Tax Efficient Mortgages for Real Estate Investors

1. Tax Efficient Mortgages for Real Estate Investors Grow | Protect | Optimize • Presented by: • Jason Henneberry

2. Background • Personal RE Investment Portfolio • Mortgage Planning for > 10 years • Focus on Advanced Mortgage Strategies • 2008 VP Sales Tax Deductible Mortgage Plan • 2011 Launched MORTGAGEPAL.CA • Jason Henneberry • Founder, MortgagePal

3. Overview Optimize Rental Portfolio Cash Flows • Generate Tax Refunds via Debt Conversion • Use Refunds to Pay off Mortgage Faster • Reduce Amortization & Save Interest Costs • Increase Rate of Return of RE Portfolio Without being out of pocket $

4. Who is it for? Convert Primary Mortgage to a deductible Investment Loan Canada Revenue Agency’s “Cash Damming” Guidelines Homeowner (with a mortgage) + Real Estate Investor (eligible expenses) Optimize for Greater Efficiency Save Tens of thousands of dollars

5. Greater ROI Higher Rate of Return = Greater Investment Risk Increase Return on Investment Without Increasing Investment Risk

6. How it Works Principal Residence (Mortgage Payments) $Mortgage Payts Debt Conversion $Debt Reduction $RE Portfolio Expenses • Income Sources • Employment Income • Self Employed Income • Real Estate Portfolio Income $Portfolio Expenses • RE Portfolio Expenses • Mortgage Principal & Interest • Property Tax & Insurance • Strata & Property Mgnt Fees • Maintenance & Upgrades Cra Rental Cash damming

7. Implementation STEP I: PORTFOLIO REVIEW / ANALYSIS Identify eligible rental expenses & Evaluate strategy financial benefits STEP II: MORTGAGE RESTRUCTURE Properly structured “multi-component” mortgage Track tax deductible interest accurately Principal Residence STEP III: DEBT CONVERSION Implement CRA Cash Damming technique Accelerated debt conversion Bad DebtMortgage Good DebtInvest Loc

8. Case Study Principal Residence Rental Portfolio •$350K Mortgage •25 Year Amortization •$1937 Monthly Payment at 4.5% •39% Marginal Tax Bracket •SIR 6 Unit Strategy •Annual Expenses: $25,000 •Annual P&I Payts: $43,000 •Total Eligible Expenses: $68,000 Debt Conversion Primary Residence = 4.2 years Free Tax Refunds (used to pay down mortgage): $59,571 Interest Savings (Primary Residence Mortgage): $41,199 Total Savings (Tax Refunds + Interest): $100,770 Pre Tax Income (39% Marginal Tax Rate): $165,196

9. Questions

10. Strategy II Payment Shock Protection Fixed Rate Variable Rate

11. Are Your Ready? What Are The Experts Saying? “What if your mortgage rate went up by 2 points?” – Garry Marr, Financial Post “Interest rates have nowhere to go but up”- Jim Flaherty, Canada Finance Minister

12. Advantages The Benefits of Payment Shock Protection • Prepare for Rising Rates / Inflation • Protect Investment Cash Flows • Pay Off Your Mortgage Faster • Increase Return on Investment

13. Case Study Forecasting Payment Shock at Renewal $350,000 Mortgage Debt Your Payment Shock at Maturity would be: $387.54 Today (2013) At Maturity (2018) Outstanding Balance $350,000 $299,103 Rate 2.99% 5.47% Payment (Monthly) $1,654.56 $2,042.10

14. Case Study Forecasting Payment Shock at Renewal Gradually Increase Payments Minimize Payment Shock Pay Off Additional Principal Save Thousands in Interest Regular Payment Increase Payment Shock Protection Benefits of Payment Shock Protection Amortization Reduction Savings Future Payments Pre Tax Income 14 Payments$19,422$31,839

15. Questions