# Increasing amortization for rental properties



## Katrin11 (Apr 26, 2015)

We recently bought a house and considering renting our apartment, which we own. The apartment is bought on 2007 for 157K. The value today is at least $200K. There is a mortgage of 88K left and we had only 5 years left to pay the mortgage(we had 2 weeks accelerated pmnt and have been paying 25% extra on the principal for sometimes).*
We are planning to keep this apartment and have it as an income in our old days. We are thinking to rent the apartment for $1100-$1150.*
There is a total of expense of $250 per month:
-	Condo fee -$800 per year
-	Municipal taxes-$1700
-	School taxed -$400
I asked ING to increase the amortization up to 9 years and switch to monthly mortgage payment to $850 per month. I did this with the idea that the various expenses plus mortgage= the rent.*
I am doing some reading in this forum and now thinking that stretching amortizations period to 15-20 years in order to lower the monthly mortgage.*
Does it make more sense to increase the mortgage term and be cash positive in an income property? I am talking about a amortization of 15-20 years


----------



## Berubeland (Sep 6, 2009)

Your first move should be to get an appraisal before renting it out. I presume that this was your primary residence at some point. 

Some people would suggest a HELOC. 

Interest on your mortgage is a tax deductible expense so the conventional thinking is that you should have a big mortgage so you don't have to pay taxes on the rental income. Income that is trapped in the property. 

While this does increase your tax burden from your description I would just keep paying the mortgage down, keep paying down the condo to increase you cash flow when you retire and you need the income. I would also counsel you to keep the condo in immaculate condition. The better the property the better the tenant. 

Also do not make the mistake of thinking that charging cheap rent will get you a better tenant. It won't it will just get you less money. 

Then finally you can sign up with www.tenantverification.com and use their service to get a credit check.


----------



## Just a Guy (Mar 27, 2012)

Yes, it does make sense. The one thing is, you shouldn't forget the fact that you've still paid a significant amount of money on the property which is now dead money. You may want to get a heloc instead and try the smith maneuver to tap some of that equity.


----------



## Katrin11 (Apr 26, 2015)

Just a Guy said:


> Yes, it does make sense. The one thing is, you shouldn't forget the fact that you've still paid a significant amount of money on the property which is now dead money. You may want to get a heloc instead and try the smith maneuver to tap some of that equity.



Thank you both for the advices. We are just starting to plan and want to take the right steps.

Just a guy, - our plan is to refinance the condo, extend the amortization and put the refinance money in RRSP and when we get the return next year, put it under our primary mortgage.

Next step will be doing the cash flow dam, but I want to discuss this first with the account. I have been reading a lot and I asked for advice two FP here in Montreal about smith manouvre, but none of them were comfortable giving advices.


----------



## Katrin11 (Apr 26, 2015)

Berubeland said:


> Your first move should be to get an appraisal before renting it out. I presume that this was your primary residence at some point.
> 
> Some people would suggest a HELOC.
> 
> ...


Berubeland, thank you for the advice. Yes, i am shooping around for an appraisal specialist. Do you suggest we decrease our cash flow to pay our mortgage faster. This is our primary residence till June 15, then we move to the new house.


----------



## Just a Guy (Mar 27, 2012)

You should worry about all your other debts before you worry about your rental debt (as long as the rental still cash flows). You can write the interest off on the rental, you can't on the personal debt...plus someone else is ultimately paying for it. 

As for the smith maneuver...

http://www.milliondollarjourney.com/the-smith-manoeuvre-resource.htm


----------



## nobleea (Oct 11, 2013)

Katrin11 said:


> Just a guy, - our plan is to refinance the condo, extend the amortization and put the refinance money in RRSP and when we get the return next year, put it under our primary mortgage.


Doing so would render the entire mortgage payment non-deductible.


----------



## Katrin11 (Apr 26, 2015)

I don'the understand why? I am thinking taking a HELOC in our primary residence and starting the cash flow dam, to pay the rental property with HELOC and put the rental cheque on primary reidence


----------



## OnlyMyOpinion (Sep 1, 2013)

Katrina, I'm not sure if the details of your plans can be fully conveyed in forum comments (either here of on the FWF). It is worth trying, but I'm not sure I would be confident enough to follow through on free forum advice given the amounts of money and potential tax liability at risk if your plans and cash flow dam are not properly constructed. I do find some links that might be relevant to you when I search 'cash flow dam montreal' with Google, but I'm not going to provide them because I have no idea how legit they are. If it were my money, I would be trying very hard to find a reliable accountant familiar with the subject.


----------



## nobleea (Oct 11, 2013)

Katrin11 said:


> I don'the understand why? I am thinking taking a HELOC in our primary residence and starting the cash flow dam, to pay the rental property with HELOC and put the rental cheque on primary reidence


You cannot write off interest expenses against investment loans to RRSPs or TFSAs. If you invested the refi money in a non-registered account, you'd be ok. What you do on the HELOC and cash dam are a separate discussion. Perhaps you did not plan to use the mortgage interest as a tax deduction and only the HELOC interest as a tax deduction.


----------



## Katrin11 (Apr 26, 2015)

nobleea said:


> You cannot write off interest expenses against investment loans to RRSPs or TFSAs. If you invested the refi money in a non-registered account, you'd be ok. What you do on the HELOC and cash dam are a separate discussion. Perhaps you did not plan to use the mortgage interest as a tax deduction and only the HELOC interest as a tax deduction.


No, I wasn't planning to write off any money from re-financing the condo. Yes the HELOC interest will be the only one to use as tax deduction(will make sure with someone here in Montreal to do the cash flow dam right). The money from refinance: I plan to invest in Rrsp, get the refund in income tax and pay the 15%extra of the mortgage in the principal residence.

Th HELOC will be next step . Take it from primary residence and apply it right and pay the expenses on the rental on.


----------



## Katrin11 (Apr 26, 2015)

OnlyMyOpinion said:


> Katrina, I'm not sure if the details of your plans can be fully conveyed in forum comments (either here of on the FWF). It is worth trying, but I'm not sure I would be confident enough to follow through on free forum advice given the amounts of money and potential tax liability at risk if your plans and cash flow dam are not properly constructed. I do find some links that might be relevant to you when I search 'cash flow dam montreal' with Google, but I'm not going to provide them because I have no idea how legit they are. If it were my money, I would be trying very hard to find a reliable accountant familiar with the subject.


I am trying to put the plan together and then contact our account and see what he thinks. In the meantime I am trying to find someone here familiar with this manouvre.


----------

