Frequently Asked Questions

Frequently Asked Questions

I'm interested. What now?
You mean, I can use my RRSP's to invest in Alberta Real Estate?
How easy is it to invest in Real Estate with my RRSP?
How secure would my investment be?
Who qualifies as a potential RRSP investor/lender?
Why can't I just invest my RRSP in the property of a family member?
What kind of properties can I invest my RRSP's in?
What are the specific steps for RRSP investing?
Who's involved in the process and what is their role?
What kind of fees should I expect to pay?

 

I'm interested. What now?

If you are interested in investing with Connaughty Investment Ltd., please contact us and we will send you an information package including information about our company and additional details regarding specific opportunities available. Once you are confident of investing with Connaughty Investment Ltd. write us a letter of intent, indicating the property you are interested in, the amount you are interested in investing and the name and details of your real estate lawyer. If you wish to use your RRSP's, you will need to open a Self-Directed RRSP account. Transferring RRSP funds from a conventional plan into a Self-Directed account can take up to 8 weeks. Our lawyer will contact your lawyer so that a mortgage document can be drawn up for the amount of the mortgage at the agreed upon terms and interest rate. The mortgage is then registered on the title of the property and a bank draft for the amount of the mortgage minus any agreed upon set-up fees is forwarded to our lawyer. You begin to receive regular interest payments.

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You mean, I can use my RRSP's to invest in Alberta Real Estate?

A. Absolutely! R.R.S.P. investing is about holding real estate mortgages as investment vehicles under the umbrella of your R.R.S.P. account. Traditionally, RRSP plans are placed in a mutual fund or stock fund based instrument by a financial brokerage firm, in exchange for a return. The success of the investment is based on the astuteness of a fund handler, who takes that pool of money and loans it out to some venture or project, the details of which may be somewhat vague to the RRSP Planholder, although there are regulations about how the money is to be placed. One of the lesser known but eligible vehicles for your RRSP monies is real estate mortgages. (refer to CCRA bulletin on eligible "Qualified Investments" within your RRSP). In other words, your RRSP is able to hold mortgages on real property, and get a return paid to it in the form of interest payments. In effect, your RRSP is performs like a bank. Simply put, you loan money (in the form of your RRSP) out to a borrower, and they agree to pay you interest on the money. At an agreed upon time down the road, they pay back the principle. As security for the loan, a mortgage is registered against the property so your RRSP monies are protected.

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How easy is it to invest in Real Estate with my RRSP?

Sometimes it may feel as if the world is trying to stop you from using this strategy. First of all, many investors don’t even know this strategy exists. Then bankers and financial planners may tell you that it doesn’t work (there’s no commission in it for them!). There are only a few select trustees who will work with them, and last, but not least, many lawyers don’t want to take them on. Is it worth the trouble? Absolutely! It allows you to take back control of your retirement fund and maximize your return. Know that the process works, that Canada Revenue (CRA) knows it works and many elite investors have been using it for years.

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How secure would my investment be?

While there is always potential risk in any investment, we believe that the economic fundamentals make investing in Alberta a good idea. Connaughty Investment has decades of experience in real estate investment. As sophisticated investors ourselves, we advise any potential investor to do their due diligence. Search title on the property, read about the company. Understand your rights as a lender. Your investment with Connaughty Investment is registered on title. If we, as the borrower, should ever default on the promised payments (something that would never happen), you are within your right to take swift, immediate action! As a title-secured mortgagor, you have a right to foreclose on the property.

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Who qualifies as a potential RRSP investor/lender?

A. There are 3 basic categories of people qualified to participate in this way. They are: • Current RRSP Account Holders (have their RRSP account somewhere already) • New RRSP Account Holders (have cash to put into their RRSP) • Those with RRSP Contribution Room (have not made contributions, but have ‘credits’ that are accumulated – see tax return)

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Why can't I just invest my RRSP in the property of a family member?

