Table of Contents
Podcast Transcription
Sandy Mackay [00:00:31] Breakthrough Real Estate Investing Podcast Episode one hundred twelve.
Announcer [00:00:36] If you’re looking for the skills and tools to succeed in real estate investing, you’ve come to the right place. This show is about breaking through barriers, breaking through limiting beliefs and breaking through to the life that you want to live through the power of real estate investing. This is the Breakthrough Real Estate Investing podcast, and now here are your hosts Rob Break and Sandy MacKay.
Rob Break [00:01:08] Hello, and welcome back, everybody. Hi, Sandy, how are you doing?
Sandy Mackay [00:01:12] Hey, Rob. I’m a hundred percent. I’m awesome.
Rob Break [00:01:16] 100 percent. That’s great. Yeah, good. You’re 110 percent. When I asked you a couple of minutes ago, so I know, I know I’ve been let down a bit
Sandy Mackay [00:01:24] and tried to calm it down for the show. I can’t get over it.
Rob Break [00:01:28] We wouldn’t want you to go crazy.
Sandy Mackay [00:01:30] Yeah. I’m so over. You said 85, so I want to skip ahead of you a little bit ahead of you.
Rob Break [00:01:35] We’re supposed to reveal that, Simon.
Sandy Mackay [00:01:41] Yeah, I’m great. You know, still here, you know, working through these odd times, we’re still in that weird period if Finland’s business later down the road. It’s an April 2020 still so
Rob Break [00:01:51] well, they lived through it. If they’re listening to it later, they’ve lived through it, so they know what we’re going through now.
Sandy Mackay [00:01:57] Really, things are great now again.
Rob Break [00:01:58] Yeah, yeah, yeah. If you’re listening to this and things are better, well then that’s good. You know what, though? That being said, there are still some good opportunities out there, I think as far as investment properties go and I mean, we were just talking about that. I think you’ve seen some good opportunity. I’ve seen the market may be slowed down a little bit, but certainly stay steady as far as price goes. And I’m not too worried about the stuff that like because I’ve got one closing in June now. So in about a month and a bit and I’m still pretty excited about it, you know, I’m not getting any cold feet or worrying about it at all, so I don’t know.
Sandy Mackay [00:02:46] I think things are overall. I think we’ll be, you know, get through it fine. And we live in a great country in general for, you know, stability and so I think we’re. We’re luckier than most of the world still, for sure.
Rob Break [00:03:01] OK, well, everyone listening is to go over to our website Breakthrough Aria podcast. Okay. And there you can download any of our episodes. If you’re not into iTunes or any of the other player downloaders the Android stuff, you can go right to the website and you can download all the episodes there and leave us a comment on, you know, just click on whatever episode. Leave us a little comment on what you thought about it. Any tips that you have for us, or maybe suggestions of who you’d want to hear?
Sandy Mackay [00:03:32] And they can also go over to the website, break through our podcast and get the free report there. The ultimate strategy for building wealth, the real estate, which will also get you on our email lists. They get updated as episodes come out here, but our events, live events, all that sort of thing. Hopefully, live events, I guess we’ll see. Oh yeah,
Robinson Smith [00:03:49] well,
Rob Break [00:03:50] yeah. Live through virtually life. Yeah, absolutely. And everyone should go over to iTunes and subscribe there and leave us a comment. Leave us, leave us a review there, a rating and review there, and let us know what you think. You know, that helps us get out there, get recognized and seen by more people. And hopefully we’ll be able to get all of this good information. Like all these guests that have this fantastic information for us today is no exception. Out to more people, right? So more people can learn about this. I think that’s very important. So get on over to iTunes and leave us a rating review that they’re
Sandy Mackay [00:04:34] pretty excited about our guest here. This is something unique and interesting. We’ve never, never really talked about on the show, not for any length of time, at least. So I think why don’t we just get into it?
Rob Break [00:04:43] Yeah, I think we’ve referenced it maybe once or twice, but really not gotten into it. So this is going to be fantastic. Robinson Smith with us today and he is going to talk to us about the Smith maneuver, which is a strategy, you know, to, I guess basically. Convert your bad debt into good debt and help you pay off your mortgage quicker. That’s a summary that makes any sense. We’re going to get some clarity on it after this, so thanks for being here with us.
Sandy Mackay [00:05:16] You’re very welcome. They were excited. I’ll give you a bit of a background on Robinson here and Robinson Smith, financial strategist, and bestselling author. I really realize how Canadians can mitigate the challenges that homeowners face in raising their families, raising their net worth, and raising their level of financial security in the face of rising costs of life. And Robinson, consulted with 15 years in the investment industry, is creator of a number of financial education courses. The author of Master Your Mortgage and Finance Master Mortgage for Financial Freedom, which is dedicated to increasing Canadians awareness of personal finances, and Robson shares how average Canadian homeowners can ease the pressure that comes with the high cost of life and homeownership. And I’ll show you how that very mortgage, which seems like such a financial burden restricting your retirement prospects, can actually become the very tool which will allow you to retire and comforts. And so if you own a home and have a mortgage, you definitely can’t afford to miss this interview as well. If you own an investment property, you’re really going to want to listen in which I’m hopefully a lot of our listeners do on investment properties, so they’re going to want to check out this, this interview.
Rob Break [00:06:26] And if they don’t, they’re listening because they’re interested in getting one. So I think we’re going to hear it from every side. So for those that are unfamiliar, let’s just start out with what is the Smith maneuver?
Robinson Smith [00:06:38] Yeah, folks. Well, the first thanks for having me on. Very happy to be here. The Smith maneuver is a mortgage conversion strategy. Now, many people will know this. Many people will not. But I think particularly the type of investors, listeners that you attract real estate investors, they will understand that there are two types of debt. There’s nondeductible debt and there’s tax deductible debt. And the way the tax system works in Canada is if we borrow to consume. So if we borrow to buy cars, vacations, food, gas and even our principal residence, we cannot deduct the interest on that income. So that is what we call bad debt, and it’s very expensive. However, if in Canada we borrow with the expectation of investing with the possibility of generating income, we can deduct the interest on that borrowing. So this is what we call a good debt and it’s very cheap debt and allows us to accrue assets which are not going to depreciate in assets like cars. These assets are going to increase in value, so we get tax deductible debt, which is very cheap, and we get the ability to well, we’re necessarily buying assets which are going to increase in value. So what the Smith maneuver does is it helps you convert the nondeductible tax nondeductible mortgage of your principal residence into a tax-deductible investment loan. What this does is it does a few things simultaneously. It lowers your tax bill, which everybody is going to like. Secondly, it enables us to eliminate or nondeductible mortgage much quicker than otherwise. So twenty-five years goes down to maybe twenty-three, maybe seventeen, maybe ten, maybe less, depending on the accelerators that you can use with the strategy. And necessarily we’re building up a portfolio of investment assets which are going to be there for us in our retirement. So these benefits happen simultaneously. And it does not require any new cash flow from the homeowner.
Rob Break [00:08:42] That’s fantastic. I can’t wait to dig into this and find out more what it’s about. Like to implement it, really?
Robinson Smith [00:08:49] No, that’s it. Sorry, I got to go, guys.
