.
Do they also allow for RRSP's that can invest in small businesses? It's allowed by CRA but I'm getting the run around from private investment firms to open one.
Canadian Western Trust as in Canadian Western Bank? I've never heard of them.
Do they also allow for RRSP's that can invest in small businesses? It's allowed by CRA but I'm getting the run around from private investment firms to open one.
I'm not certain if their trustee service includes CCPC shares. I looked at the RevCan/CRA guidelines around holding CCPC shares in my RSP once many years ago and it didn't fit my need at the time - if I recall correctly, the non-arm's length restrictions were too stringent. But that's what the lifetime capital gains exemption was all about.
I have not pursued trying to hold arm's-length CCPC investments in a registered account. While you would shelter any gain, you also miss out on the ability to benefit from any losses.
Edmonton, Alberta · Member since 2016 · 13 posts · 2 votes
10y
@Roy N.
I constantly get offered positions in companies based in Alberta who have operated successfully for 2-3 years and want to expand with shareholders.
They would take the loss as a company and I would take the payouts ( capital gains) as a shareholder. I am offered of course to just invest again and I would way that every time.