May 30, 2024 • 9 mins
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EPISODE DESCRIPTION
In this episode, Brandon shares an advanced wealth building strategy ("Hack the FHSA") you can do by combining your First Home Savings Account (FHSA), with a Hold Co., if you're planning to add multiple properties to your portfolio.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hey everyone, it's Brandon Lovefrom the Canadian Mortgage Guide.
(00:02):
Today I'm going to show you awealth building strategy that you
can use by coupling your firsthome savings account and a holding
company.
And this is a bit of an advanced
strategy, but it's not rocketscience to do and it's something
you can do as a first time homebuyer and one I'd recommend doing
if you plan on adding a lot ofproperties to your portfolio.
So stick around to the end.
(00:23):
By the end, you'll know if this
strategy is right for you and thenext steps to take to make it
strategy Hack the FSA.
So this is a wealth building
strategy designed for people whoplan to make money in real estate.
So before we dive into things,let's just go over the tools that
we'll be using.
First off, you have your first
(00:44):
home savings account.
This is a hybrid account that's
kind of like an RRSP in that itreduces the total amount of taxes
paid.
And it's like a TFSA in that the
growth within that account istax-free and you can access those
funds tax-free to be put towardsthe purchase of your first owner
occupied home.
So a few things to note, you can
contribute $8,000 per year for upto five years.
(01:05):
If you don't use the money, itdoesn't go to waste and it doesn't
hurt anything else.
You can contribute it to your RRSP
without hurting your overallcontribution limit.
So the key piece here is tax-freegrowth and lowering your overall
income.
That's why it's such a beautiful
tool.
tax-free growth and lowering your
overall That's why income.
it's such a beautiful tool.
Tool number two is a holding Thisis a corporation company.
that's set up in Ontario, and it'sa place to park your assets.
(01:30):
So there's no active borrowing orlines of credit or anything within
that.
It's simply a place to hold the
assets.
So in this case, we would be
holding real estate through theholding company.
The benefit to this is that whileyou qualify with your personal
qualifications, the holdingcompany doesn't get added to
future applications and doesn'thurt your overall borrowing power
down the line.
So let's take a look at a typical
journey and see how this wouldplay out.
(01:51):
So usual journey for someone who'sbuying their first home is they
save up their down payment.
They might utilize a first home
savings account or RRSP andcontribute funds to those accounts
while they save up for that downpayment.
They may also get sources likegifted funds and other areas that
can also count towards this.
When they buy their first
property, they utilize their passto use that first home savings
account.
(02:12):
So once it's used, it's done.
They also use their RRSP access,which is also done, and they get
the first property.
If they're lucky and they continue
to save and invest in other assetclasses, they can save up
additional funds to put towards aninvestment property, which can be
used as a rental.
The problem I see with this
strategy is that if your goal isonly to buy one home and kind of
(02:35):
move up the property ladder thatway, it works out nicely.
But if your goal is to build aportfolio of properties, that
first property you've boughtthat's owner occupied, it now
hurts your borrowing ratios forfuture properties.
So you have to debt service theproperty you're holding.
It limits your total borrowingpower and either blocks you from
being able to buy an additionalproperty or restricts the total
amount you can afford.
But what if there was a better
(02:57):
way?The strategy I'm going to show you
is one that I personally haveused.
I use it to buy the two propertiesyou can see here.
And obviously I have a thing forsmall white houses apparently,
which I didn't realize in doingthis.
But the first property on the leftwas the rental property I got
located in Sarnia, And theOntario.
property on the right is therental property I got located in
Ontario.
Sarnia, And the property on the
right is my current primary andresidence, that's in Ontario.
(03:19):
Southampton, So how this works isyou reverse the order.
Instead of buying theowner-occupied property first, you
buy your rental property first.
And instead of putting that rental
property in your personal name andusing up your land transfer tax
credit, you put it in a holdingcompany.
Why would you do this?land transfer tax credit, you put
it in a holding company.
Why would you do this?
Well, I just alluded to one partthere about maintaining that land
transfer tax credit for futureproperties.
(03:40):
But additionally, there's severalother key benefits.
First, it preserves the usage ofthe first home savings account.
So you can now contribute that$8,000 per year and get that up to
the maximum amount of $40,000.
The benefit of this being you have
$8,000 in income tax reductioneach year and the funds that get
added to that account can alsogrow and appreciate with their
investment.