Rob Break [00:08:52] Thanks. Well, just give us your website and people can get over there. It from there. Now, the creator of the Smith maneuver, it was your father,
Robinson Smith [00:09:02] Zack, right? Yes. Yeah. Yeah, Dad Fraser, you became a financial planner back in in early mid-80s, and he became interested in the fact that the Americans could deduct the interest on their principal residence mortgages where we, as Canadians could not. And that’s still the case. And of course, dad didn’t think that was very fair, so he committed to setting about finding a way to level the playing field here with our American cousins. And he read the Tax Act, which is a very fascinating read. I recommend it highly to everybody. And he really, he put together this. This started to put together this strategy, which subsequently developed, but basically, he realized that, you know, these two types of debt that we have the ability to incur in our lives. One works for us, and one works against us. So he developed a strategy whereby we can convert this. Nondeductible mortgage debt to a deductible investment loan, simultaneously incurring all these benefits that I mentioned earlier. So this was the mid-80s. He cooperated with Vancity Credit Union at the time out here on the West Coast and the CEO at the time, Larry Bell, invited Fraser in right away for a sit down, and Fraser explained the strategy. And as I mentioned in the book, Larry pushes his chair back and says, why isn’t every Canadian doing this so? So he and Vancity worked closely for a number of years, and Dad was putting his clients into the Smith maneuver with Van City’s assistance. And then he retired from planning back. Well, a number of years ago to publish his book, The Smith Maneuver, the original book that came out in 2002, it became a bestseller seven eight times over in Canada. He came out of retirement in 2005 to go into a startup, another advisory practice, and I joined him back in 2006. So from that point on, he and I were we’re operating our own separate businesses out of out of the same office, and that he passed away in 2011. But I continued on until the middle of 2018, when I sold my book of business to focus on writing my book, which I have done.
Sandy Mackay [00:11:21] So, so tell us about you. Tell us a bit more about that and about the book.
Robinson Smith [00:11:26] Yeah, sure. Writing a book always seems to take a little longer than you thought it would, but I came out November 20th with last year Mortgage for financial freedom, and that was November 20th, 2019. Last year hit number one status in 22 categories on Amazon the day it launched, which I was quite pleased about.
Rob Break [00:11:50] Congratulations.
Robinson Smith [00:11:51] Thank you very much. Yeah. I was really pleased about that, not just sort of because it validated what I was doing, but because it indicated that there are a lot of people out there hungry for this type of knowledge. I mean, there’s Canadians actively searching for ways to improve their personal finances. So it’s nice to see this this activity by Canadians, whether they’re buying my book or somebody else’s book, you know, trying to figure out how to improve their financial situations because it’s not easy these days in Canada. So, yeah, that was the November 20th, 2019, and also coming out with Smith being a homeowner course, I’ve developed the new Smith Pan calculator, which hopefully will have a moment to go through later, but that tells the user what he can expect as regards benefits from implementing Smith maneuver versus not. And also, I’m putting together the Smith Movie, a certified professional accreditation program across Canada. There’s a lot of a lot of Canadians looking to implement the Smith maneuver, but when they go and seek professional help, whether it be an investment advisor, mortgage broker, realtor, insurance agent, accountant, you know, various aspects that are required for a keen homeowner to really solidify their financial position and implement the strategy. There’s not a way to tell if the advisor they’re a discussion having with truly understands the strategy, and we found that a lot of them don’t, whether they’ve not bothered to take the time to really learn about it or whether they think they understand it, but actually don’t. So the certification program is up and running now. Just launched it this month. And so we’ve got applicants from across from Halifax all the way across to Victoria here that are going to become certified in those various professions that I mentioned. So that’s what’s keeping me busy these days, getting the word out to keen homeowners and also training up the financial professionals across Canada.
Rob Break [00:13:43] So is that that’s your own book that you wrote? And then you and then you also rewrote the original Smith maneuver book?
Robinson Smith [00:13:50] No, my dad’s book came out in 2002. I, I, I wrote my own book. It’s based on his book, but his book in 2002, he really was a numbers guy. And so it wasn’t the easiest read for a four-year average Canadian. It’s not much of a challenge for a financial advisor or a financial professional. But what I wanted to do was firstly, update the values he was talking about. What happens if you’ve got $100000 mortgage Welch’s, who has $100000 mortgage anymore, right? So I want to update the values and make it more accessible to Canadians. So it’s written in my style, which is less numbers than my dad’s.
Rob Break [00:14:32] OK, gotcha. OK, now I guess, in essence, we’re really 10, 10 axing our retirement plan with this strategy. Really?
Robinson Smith [00:14:45] I don’t know if I’d if I’d say we’re 10 axing are our retirement savings. It’s difficult to say because every homeowner is different. They’re starting out from a different position, different financial position, and it depends on what type of resources they have available. There’s a number of different accelerators available, which can really accelerate the process, but not every Canadian has access. Most of them do, but not everyone does. To these to these are accelerators, but it can significantly increase your prospects for retirement savings. Typically, in Canada, we have the approach that we normally take, which is first, we’ve got these two important financial goals in life. One is to pay out our mortgage because it’s expensive, cost us a bundle, takes a big chunk of our paycheck. The other, we realize we have to start saving for our future for retirement. But the cost of life and the cost of the mortgage generally means that we can’t afford to do both at the same time. So what do we do? We focus on paying down the mortgage first rather than invest. And the reason this is because if we don’t put money aside to invest, no one’s going to come knocking on our door. But if we do not make our mortgage payments, someone’s certainly will come knocking on their door. Right. So that’s what Canadians do this they focus on making their mortgage payment with the hopes of eliminating that sooner rather than later. And if it takes 20, 25 years for them to pay out their mortgage before they can start saving for retirement with what was the former mortgage payment? They’ve lost 20, 25 years of compound growth, and it is tremendously expensive, as we know. I mean, the sooner you get invested, the more growth potential you have. So that’s typically what’s happening. People are focusing on paying out their mortgage, they’re foregoing potential this compound growth. And by the time they hit retirement, they don’t have enough. We see it all the time. We see people who have to sign up for reverse mortgages. I mean, there’s been an uptick in reverse mortgages for of 30 percent year on year. So you’re working for the bank your whole life trying to pay off that mortgage, then you retire. You don’t have the cash flow because of insufficient savings. Now you’ve got to start selling your house back to the bank. And if they don’t do that, then they’ve got to work in their retirement. You know, you walk into Costco or McDonald’s, and you have a look around. You see how many seniors are working. They’re not there because they want to be there. They have to be there. So this conventional approach of tackling one of these financial goals before the other is not working for Canadians, but with the Smith maneuver, you can do both. At the same time, you can accelerate the elimination of that nondeductible debt and you can start saving for retirement significant amounts each and every month starting now.
Sandy Mackay [00:17:35] So I think let’s get into it. Let’s get into the maneuver a little bit here and talk a little bit how it works in practice. Let’s go through a bit, you know, kind of bit by bit here. Yes. OK.
