# Reinvest equity to boost cashflow?



## GalacticPineapple (Feb 28, 2013)

I recently paid off my rental property. (Yay.) Mulling whether to sit on the equity or reinvest a portion of it in, say, a basket of REITs to increase cashflow. What are others doing when they encounter this pleasant problem? I'm mid-30s with no debt, net worth about 250.


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## jaybee (Nov 28, 2014)

Congrats! That's awesome. My cottage is about to be paid off with the principal residence a few years behind that. I'm also starting to wonder about leveraging the equity in my RE.

A bit more information would be helpful. What, I would do in your situation would vary, depending on the overall state of your finances and situation. You mention that your net worth is about 250k. Do you have any debt? What other assets do you own (if any) other than the paid off rental? Approximate household income? Do you have kids? Are you single?


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## GalacticPineapple (Feb 28, 2013)

Jealous of the cottage! Congrats. No debt. In terms of assets I have a registered pension (100), rrsp (50), rental property (75), equity in primary residence (25). (Edited for bad math. Cash is held in RRSP.) Household income 125, no kids, single. Whether the gf and I have a kid or not at this point is a toss-up. I'd say 50/50.


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## OurBigFatWallet (Jan 20, 2014)

Great problem to have. You may want to consider reinvesting in a basket of REITs (assuming you want to keep it in real estate) using either your RRSP or TFSA. Do you have any contribution room remaining?


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## cashinstinct (Apr 4, 2009)

Before borrowing against your rental, you would need to invest the cash you have in RRSP in my opinion... you should not have $$$ in RRSP and borrow to invest.

Also, you have 25 K equity in your principal residence and you say to have no debt... I assume you have a mortgage right ? 

Is the rental ownership shared with girlfriend or it's yours 100%? is the home shared 50%-50%?

You would be better off to have a mortgage against your rental ( for tax reasons) compared to primary residence... but it might get complicated depending on who owns what.

Also, you should consider starting contributions to a TFSA.


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## Rusty O'Toole (Feb 1, 2012)

You want to be sure the return from the REITS is more than the interest you pay. And enough more to make it worth the risk. Remember, borrowing to invest makes the interest tax deductible.


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## cashinstinct (Apr 4, 2009)

An issue with REITs is that they have return of capital, which will make your loan not 100% eligible for interest tax deductible.

Look Smith Manoeuvre posts, there are issues when you borrow for investments such as REITS (and some ETFS) with return of capital.


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## GalacticPineapple (Feb 28, 2013)

cashinstinct said:


> Also, you have 25 K equity in your principal residence and you say to have no debt... I assume you have a mortgage right ?
> 
> Is the rental ownership shared with girlfriend or it's yours 100%? is the home shared 50%-50%?
> 
> ...


Whoops brain fart there. Yes I have a mortgage on my primary residence. I own both properties. I'm considering pulling about 50k equity out of the rental, putting that in a TFSA, buying a basket of REITs and using the distributions to pay down the LOC. LOC is 3% and the REITs would pay around 5.5%. I sacrifice tax deductibility but save myself many headaches at tax time.


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## Cal (Jun 17, 2009)

Reinvest. Get more of your money/equity working for you. If your rental property were empty, would you not try to find a tenant to boost cash flow? Do the same with your equity in the property.

But as you haven't mentioned your general finances, make your investment part of a balanced, diversified approach.


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## andrewf (Mar 1, 2010)

If you have a non-deductible mortgage, you should focus on paying that down. You can borrow to pay your rental related expenses, and that loan would be deductible. Take 100% of the gross rental income and use that to pay down the mortgage.


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