So hopefully you can grow that
40,000 to 50,000 and then accessthat to buy your next property.
Additionally, this option allowsyou to use secondary markets.
(04:01):
In my case, that was like Sarnia,where I could buy a property that
was cheaper than the area I livein, and it allowed me to start
building some rental income thatway.
The last benefit here is thatproperty in your holding company
doesn't impact futurequalification, so it doesn't hurt
your borrowing power.
So while you're building that
larger nest egg and capitalizingon these tax savings, you can save
(04:22):
up to buy a property in yourprimary market.
Nothing comes without a cost.
And obviously there's a few
additional costs to doing thisstrategy.
So let's just review this indetail.
In this case, I'm gonna show you abreakdown of how it worked for my
Sarnia property.
So purchase price was 280,000.
I live mainly in the GTA andproperty prices here, you know,
750 plus.
So getting a property for 280,000
(04:43):
was a dream.
So down payment there of 20% was
$56,000.
The legal fees, including the
holding company setup, and thiscame to 4,217.
Knowing what I know now, I coulddo this a lot cheaper, but I
didn't have that insight in thefirst time around.
So I can save you some money onthe cost that I bore in doing this
strategy to make it a little bitcheaper for you.
(05:05):
And then the land transfer tax onthis property was $2,675.
So total amount there came in at$62,892.
Now there's operating costs torunning any property.
So I'll show you a monthlybreakdown and why I really like
this.
So monthly I get rent of 1975.
So that's plus 1975 there.
My mortgage payment is $1,308.04.
(05:26):
Property tax is $90.75.
Insurance is $114 and 67 cents.
Then I have a certain percentageallocated to vacancy and a certain
budget sent to repairs, whichworks out to be about $102 per
month.
Utilities are paid by the tenant.
So ultimately I cashflow $359 and54 cents each month from this
property.
Not a huge gain, but they're also
paying my mortgage in thatequation.
(05:47):
So I'm getting the principal paydown of the loan itself, and then
I'm cash flowing as well.
So what does this look like?
Startup costs $62,892.
That is an annual cash flow of
$4,314.48.
So it's a 6.89% return on my
(06:08):
investment annually.
Plus, this isn't factoring in any
appreciation of the property,which I bought when property
prices came way down there.
And it's also not factoring in the
principal pay down that Imentioned of the mortgage itself.
So for my cottage property inSouthampton, I was able to use the
maximum withdrawal for my RRSPplus two years of the first home
(06:28):
savings account.
So this reduced my total tax
burden by 35,000 for the RRSP and16,000 for the first home savings
account.
So $51,000.
I also had growth in investmentsin both of those categories.
So I was able to pick up a winthere as well.
(06:49):
Now, in my case, I saw theopportunity to buy a cottage
property and we shared a videoabout cottage properties and why
we think there's an opportunitythere.
So I decided to kind of pull theplug on the strategy at year two
of the first home savings account.
In theory, you could ride this out
until year five and continue toadd properties in your holding
(07:10):
company should you wish to.
And I still can use that holding
company vehicle for futureinvestments, but I decided to
capitalize on the cottage market.
And that's why I pulled out at
year two.
So the best part about the
strategy is that when I go to buymy next property, my cottage
property can be used as a rentalproperty for qualification as
well.
And that can help my ratios so
(07:31):
that I can buy something elsecloser to my primary market.
Ultimately, this strategy has somenuance to it.
It has some risk with differentfactors.
So you want to determine if it'sright for you.
Not everything we share is goingto be the best fit for everyone.
Some of you may say, I just wantto get my first owner occupied
home and I want to pay my mortgageas quickly as possible.
That's great.
We have a strategy for you as
(07:52):
well.
This one is designed for someone
who wants to build a portfolio ofproperties.
So I've outlined an avatar of whatsomeone would look like who would
be a fit for this strategy.
So ideal fit, you plan to build
that portfolio of properties.
You're comfortable with being a
landlord and what's involved withthat.
So the risk, obviously, there's alittle bit of risk of tenants not
(08:14):
paying rent, different things likethat that come into play.
And you're willing to be patientand maximize this tax and
investment strategy.
So next step, if you want to
determine if this is right for youand go over this strategy in
greater detail, I've shared a linkto my direct calendar,
meetwithbrandon.ca, and we canchat in further detail about your
scenario and map out a plan foryou.
If you enjoyed this video, pleasehit like and subscribe.