Robinson Smith [00:17:48] Well, firstly, most Canadians are currently having the wrong type of mortgage. They’re in a typical mortgage. They go to the bank. They borrow 400, 500, 600 thousand dollars. And the agreement is you’re going to pay this off over the next 25 30 years. Whatever it is, what Canadians require is what’s called a re advance mortgage. And there are a lot of lenders out there who have their own type of re advance level mortgage. Not all are created equal for what we need to happen, which is why you need a mortgage professional who truly understands what you’re trying to accomplish with the Smith maneuver. But if you’ve got the wrong type of mortgage refinance into a reimbursable mortgage, maybe that takes a few weeks or a month. Whatever the case may be, there are costs associated with that, but typically they can be rolled into that financing, so no new cash is required out of pocket. So now you’ve got this free advance of a mortgage, and the agreement with the lender is, let’s say you’re borrowing $400000. The lender says, I’m OK with you, homeowner, always owing me $400000. So what happens is if I make my $3000 mortgage payment against that $400000 mortgage, let’s say two thousand of that goes to interest nondeductible interest. It’s gone. That’s the price you pay for borrowing the money from the bank. But $1000 of that mortgage payment actually reduces the principal on that mortgage. So now you owe three hundred and ninety-nine thousand with the advance above. There’s typically a line of credit which is secured by the house as well. So it’s one mortgage, but there’s two components. Your typical amortizing mortgage loan. But on the other side of this, there’s this line of credit. And so the lender says, well, if you’ve just paid down a thousand dollars, I’m willing to lend you that $2000 back. And so the limit online of credit, which may have started out to zero if you borrowed the full amount, they’re willing to that hundred that limit opens up by a thousand bucks. So now we can take that thousand dollars out and do what we want with that thousand dollars. And indeed, many Canadians already have a re advance mortgage, whether they understood why they were getting it or not, why their broker put it into it or their bank, or what have you. And sometimes it comes to a surprise to them that after my mortgage payment, I can pull that back out. Great. I can go get a BMW, right? There’s my monthly payment. And so what’s happening is they’re paying down their nondeductible debt on that amortizing side, which is good. But all they’re doing is re borrowing nondeductible debt on that line of credit side and the mortgage balance is still
Rob Break [00:20:13] a lot more as well.
Robinson Smith [00:20:15] Currently, yes. You know, since 08 09, there’s been this inversion of rates that the secured interest only lines of credit are typically a bit more expensive than the advertising side. So, so all they’re doing is replacing nondeductible debt on one side of this mortgage with nondeductible debt on the other side. And if they keep on doing this each and every month, making that car payment or going out for dinner or going on vacation, then they’re going to have $400000 of nondeductible debt for the rest of their lives. What we do with the Smith maneuver is when we pull that thousand dollars out, we invested. Now there’s a great number of different things we can invest in stocks, bonds, mutual funds, your business, somebody else’s business investment, real estate, lots of different things you can borrow to invest in that have the reasonable expectation of generating income. And because you have the expectation of generating income, the interest you pay on that borrowing first month’s $1000 is tax deductible. So it’s very cheap. What that means is at the end of the year, you can take. You this on a monthly basis at the end of the year, Revenue Canada says, oh, we took too much off your paycheck every two weeks. You’ve got all these tax deductions. We’ve got to send your money back so you receive a tax refund, which otherwise you would not have received. And if you’re committed to your long-term wealth accumulation, you take that tax refund and you make a pre-payment against this mortgage. So this is money you wouldn’t otherwise have because you’re making this premade repayment against this mortgage. That amortization from 25 years originally gets severely shortened because you keep on doing this on an annual basis. Fundamentally, how it works on a monthly basis, whatever new equity is created in the home is available to borrow to invest. Because you’re borrowing to invest on a monthly basis, your investment portfolio increases on a monthly basis. Your tax deductions increase on a monthly basis, which means on an annual basis, your tax refunds get larger and larger. You’ve got more to prepay that mortgage. And when you prepay that mortgage on an annual basis by that refund amount, you borrow that back out as well to invest. So you know this? This doesn’t require any new cash, and a lot of people are going to be thinking, well, how can that be possible? I’m making a regular mortgage payment, whether I’m doing the Smith maneuver or not if I have a typical mortgage and I’m making $3000 a mortgage payment. That’s all I have to pay towards my mortgage on a monthly basis. But if I start doing the Smith maneuver and I’m borrowing on that line of credit, I’ve got an increasing balance on that side of the mortgage as well. Right, that’s incremental. So. If I am not. The Smith guy tells me I don’t have to come out of pocket on a monthly basis, anything other than I am already a mortgage payment, how is that possible? And the answer lies in the magic of the increasing efficiency of the regular mortgage payment. You guys are real estate guys. You have an understanding of how a mortgage functions and operates. And the fact is that each subsequent month, even though I’ve got a constant mortgage payment of $3000, a little bit less goes to interest each subsequent month and a little bit more goes to reduce principal. So that first month, if I had a thousand dollars to re borrow to invest the second month, I make my mortgage payment. It’s not a thousand dollars that reduces principal. It’s a thousand and three dollars that reduces principal there by the line of credit limit increases by that same one thousand and three dollars. So I pulled that one thousand three dollars out. The mortgage lender wants the interest from the month’s previous thousand dollar borrowing, so they take three thousand three bucks for that interest, which leaves me a thousand dollars to invest again. So this keeps on occurring on a monthly basis. Month three, I’ve got two thousand six that I can borrow. Six months goes to service the interest on the first two months borrowing. So this does not require any new cash flow from the homeowner. We’re simply restructuring our personal finances, using what we already have available to us to create wealth where otherwise this opportunity would not exist.
Rob Break [00:24:16] Yeah, I guess as long as they’re in the right investment, right? Like it’s it has to be something that covers the payment of the of the hillock side of the loan.
Robinson Smith [00:24:26] Well, no, Rob, this is what I just explained that that monthly investment of a thousand bucks. I get that invested. The return that I make on that investment has nothing to do with making the interest payment on that line of credit, because each month with that $3000 mortgage payment, more is reducing principal thousand two thousand four thousand eight, which means more is available to be borrowed on a monthly basis. If I keep my investment contribution the same at a thousand. I have an increasing amount left over my bank account, which goes right back to service the increasing interest expense on that line of credit. So on Smith Man Dot Net, we’ve got an f eight U.S. and it talks about and of course, I talk about it at length in the book. It talks about how this increasing efficiency of the regular mortgage payment, which you’re making anyways. That is what services the increasing interest expense on the line of credit. It does not come from the performance of your investments. It does not come from your wallet or your purse. It’s a bit of a go to the brain initially.
Rob Break [00:25:29] Initially, it has to come from there. And like, I mean, something has to cover it initially, right? Like, you have to have a good investment to cover what you’ve borrowed in the first place. Well, the payment on it in the first place and then gradually it might catch up as long as you stay at that.
Robinson Smith [00:25:46] No, rob the starting from month one, the increasing interest expense on that line of credit is fully serviced by the mortgage payment that you are making. Anyways, the returns that you were making on your investment have absolutely nothing to do with the ability to service the increasing interest expense on that line of credit.
Rob Break [00:26:03] OK, I understand the calculator here now and there.