A. The potential RRSP investor/lender must be what is called 'at Arms-length’ from the transaction or the parties involved. (Reference Section 251 and 252 of the Income Tax Act) Namely, the RRSP lender planholder CANNOT be: • Related by blood, marriage, or adoption to the borrower. • If the borrower is a company, the planholder CANNOT own a controlling interest in the property. • If the borrower is a company, the planholder CANNOT be related by blood, marriage, or adoption to any of the individuals who own a controlling interest in the company. The planholder will also likely be required to sign a statement acknowledging that the planholder is satisfied that the investment meets the criteria of CCRA and all applicable tax and legislation requirements. We suggest that in order for an investor to sign such a declaration, they will have sought out the opinion of professional advisors.

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What kind of properties can I invest my RRSP's in?

A. Mortgages must be placed on “Real Property” that is, residential or commercial property located in Canada registered at a Land Titles Office. Some property types such as mobile homes, boats, leasehold land, co-ops and the like, (typically called Chattel Mortgages) are NOT eligible to be a qualifying investment under the Income Tax Act. ‘Agreements For Sale’ also do not qualify. And, the mortgagee (lender) and mortgagor (borrower) must be “at arms length” as described above.

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What are the specific steps for RRSP investing?

A. After reviewing a potential RRSP investment lender’s current situation, via the interview information gathering process, and after they have reviewed your proposal with their team of advisors and are ready to go, the next 7 simple steps are all that is required. The steps are: 1. Open an Self-Directed RRSP account that MUST be able to deal in “Arms-length mortgages 2. Put contribution in place or transfer funds 3. Prepare instructions to place mortgage, including a letter summarizing independent legal advice. 4. Wait for the funds to be forwarded to the lawyer 5. Register the mortgage and close on the property 6. Watch monthly cheques / returns go into your account 7. Repeat the process. Producing consistent, predictable RRSP returns through this Self Directed RRSP strategy allows RRSP planholders the opportunity to take advantage of superior tax sheltered R.O.I. results, and cash in on the Alberta real estate boom.

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Who's involved in the process and what is their role?

A. There are several players in a transaction each with various duties and responsibilities to play and are basically as follows (but not limited to): Real Estate Investor/Entrepreneur (and Team): This is the Connaughty Investment team and their associates. We find the properties and set up the first mortgage funding. Typically, we would set up the details regarding an invitation to take a 2nd mortgage position with respect to term, interest rate, and payments schedule, for the RRSP planholder investor/lender to consider. We make sure that you, the RRSP planholder has ALL the information required about a particular opportunity in order to make a sound, informed, and intelligent decision. RRSP Planholder Investor/lender (and Team): Typically, this is a person disgruntled with the status quo mutual fund and stock based funds for RRSP investing, and their lack of performance. They want to take control of their RRSP portfolio, and will educate themselves, and take on the action and responsibility as the CEO of their retirement future. They will have a team of professional advisors in their corner for advice and consultation in handling their affairs. Trustee: The Trustee is a financial institution that is set up as a stakeholder for the planholders RRSP monies and their account. They accept the payments, monitor the regularity of them and report to the planholder. They DO NOT chase for the payments, nor do they ascertain the borrowers suitability, or the suitability of the investment with respect to equity coverage ratios and the like. That is to be for the professional team to advise on. They also co-ordinate, with the input and instruction of the planholder, the setting up of the account including any movement of funds being held with other institutions or brokerage houses.

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What kind of fees should I expect to pay?

A. There are fees involved with getting this going. Connaughty Investment Ltd will cover many of the costs to set up the mortgage. However, the costs to setup the RRSP account should be borne by the planholder alone. It will run about $100-$125. Other approximate costs charged by your Trustee would be: Drafting the mortgage document $ 125 Execution of documents $ 50 Mortgage renewal $ 50 NSF Payments $ 30 Mortgage Discharge $ 50 Note that the fee schedule is a bit different with each Trustee as they each have their own Fee Schedules and Criterias. Check with each one to understand the differences.

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