Your support really encourages usto share more videos about how you
(08:35):
can build wealth and master theCanadian mortgage landscape.
Have an awesome day.
Cheers.
Hey everyone, it's Brandon Lovefrom the Canadian Mortgage Guide.
(00:02):
Today I'm going to show you awealth building strategy that you
can use by coupling your firsthome savings account and a holding
company.
And this is a bit of an advanced
strategy, but it's not rocketscience to do and it's something
you can do as a first time homebuyer and one I'd recommend doing
if you plan on adding a lot ofproperties to your portfolio.
So stick around to the end.
(00:23):
By the end, you'll know if this
strategy is right for you and thenext steps to take to make it
strategy Hack the FSA.
So this is a wealth building
strategy designed for people whoplan to make money in real estate.
So before we dive into things,let's just go over the tools that
we'll be using.
First off, you have your first
(00:44):
home savings account.
This is a hybrid account that's
kind of like an RRSP in that itreduces the total amount of taxes
paid.
And it's like a TFSA in that the
growth within that account istax-free and you can access those
funds tax-free to be put towardsthe purchase of your first owner
occupied home.
So a few things to note, you can
contribute $8,000 per year for upto five years.
(01:05):
If you don't use the money, itdoesn't go to waste and it doesn't
hurt anything else.
You can contribute it to your RRSP
without hurting your overallcontribution limit.
So the key piece here is tax-freegrowth and lowering your overall
income.
That's why it's such a beautiful
tool.
tax-free growth and lowering your
overall That's why income.
it's such a beautiful tool.
Tool number two is a holding Thisis a corporation company.
that's set up in Ontario, and it'sa place to park your assets.
(01:30):
So there's no active borrowing orlines of credit or anything within
that.
It's simply a place to hold the
assets.
So in this case, we would be
holding real estate through theholding company.
The benefit to this is that whileyou qualify with your personal
qualifications, the holdingcompany doesn't get added to
future applications and doesn'thurt your overall borrowing power
down the line.
So let's take a look at a typical
journey and see how this wouldplay out.
(01:51):
So usual journey for someone who'sbuying their first home is they
save up their down payment.
They might utilize a first home
savings account or RRSP andcontribute funds to those accounts
while they save up for that downpayment.
They may also get sources likegifted funds and other areas that
can also count towards this.
When they buy their first
property, they utilize their passto use that first home savings
account.
(02:12):
So once it's used, it's done.
They also use their RRSP access,which is also done, and they get
the first property.
If they're lucky and they continue
to save and invest in other assetclasses, they can save up
additional funds to put towards aninvestment property, which can be
used as a rental.
The problem I see with this
strategy is that if your goal isonly to buy one home and kind of
(02:35):
move up the property ladder thatway, it works out nicely.
But if your goal is to build aportfolio of properties, that
first property you've boughtthat's owner occupied, it now
hurts your borrowing ratios forfuture properties.
So you have to debt service theproperty you're holding.
It limits your total borrowingpower and either blocks you from
being able to buy an additionalproperty or restricts the total
amount you can afford.
But what if there was a better
(02:57):
way?The strategy I'm going to show you
is one that I personally haveused.
I use it to buy the two propertiesyou can see here.
And obviously I have a thing forsmall white houses apparently,
which I didn't realize in doingthis.
But the first property on the leftwas the rental property I got
located in Sarnia, And theOntario.
property on the right is therental property I got located in
Ontario.
Sarnia, And the property on the
right is my current primary andresidence, that's in Ontario.
(03:19):
Southampton, So how this works isyou reverse the order.
Instead of buying theowner-occupied property first, you
buy your rental property first.
And instead of putting that rental
property in your personal name andusing up your land transfer tax
credit, you put it in a holdingcompany.
Why would you do this?land transfer tax credit, you put
it in a holding company.
Why would you do this?
Well, I just alluded to one partthere about maintaining that land
transfer tax credit for futureproperties.
(03:40):
But additionally, there's severalother key benefits.
First, it preserves the usage ofthe first home savings account.
So you can now contribute that$8,000 per year and get that up to
the maximum amount of $40,000.
The benefit of this being you have
$8,000 in income tax reductioneach year and the funds that get
added to that account can alsogrow and appreciate with their
investment.
So hopefully you can grow that
40,000 to 50,000 and then accessthat to buy your next property.
Additionally, this option allowsyou to use secondary markets.