Robinson Smith [00:26:08] There’s another aspect which you might be sort of melding into this concept is OK, well, what do your investments have to do in order to make this worthwhile? Right? Because I’m keeping my debt constant and paying down the nondeductible debt, I’m increasing my deductible debt. So I’ve always got this $400000 debt. Mind you, decreasing nondeductible and increasing deductible, which is great. But in order for this to all make it worthwhile, my investments are going to have to perform to the certain extent where they’re going to cover, and it will be even greater than the total debt I have secured against my house. And so that’s a different matter versus servicing the increasing interest expense on that line of credit.
Sandy Mackay [00:26:52] Now that cleared up for me
Robinson Smith [00:26:54] to
Sandy Mackay [00:26:56] clear as clear as mud. Rob, we get it now.
Rob Break [00:27:00] I understand what you’re saying. You’re saying that I know where you’re going and you’re going to invest is serviced by the by the by the by the regular mortgage payment. But your initial investment amount that you’re taking to invest, OK, that’s thousand dollars a month. Yeah, I see. You’re saying, because then you’re aware that that’s coming in, you know, the interest on it. That’s right. I guess I get I do get it now. Let’s play party time. Yes, I can. Gosh, if you can get me to understand it, then maybe, maybe there’s hope for everybody
Sandy Mackay [00:27:37] to declare it out because I think some people might. It might have some clarity to it, but it makes sense. So. Can you explain the idea, then, of keeping their debt rather than getting rid of it? That’s. I guess we’re kind of Typekit
Rob Break [00:27:53] doing all right. Yeah.
Sandy Mackay [00:27:55] Yeah. Like you mentioned, it’s kind of reversing the mindset of most people.
Robinson Smith [00:28:00] It is reversing the mindset. You know, we’ve all grown up to a certain degree being told by someone older and seemingly wiser that debt is bad. Don’t all debt is bad? Don’t get any debt if you have to get debt paid off as soon as you can’t, don’t get anymore, you get a mortgage paid off as soon as you can try to be debt free. That’s the way to go. Right? Well, that is the mindset of the non-wealthy. The wealthy understand very clearly, very clearly the difference between deductible debt and nondeductible debt. So while the majority of Canadian homeowners don’t have this distinction clear in their minds, they’re, as I said, they’re approaching eliminating their mortgage as the primary goal. I’ll start saving for retirement. Eventually down the road was I don’t have this mortgage payment anymore, but as I said, it’s too late in this hour on all this growth. But the wealthy understand that if I’ve got an $800000 house at a $400000 mortgage and I am busying myself spending after tax dollars trying to eliminate this nondeductible debt pretty soon, I’ve got an eight hundred-thousand-dollar house with three hundred and fifty thousand dollars of debt, three hundred two hundred and fifty-two hundred. Now I have an eight hundred thousand nine hundred dollars million house, whatever it’s grown to, with zero liability security against it. But how much? How much equity do I have in that home? I’ve got hundreds of thousands of dollars in that equity, and I haven’t done anything with it. So what’s it doing for me? Goose egg? Zero percent. It’s earning you zero percent interest. In fact, you’re getting a negative zero percent return when you consider inflation. So the wealthy understand, and I’m sure a lot of your listeners do, who are investors in real estate? If I’ve got equity in my primary residence, I can pull 50, 70, 100 K out and I can go put a down payment on a rental property. Go get a mortgage from a lender and get a rental property. And guess what? The borrowing on that 50, 70, 100 that I pull out of my principal residence is tax deductible because I’m borrowing with the reasonable expectation of generating income from my business, which is that rental property. So, so that’s what the wealthy do. The wealthy do not have. It’s not like the wealthy are debt free. The wealthy have debt just like everybody else. Big differences the wealthy have tax deductible debt. Everybody else has nondeductible debt because they’re borrowing to consume whether their principal residence or cars or vacations. So we’re grown up being told that all debt is bad. We focus on eliminating the mortgage, and we feel really good a bit about being mortgage free. We feel really good about having three four six hundred thousand dollars of equity earning us negative percent. That makes us feel great. And then we hit retirement and we don’t have the cash flow. We’re signing up for a reverse mortgage. We’re living in our kids basement. We’re working it at Burger King behind the counter, asking if you want fries with that. So the wealthy are wealthy precisely because they understand very clearly the difference between two types of debt. So we need to emulate the wealthy if we’re talking to people close to us, our friends, colleagues, neighbors, whatever. And they are espousing the principle of being debt free, being mortgage free. Look at their circumstance. Are they wealthy? If they’re not wealthy? Do not listen to them. Why would you listen to someone who’s not wealthy on how to become wealthy? So we listen to the wealthy. We emulate the wealthy. We understand that we need to learn what they learn. And one of the major things is there are two types of debt. So embrace deductible debt. Put it to work.
Rob Break [00:31:46] What about the legality of the Smith maneuver, is there anything like. Because a lot of people might say, well, you know, this is a little bit of a way of like a loophole of paying, you know, of getting out of paying tax. So is there anything to worry about as far as that’s concerned?
Robinson Smith [00:32:01] Well, firstly, there is a big difference between tax evasion and tax avoidance. Tax evasion is illegal. This is when you run to the bedroom, get your passport, and get on a plane as fast as you can. Right. The tax avoidance is very much legal. In fact, it’s stated legally. You know, we Canadians have the legal right to structure our personal financial affairs to our best tax advantage, and that is simply what we’re doing here. It is 100 percent legal. In fact, the wealthy, as I mentioned, they’ve been doing this for years. Whether they knew it was the Smith maneuver or an accelerator of the Smith maneuver or not, they can afford the fancy tax lawyers and accountants who know these techniques to instruct them to perform, perform this for the wealthy, their wealthy client. So it’s for over 100 years. It’s been written in the CRA in the Tax Act. If we borrow with a reasonable expectation of generating income, we can deduct the interest on that borrowing and that is simply what we’re doing here. So nobody has a problem with this. The government, the Sierra, the government is actually quite pleased. If you’re doing this, why? Because if you’re not borrowing to invest, you’re not stimulating the economy. This is precisely why they have the enable tax deductions on borrowing to invest. Because if you’re if you’re getting money from somewhere to invest in businesses, those businesses can grow, start making more money and there’s more tax for the government there. These businesses have to hire other people. There’s more tax that the government can collect their. So the government is very pleased about this, in fact, the CRA my dad used to love telling his story. He was he was at his office and all of a sudden, these two gentlemen in suits walk in and ask the receptionist, Yeah, we’d like to sit down with Fraser Smith, please. What can I ask who you are? Well, we’re two agents from the CRA. Oh, OK, let me go. Tell Fraser, you’re here. So it was a bit of a surprise. But he brought them into his office and dad got his pencil and a piece of paper out, and he started explaining how the Smith maneuver work because that’s exactly why they were. There is a phrase we want to hear about the Smith maneuver thing. So we explained it went through it and he says, I’ll never forget I got to this one point and one of the agents leans forward in the chair and asked me, Would this work on a $70000 mortgage? You know, so. So he convinced those gentlemen they left, and he never heard from them again, which is as big an endorsement you’re ever going to get from the sea, right? Right. So when I was advising, I put I put actual employees of the CRA in the Smith and U-verse clients, judges, cops. One hundred percent legal. And the mortgage lender doesn’t care that you’re borrowing on a monthly basis. Why? Because they’ve got the house, the security. So they don’t care if you pull that money out that thousand dollars a month and invest it, buy a car, go on vacation, or throw that cash in the fireplace. They don’t care as long as you continue to make the interest payment because they’ve got the house a security.
Rob Break [00:35:08] So in terms of dollars, then what is the strategy worth to the average Canadian, do you think?
Robinson Smith [00:35:14] It varies. You know, we see, you know, over the course of the amortization of someone’s mortgage, maybe three hundred four hundred thousand dollars, but frequently we’re well into the millions, depending on the on the accelerators that these Canadians are able to implement. And there are a number of accelerators, there’s a cash flow diversion, there’s the debt swap, there’s cash flow down, there’s drip accelerator in prime the pump. But what I’d like to do now is if I can share my screen just really quickly go through a scenario typical Canadian scenario on the Smitherman calculator that we have got on screen share. OK, so what we’re looking at here and you log into the Smith Bank calculator, it’s available on the website Smith Man Net and you see general instructions, but then allows you to go in and create a scenario. So I’m going to call this breakthrough. OK. So here we’ve got the income section, so I’m just going to type in, this guy’s got $100000 annual income. You can enter different types of income you’re receiving. This one will be of interest eventually once we get there to your listeners. This is annual rental income. So I’ve got an investment property and I make twenty-four thousand dollars in rental receipts on an annual basis. And I don’t need any of this for living expenses because I’ve got a job. So I make twenty-four grand and it costs me $20000. The mortgage payment, the upkeep of the rental property, etc. So here it’s summarizing the fact that I’ve got a hundred twenty-four grand total income employment plus rental, less twenty thousand in expenses. So I’m making a hundred four thousand dollars a year. I also happen to have some mutual funds and they’re valued at 25000 so far, maybe 30 grand a couple of weeks ago. I’ve also got emergency fund of ten thousand bucks. I like to keep that in cash. On the liability side, I’ve also got credit card liabilities that I can’t seem to get rid of. That cost me 300 bucks a month to service, and the balance on my credit cards is ten thousand and my marginal tax rate, it automatically calculates it. This is B.S. calculated for B.S., so if you’re in a different province, you’ll have a different marginal tax rate, which you can input. But on the mortgage side, my house is valued at, let’s call it, eight hundred thousand dollars. I’ve got a mortgage balance of four hundred and fifty currently at. Three-point ninety five percent, whatever, whatever you’ve got, that’s what you punch in there, tells me. Mortgage payment secured line of credit here of this free advance mortgage. What is what is the rate on that? Well, I can punch in whatever I wish, whatever current prime is of two point four or five. No, I think plus a factor of point five. So my line of credit rate. Is two point ninety-five. So now I’ve entered in my income, my assets, my liabilities, I’ve put the value of my home, the mortgage details that mortgage balance well, the amortization is not the rate on my line of credit that’s secured by that house that we advance mortgage. Then I go to investment assumptions up here and the defaults at eight percent, but I can move it up or down. Let’s call it six percent. I estimate my investments to grow at six percent. This section here says required calculations. Calculations indicate you have eight hundred and eighty-six to invest in the first month from the regular mortgage payment principal reduction of a loan. So this is out of that, mostly mortgage payments, someone’s going to interest. But eighty-six in this case is reducing the principal on that mortgage. Therefore, I have the ability to borrow back month one eight hundred eighty-six and get it invested and I want to invest the full eight hundred eighty-six. So as soon as I indicate that I want to do that on a monthly basis, I see results on the results panel here. I’ve got taxation improvement of one hundred just under one hundred thirty-nine thousand dollars of tax deductions over the amortization period of my mortgage, which based on my marginal tax rate, is going to lead to fifty-three thousand dollars in refunds. So over the course of time, that’s the total amount I have to make prepayments on an annual basis against my mortgage amortization improvement. It’s a zero-year saved as soon as I click here that I want to apply my tax refunds to the Smith maneuver, that’s where we see a result because I’m making an annual overpayment against my mortgage. So twenty-five-year AM is reduced to twenty-three years. Next on the results panel net worth improvement by the end of the original amortization. Twenty-five years in the case of this example, my portfolio value will be worth seven hundred and eighty-one thousand dollars. That’s that eight eighty-six getting invested on a monthly basis and the tax refunds getting invested on an annual basis. But I’ve got to offset the fact that I’ve got at this point a four hundred- and fifty-thousand-dollar investment fully tax deductible because that was my nondeductible mortgage, which I’ve converted over time. So the net improvement in my family net worth is three hundred and thirty-one thousand dollars versus not doing a Smith movie or just paying off my mortgage conventionally, not having dollars to invest. So it’s a 331 improvement. Debt consolidation, I’ve got the ability at this many will not refinance and have the ability to consolidate existing debt when they get this new advance of a mortgage in this case. I’ve got one hundred and ninety thousand dollars of immediately available credit on that line when I refinance based on the value of my house and what I already own four hundred and fifty. So I have the ability to consolidate this $10000 of nondeductible debt because I’m paying a high credit card rate. I don’t want to anymore. I want to pay that low three to three and a half percent. So I consolidate it and I’ve got the ability to salvage these payments that ten thousand dollars was costing me at minimum three hundred dollars a month to service those that credit card debt. Well, I’ve eliminated my credit card debt because I paid it out with the mortgage. So now I can take that three hundred which I was coming out of pocket anyways and instead divert that as a prepayment against my mortgage on a monthly basis and re borrow that to get invested. And if I do that, if I select salvage these payments now, my amortization improvement is five point seventy-five years saved. So I’m out of this nondeductible debt in just over nineteen years and my net worth improvement has gone from has gone up to five hundred and ninety-one thousand because my investment portfolio is one hundred one point five million offset by my deductible investment loan of four hundred and sixty, which was four hundred and fifty the mortgage. But I consolidated ten thousand dollars as well, so the net is over five hundred and one thousand dollars of improvement. The debt swap accelerator I indicated on the first sheet that I’ve got twenty thousand, sorry, twenty-five thousand dollars of mutual funds that I’ve built up over time. It’s gone up in value, down in value, but over time it’s doing pretty well for me. But what I have the opportunity to do is to liquidate this twenty-five thousand dollars of mutual funds or stock or whatever you’re invested in. Now I’m going to want to look at the taxation might have capital gains tax, but let’s say I liquidate this twenty-five thousand dollars in cash into cash. I take that twenty-five grand. I make a prepayment against my mortgage and then I borrow that twenty-five grand because the line of credit limit is going to increase by twenty-five thousand as soon as I pay down my mortgage by twenty-five thousand dollars and then I get that reinvested, maybe I buy the exact same investment that I sold a week earlier. So all I’m doing is selling an asset that I already have. Taking the cash, making a pre-payment, borrowing it back and then repurchasing the investment for the same twenty-five thousand dollars that I redeemed it for, so I can accomplish this in about seven to 10 days, maybe less so now. Instead of twenty-five years, my mortgage debt is gone in seventeen point five years and my net worth improvement has improved from just over five hundred thousand dollars to over 700. It’s almost 740000 dollars. I’ve got the ability also with the debt swap. If I’m expecting an inheritance of 10 grand, 20 grand in six months or two years, I can input that into the calculator, and it will apply it at that point in time as a debt swap. Again, on the debt swap, I’ve got ten thousand dollars in emergency funds, which I had listed on that first page. What I can do is if I’m comfortable with it and if I secure maybe a personal line of credit, which I agree to use only in an emergency, I can take that ten thousand in cash that was sitting there earning me zero or next to zero, prepay my mortgage, borrow it back and invest. And I see the number of years saved on my mortgage go from seven point five to eight years saved. So it’s gone in seventeen years now, and my net worth improvement is a hair under eight hundred thousand dollars, plus an investment portfolio of one point twenty-five nine million, offset by my deductible investment loan of four hundred sixty. So the net worth improvement is just under 800. Cash flow diversion. The way I built up my existing mutual fund portfolio was by investing straight off my paycheck, let’s say, 300 bucks a month.