(04:01):
In my case, that was like Sarnia,where I could buy a property that
was cheaper than the area I livein, and it allowed me to start
building some rental income thatway.
The last benefit here is thatproperty in your holding company
doesn't impact futurequalification, so it doesn't hurt
your borrowing power.
So while you're building that
larger nest egg and capitalizingon these tax savings, you can save
(04:22):
up to buy a property in yourprimary market.
Nothing comes without a cost.
And obviously there's a few
additional costs to doing thisstrategy.
So let's just review this indetail.
In this case, I'm gonna show you abreakdown of how it worked for my
Sarnia property.
So purchase price was 280,000.
I live mainly in the GTA andproperty prices here, you know,
750 plus.
So getting a property for 280,000
(04:43):
was a dream.
So down payment there of 20% was
$56,000.
The legal fees, including the
holding company setup, and thiscame to 4,217.
Knowing what I know now, I coulddo this a lot cheaper, but I
didn't have that insight in thefirst time around.
So I can save you some money onthe cost that I bore in doing this
strategy to make it a little bitcheaper for you.
(05:05):
And then the land transfer tax onthis property was $2,675.
So total amount there came in at$62,892.
Now there's operating costs torunning any property.
So I'll show you a monthlybreakdown and why I really like
this.
So monthly I get rent of 1975.
So that's plus 1975 there.
My mortgage payment is $1,308.04.
(05:26):
Property tax is $90.75.
Insurance is $114 and 67 cents.
Then I have a certain percentageallocated to vacancy and a certain
budget sent to repairs, whichworks out to be about $102 per
month.
Utilities are paid by the tenant.
So ultimately I cashflow $359 and54 cents each month from this
property.
Not a huge gain, but they're also
paying my mortgage in thatequation.
(05:47):
So I'm getting the principal paydown of the loan itself, and then
I'm cash flowing as well.
So what does this look like?
Startup costs $62,892.
That is an annual cash flow of
$4,314.48.
So it's a 6.89% return on my
(06:08):
investment annually.
Plus, this isn't factoring in any
appreciation of the property,which I bought when property
prices came way down there.
And it's also not factoring in the
principal pay down that Imentioned of the mortgage itself.
So for my cottage property inSouthampton, I was able to use the
maximum withdrawal for my RRSPplus two years of the first home
(06:28):
savings account.
So this reduced my total tax
burden by 35,000 for the RRSP and16,000 for the first home savings
account.
So $51,000.
I also had growth in investmentsin both of those categories.
So I was able to pick up a winthere as well.
(06:49):
Now, in my case, I saw theopportunity to buy a cottage
property and we shared a videoabout cottage properties and why
we think there's an opportunitythere.
So I decided to kind of pull theplug on the strategy at year two
of the first home savings account.
In theory, you could ride this out
until year five and continue toadd properties in your holding
(07:10):
company should you wish to.
And I still can use that holding
company vehicle for futureinvestments, but I decided to
capitalize on the cottage market.
And that's why I pulled out at
year two.
So the best part about the
strategy is that when I go to buymy next property, my cottage
property can be used as a rentalproperty for qualification as
well.
And that can help my ratios so
(07:31):
that I can buy something elsecloser to my primary market.
Ultimately, this strategy has somenuance to it.
It has some risk with differentfactors.
So you want to determine if it'sright for you.
Not everything we share is goingto be the best fit for everyone.
Some of you may say, I just wantto get my first owner occupied
home and I want to pay my mortgageas quickly as possible.
That's great.
We have a strategy for you as
(07:52):
well.
This one is designed for someone
who wants to build a portfolio ofproperties.
So I've outlined an avatar of whatsomeone would look like who would
be a fit for this strategy.
So ideal fit, you plan to build
that portfolio of properties.
You're comfortable with being a
landlord and what's involved withthat.
So the risk, obviously, there's alittle bit of risk of tenants not
(08:14):
paying rent, different things likethat that come into play.
And you're willing to be patientand maximize this tax and
investment strategy.
So next step, if you want to
determine if this is right for youand go over this strategy in
greater detail, I've shared a linkto my direct calendar,
meetwithbrandon.ca, and we canchat in further detail about your
scenario and map out a plan foryou.
If you enjoyed this video, pleasehit like and subscribe.
Your support really encourages usto share more videos about how you
(08:35):
can build wealth and master theCanadian mortgage landscape.
Have an awesome day.
Cheers.
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