Rob Break [00:45:00] So what we’re doing right now, just for everybody that’s there is each of these tabs is what you’re calling one of the accelerators.
Robinson Smith [00:45:07] Yes. Yeah. So we’re going to
Rob Break [00:45:09] we’re going through. And with that last one was the emergency cash, one that was
Robinson Smith [00:45:13] the debt swap. So the debt swap involves taking cash, which you have available to you either in cash or can you. You can turn it into cash because it’s a liquid investment and you take that cash and you prepay by this large lump sum, you borrow it and get it right back, invested again.
Rob Break [00:45:29] Okay, so in your example, it was the $10000 of emergency cash that you had for a rainy day.
Robinson Smith [00:45:35] That’s right. The first one of the debt swap was the twenty-five I had in mutual funds. I sell them. I take the twenty-five cash prepay, borrow, and reinvest again.
Rob Break [00:45:44] I like that. Yeah. So this cash flow doesn’t even really touch on the performance of your investment itself.
Robinson Smith [00:45:52] Well, it does the net worth improvement section here that we’re talking about. Currently, seven hundred ninety-eight thousand dollars is based on the amount of money I’m investing on a monthly or periodic basis as input it into the calculator so far with about six percent at six percent growth. That’s right, I remember. That’s right. Okay.
Sandy Mackay [00:46:09] Yeah, yeah.
Robinson Smith [00:46:11] So the cash flow diversion accelerator is if you got a relatively constant amount on the amount on a monthly basis that your investing anyways, first, take that money and overpay your mortgage and then invest. So again, it’s no new money. You were investing this amount on a monthly basis. Anyways, you’re just making it work more than once. And so $300 a month in this cash flow diversion accelerator, instead of my amortizing amortization being finished in 17 years with a net worth improvement of eight hundred. I’ve got fourteen point seven, five years and just over a million in net worth improvement.
Rob Break [00:46:50] So in this example, I could say all of my bills on a monthly basis are $450, so I’m going to prepay my mortgage and then take it out to pay the bills.
Robinson Smith [00:47:02] No, because then you’re borrowing to consume. You’re not born with the expectation of generating income. You’ve got to service your bills still accelerating.
Rob Break [00:47:11] Well, you are in the payment of my mama.
Robinson Smith [00:47:14] Yes. Yes, you are. You’re accelerating the reduction in principal on that you owe on that mortgage. But all you’re doing is borrowing it right back. Yeah, right to four nondeductible purpose. Plus, if you are re borrowing to invest and creating deductible debt and applying cash to go towards paying expenses and bills, which isn’t deductible, now you’re mixing deductible and nondeductible debt on that line of credit, which you do not want to do. That’s what you need to be able to trace where the borrowed money went to. Was it used for deductible purposes or not? So anything that’s going against the mortgage is a prepayment above and beyond the regular mortgage payment. All that cash should be destined towards a deductible use, which is either to invest or service the interest on that line of credit, as we were talking about earlier.
Rob Break [00:48:00] So like another accelerator could be, could be, I don’t know. My brain’s not good enough to think about that. I’m wondering if there might almost be another loan that could service it the same way, like in some way of what I was just saying. Well, the fact the fact
Robinson Smith [00:48:19] is that if you’re using three hundred bucks, which is destined to pay your grocery bill or your visa or whatever, if you’re applying that as a prepayment against your mortgage, you need to get it back and you get back at it. And so you’ve got to pull it from your secured line of credit. Irreversible mortgage. Right, and so if that eventually goes to service that Bill, you’ve just borrowed to consume, so, you know, read the book and everyone read the book and get up to speed on the process of why we do what we do and why we don’t do what we don’t do. But for now, suffice it to say that if you’re going to prepay your mortgage, you need to re borrow with the expectation of generating income.
Sandy Mackay [00:49:00] This is a great athlete, and there’s a lot of like everyone that’s pretty slick. Yeah, your listeners should definitely be going to probably even just even just playing around with it, for starters, to learn it. It would help to learn the.
Robinson Smith [00:49:13] Yeah. Yeah, it would. That’s right. And that’s. So the accelerator that we haven’t touched on yet is the cash flow down, and this is the one that’s going to be very interesting. One of two very interesting to a lot of your listeners because I stated that I’ve got a rental property and it sends me to thousand $2000 a month in rental receipts. And it costs me one thousand six hundred and sixty-seven as indicated here per month and expenses. So the mortgage and the upkeep and stuff like that. The vast majority of Canadians who own a rental property or a proprietorship of some sort, maybe it’s a home-based business. It’s not incorporated as a proprietorship. What they’re doing is missing out on thousands of dollars of benefit because they’re taking the rental receipts from their renter two thousand bucks a month in this case and turning right around and making the mortgage payment on that rental property. Sixteen sixty-seven, right? Well, what they should be doing is with this reimbursable mortgage that you require for the Smith mover, use this cash flow dam accelerator, which means the renter pays you two thousand dollars. Instead of making the mortgage payment on your rental property, you make a prepayment against your own mortgage, your principal residence. So two thousand dollars goes against that mortgage on the house that you live in above and beyond your regular mortgage payment above and beyond the Cash Flow Diversion Accelerator above and beyond the debt swap. Sorry, 2000 goes down. You’re able to borrow $2000 back and one thousand six hundred sixty-seven of that then goes to service the mortgage on your rental property. And the interest on that borrowing is tax deductible because you were borrowing to invest with a reasonable expectation of generating income, which is the rent from your business. So if I apply that, we take a look at the amortization improvement here, it’s currently at ten point twenty-five years saved. So the amortization has been shortened to fourteen point seventy-five. But if I implement the cash flow, the cash flow down accelerator now at fourteen point seventy-five am goes down to eight point eight years so that twenty-five-year nondeductible mortgage I got day one is eliminated in eight point or eight years. Then there’s. Yeah, the Dividend Reinvestment Plan Accelerator. I can take the annual dividends from my securities and apply them as a prepayment re borrow and buy the exact same stock back rather than have invested reinvest automatically. But another one of interest to your listeners is probably going to be prime the pump. You’ll recall that we had initially available credit the day that we refinanced into this re advance of a mortgage based on the house value, the current amount of the mortgage that I owed against that house. They said, OK, we’ll lend you this four hundred and fifty to pay out your current mortgage lender, which doesn’t operate for the maneuver, but will also give you a line of credit, which we understand that’s going to happen when we advance. But in this case, because of the value of the house is significantly higher than what I owe against it. They’re immediately going to allow me to borrow one hundred and eighty thousand dollars if I want and I can again, I can do whatever I want with this with the prime, the pump accelerator is all about is I can take all of that or some of it or none of it and invest. This is up to me now. This is additional leverage. This is borrowing money that I didn’t already own. So this is a discussion that the homeowner is really going to want to have with their Smith maneuver certified investment adviser. Does it make sense financially for me to do this? Is it overextending myself? Or maybe I only do 10 grand because any more scares me or whatever, but you can do some. All or none of it is completely optional, and I’ve selected to if we’re going to prime the pump here, invest in securities. And as I move the slider, you know, if we look at the net worth improvement example on the right, we’re going to see that increase. So here’s priming the pump of $18000. My net worth improvement is gone to 1.4 million from the original one point thirty-six. So I keep on sliding it. How much do I want to pull out to invest? Let’s say I want $50000 to pull out and invest day one? Well, now my net worth improvement is one point five, $7 million. But where it’s of particular interest to your listeners is they can pull this one hundred and eighty. They can pull this out some of it and make a down payment on investment property. So. Now, if they don’t already have investment property now, they do have a piece of investment property and they can implement the cash flow down if they do already have one piece of like a rental property, now they’ve got two and they can double the power of their cash flow down the accelerator. So. So there’s a lot of different opportunities, a lot of different scenarios, every Canadian is going to be different, have different accelerators available to them. But as we can see, you know, if I start out with a 25-year mortgage and it’s gone in seven point seventy-five years and I am better off on a network basis of one point five, $7 million versus if I never did the Smith maneuver. You know, we play around with the values and the growth assumptions and the rate assumptions and see what it looks like for you. And then there’s a report here which can be viewed and printed. So it tells you it summarizes the results, what you have indicated you’re going to do to implement the Smith new. And it also tells you what to do on a monthly basis because there’s a monthly activity, which is maybe I want to prepay my mortgage each month with cash flow diversion. I got to get back at that sort of thing. So.
Rob Break [00:54:52] Have you ever have you ever run into you? Because I know some banks have a restriction like a prepayment up to a certain amount?
Robinson Smith [00:54:58] Oh yeah. Oh, we hit that all the time. We some clients would hit that prepayment allowance maximum in four months, but particularly if they’re implementing the cash for cash flow down. Why is that a good thing? Well, you’re prepaying. You’re nondeductible debt by so much that the bank is losing money, they got to charge you a penalty and the penalty. When you look at it three months, interest on a on a prepayment penalty on a monthly basis, it’s a couple of hundred bucks, if that a lot of the time. And so you just suck it up and you pay it. I would gladly pay dollars in a penalty instead of overpaying by twenty-five hundred, I overpay by twenty-three because two hundreds got all of the penalty but still overpaying by 23 and getting that invested. But we run up to up to that. We hit that prepayment penalty all the time and it’s a good thing.
Rob Break [00:55:55] Yeah, OK. So in most cases, you can continue to go. You just have to pay a penalty.
Robinson Smith [00:56:00] That’s right. And like I said earlier, not every reinvest mortgage is the same. Some they’ll say, OK, 20 percent per year, you can prepay. No problem. But as soon as you hit that, you can’t prepay anymore. I don’t care if you have the money. I don’t care if you’re willing to pay a penalty. We’re not going to let you. And so and some lenders say, yeah, we’ll do 20 percent. And if you want to prepay more than that, go ahead. There there’s a three-month interest penalty on that. Great. So you really have to be careful when you’re setting it up for the Smith maneuver to talk to us with a certified professional mortgage broker because they understand what types of refinancings work for this and what types don’t. Gotcha. OK.
Sandy Mackay [00:56:39] So what are some of the risks here, then for, you know, doing it or, you know, not doing it, I guess, to what are there? Well, we saw the fence, they’re going to that. The financial risk of not doing it is pretty, pretty, pretty impactful, I would say.
Robinson Smith [00:56:54] Yeah. Well, the risks, you know, we’re getting invested now. Someone who’s not implementing the Smith maneuver doesn’t have nine hundred a thousand twelve hundred bucks or two thousand to get invested on a monthly basis, so they don’t have market risk. But we are getting invested, we’ve got market risk and we’ve seen a lot of that play out in the last month and a half. But the fact is that and I don’t mean to downplay market risk. I mean, you can borrow to invest in something smart or you can borrow to invest in something stupid. That’s not up to me. That’s up to you, right? But this is why you want to talk to a Smith mover, a certified professional investment adviser. You know, they’ve got this designation. They understand the market’s better than we do, as well as just generic Canadians, Typekit Canadians. So there’s market risk. They’re going to go up, they’re going to go down. But, you know, if you invest wisely, we’ve all seen the index charts, you know, on a on a decade-by-decade basis, Canadian equities have done approximately 10 percent on each 10-year split. So we invest wisely. We invest with the knowledge that markets are going to go up and down. We invest with the knowledge that this is a long-term financial strategy. It’s as long as it gets till death. So you’re whether that you turn a blind eye when things get bad and sour and you don’t open your statements because if you do, you succumb to what so many amateur investors do, which is so low. So market risk that can be that can be mitigated with a good advisor with some behavioral education on the part of the investor. There’s great risk interest rates if you have a mortgage or somebody that you’re already subject to rate risk, if not on a monthly basis or periodic basis. With a variable mortgage, you are on a five year, three- or four-year basis with it with a fixed mortgage. But you’ve got the open component, the variable component of the line of credit now. So that’s additional rate risk. The nice thing about the Smith maneuver is when Fraser developed this, when my dad developed this back in the mid-80s, rates were double digits. Right, they were 12, 13, 14 percent. Now, he wouldn’t have pushed through with developing this and putting clients into the strategy if it wasn’t working. So it works with high rates. Why is that? Because yes. While the monthly interest payment costs more, therefore there’s less to reinvest each month. My tax refunds are bigger. I get a higher tax refund at the end of the year, so rates are high, rates are low. We get variation on we’re able to invest more on a monthly basis. Less from the refund or less on a monthly basis. More from the refund. Behavioral risk is a kind of touchstone is a big one. This is a long-term program. It requires dedication, commitment, recognition that you’re doing this for your family, for your future financial security. This is not a get rich quick scheme. This is long term, slow and steady blue chip wealth accumulation. So, you know, you’ve got to be you’ve got to be committed to this. And again, with whoever certified professional advisors can help keep you on track and make sure that you don’t go off the rails. Human behavior being what it is, people tend to get complacent. After a while, they start taking their annual tax refunds of a thousand bucks and saying, you know what, we’re not going to prepay the mortgage this year. We’re going to go to Hawaii. And you know what? Maybe you do that every once in a while, but don’t do it every year. Mm-Hmm. So.
Rob Break [01:00:37] Yeah, there’s the thing I think, too is like one of the one of the things was the $300 in debt service that you that you had in the example there, right, for credit cards or whatever it was. Right? You know, and then saying, OK, well, I’m going to I’m going to use. My I’m going to turn that around so that it’s used over here instead, so now after a while, I would imagine it’s hard to go. Well, wait a minute. That $300, like it’s no longer
Robinson Smith [01:01:08] I’m no longer mandatory. Right?
Rob Break [01:01:11] Yes, you come up with that money. Sure. I would imagine over time; it does get a little bit harder to find that $300 every single month. So, yeah, it takes a lot of probably a lot of will not willpower, but a lot of diligence. It does keep up with this.
Robinson Smith [01:01:27] It does. It does. And you know, there are people for whom the Smith maneuver didn’t work out terribly well for them or not as good as they thought they would. And then you start asking the right questions and by them answering your questions, they start to realize that it’s their fault. Mm-Hmm. Right. They stopped applying the tax refunds. They stopped investing for a few months for something else. Or they fell off the wagon or what happens quite frequently is people will look at their investment portfolio after a few years and see a hundred and fifty grand built up. Oh wow. Hey, honey, you know what? We can get that Winnebago now, so we sell the assets to buy a toy. And I’m not saying that that is the wrong thing to do because. We need to enjoy our lives while we’re living them, but we need to be diligent and cognizant of the fact that every decision we make is going to have an impact. And if I’m okay with reducing my net benefit over the course of the amortization, twenty-five years, let’s say, if I’m OK with reducing that from 1.4 million to one point one million by sort of abusing, quote unquote, the program, if I’m OK with that, then go ahead, enjoy yourself, right? But the point is, we’ve got every Canadian homeowner here with at least 80 percent equity in their home, a sorry 20 percent equity in their home because you need a 20 percent equity to get the advance of a mortgage has the opportunity to get on this path of wealth creation and improve their financial well-being because there are a lot of uncertainties out there. Taxation is high in the typical Canadian pays over 50 percent of their income in tax, federal tax, provincial municipal tax, the pump rate tax everywhere. So how are we supposed to get ahead? The way we can get ahead is by restructuring our finances and taking money that is now available to us. That wasn’t before and is not coming from our pockets. Get that invested smartly. Don’t take this money and go to Vegas. Do not take this money out on a monthly basis and invest in your cousin’s internet startup. Right? There are people out there who understand what does well in the long term.
Rob Break [01:03:45] A lot of cousins out there with internet startups are going to be there.
Robinson Smith [01:03:49] Yeah.
Sandy Mackay [01:03:51] Well, I think when you put when you go through that planning and you see that and no, you can see that 1.4 million. But if I make that subtle decision today, but it not put me down to one point one million like long ways down the road, but I think that probably helps, right? If they actually planning out and are able to see what that actual effect is going to be because it seems small in the moment, right? Right.
Rob Break [01:04:14] Well, and I think, yeah, the important thing is maybe like we didn’t we didn’t take advantage of it going through that calculator. I didn’t see you going, okay, we’re going to crank everything up to 100 percent, right? But we looked at it in a reasonable fashion. I believe that as far as the example went. So, you know, let’s just say people looked at it and then dialed it back a little bit more, even if that was what they thought that they would do in order to live. You know, the life, the way that they want to do it and look at the impact and where they would stand doing it that way? Well, I mean, you’re still coming out ahead, right? And if it’s to the slightest investment into this
Robinson Smith [01:04:54] with the with the scenario that we just went through, we’ve got a net worth improvement of one point five, seven million at six percent investment growth if I put five percent. I want to be extra cautious in my investments are only going to do five percent, which is very conservative. At one point five seven, networth improvement goes to one point two five seven. Right. What if my investments only do four percent, OK, $1 million?
Rob Break [01:05:18] as opposed to zero as opposed to zero? Yes. So thank you for sharing all of this, I think is really important for us to get it out there. And I mean, people can probably obviously tell. I certainly have a have a not the greatest grasp on this, but
Robinson Smith [01:05:38] you came around, you came around.
Rob Break [01:05:40] I’m interested to learn more, that’s for sure. And everyone else who’s interested in learning, like, what is what should they do next?
Robinson Smith [01:05:50] Well, firstly, I’m a big advocate of personal development and education as regards finances. If we don’t understand, if we don’t learn, we’re not, we don’t stand a chance to get ahead in this difficult world. So do your reading podcasts such as yours, everything you can to absorb financial information as regards the Smith maneuver. Firstly, go to Smith Man Dot Net and buy the book. Secondly, if you want to buy the book, go to the library. Check it out at the library but read it and see if it’s for you and if it is for you. If you would like to dive deeper, we’ve got the Smith Bank calculator that we just went through on the on the website as well. Smith Man Dot Net. And you can play around with your own numbers. As I mentioned earlier, we’re setting up the Smith Mover Certified Professional Accreditation Program across Canada. So right now I’ve got realtors, mortgage brokers, investment advisors, mortgage conveyancers, insurance agents and accountants who are applying for the program to become certified. They go through a certification program; they write a test and then they’ve earned the right to call themselves certified professionals. And then they can go out and market themselves as such to their clients existing and potential. It’s very valuable this this designation, I think, for a lot of different financial professionals. If you take a mortgage broker, for example, now he’s a certified, he’s got a Rolodex, 300, 400 clients and he’ll be able to go through this and say, OK, Bill and Mary 10 Jane. All these people will have at least 20 percent equity in their home, which will be able to refinance into a reinvention of a mortgage. So he’s got the opportunity to educate maybe 40, 50, 60, 70 percent of his client base on this strategy. With my help seminars and stuff like that. And boom, he’s helped all these Canadians start to get on the path to increased financial independence, and he’s done a whole ton of mortgages.
Rob Break [01:07:50] The last thing. Last question here. What about getting this into mandatory school criteria?
Robinson Smith [01:08:04] This actually was taught at Comus College out here in Victoria. I only learned this recently that there was a course there on the Smith mover, which I found very interesting. But I am a big believer as I just mentioned, and I think that’s a fantastic suggestion that I would love to one day have this in, if not high school grade 10, 11 12. Maybe it’s too early for that, but at least some component educational component in community colleges, universities, that sort of thing. Because our kids are not taught about debt, they’re not taught about credit, they’re not taught about investing personal finance, and they lead. This leads to some pretty bad places for a lot of people. So financial education in general, this in particular, I would love to be involved in some educational programs, formalized education programs.
Rob Break [01:09:04] Yeah, that would be. I think that would be very beneficial for everybody. Okay. So you one more time, where should they go to learn more about this
Robinson Smith [01:09:15] WW w dot Smith Man Dot Net Summit and dot net? There’s the book, there’s the calculator, there’s a homeowners course that’s coming out in a month or so, which goes into the strategy much more in depth than just the book does. And you can also find information on if you’re a financial professional, how to apply to become a Smith mover certified professional or if you’re a homeowner, how to find one in your area.
Rob Break [01:09:44] Awesome. OK, well, thanks again for sharing all this like I think that there’s going to be a bunch of people that really are eager to learn more about it, and so we appreciate you coming on today. Andy, how can people get in touch with you?
Sandy Mackay [01:09:56] Two eight nine three nine six eight four six or sandy at Mackay Realty Network?
Rob Break [01:10:01] You can reach me at Rob Mr. Breakthrough Dot S.A. OK, well, thanks everybody for listening and we will see you next time. Have a good one, guys.
Robinson Smith [01:10:10] Thanks, everyone. Now.