BEYOND THE

BANKS
SUCCESS Strategies in
Real Estate as a Private Lender

JODI VE T TE R L
FOREWORD BY GERRY ROBERT
BEYOND THE

BANKS
SUCCESS Strategies in
Real Estate as a Private Lender

JODI VET TE R L
FOREWORD BY GERRY ROBERT
Copyright © MMXIX Jodi Vetterl

ALL RIGHTS RESERVED. No part of this book may be reproduced or transmitted in

any form whatsoever, electronic, or mechanical, including photocopying, recording,
or by any informational storage or retrieval system without the expressed written,
dated, and signed permission from the author.

Author: Jodi Vetterl

Title: Beyond the Banks
ISBN: 978-1-77371-197-3
Category: BUSINESS & ECONOMICS/Personal Success

Publisher: Black Card Books

Division of Gerry Robert Enterprises Inc.
Suite 214, 5-18 Ringwood Drive
Stouffville, Ontario, Canada, L4A 0N2
International Calling: +1 877 280 8736
www.blackcardbooks.com

....................................................................................................................................................................

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Printed in Canada
BEYOND THE

BANKS
SUCCESS Strategies in
Real Estate as a Private Lender

JODI VE T TE R L
FOREWORD BY GERRY ROBERT
 DEDICATION

To my Hunter B,
a.k.a. Beans:
you are my why—you
are my everything.
 TESTIMONIALS
“Having passive income sources is the key to achieving financial
freedom. In this powerful book, Jodi gives solid, time-tested and
effective strategies to achieving financial freedom through private
lending in real estate. A must-read!”

—Millie Leung
Entrepreneur, bestselling author of
Mind and Money Makeover and international speaker

“There is no better way to raise your understanding of money and

how to make it than to learn it from someone who has done it already.
Jodi is sharing what worked for her. If you find one new idea that will
work for you, then reading this book could be the best gift you have
given yourself in a long time! Read and be open-minded!”

—Theresa Barnabei
International speaker/coach and
bestselling author of Multiply Your Business

“Here is a powerhouse book of tips, tactics and approaches for

creating financial freedom that simply works. A fantastic must-read!”

—Travon Taylor
International speaker/trainer and
bestselling author of Success Chasing You
 TESTIMONIALS

“As a how-to guide, this book contains everything you may need
to know. It is brimming with straightforward strategies anyone can
use to overcome the key fears associated with finding, analyzing
their own lending opportunities and ultimately taking control of their
wealth management.”

—Nasira Jamal
Bestselling author
Life Reset

“If I could read only one book on private lending in real estate,
Beyond the Banks is the one I would choose! Easy to understand,
easy to apply, and Jodi is a pleasure to work with!”

—Andreea Mihalcea
Author
Speed Selling
 Table of Contents
Acknowledgements
Foreword
Preface
Introduction 1

Chapter 1 Terms 5
Chapter 2 Money Rules 7
Chapter 3 Smoke and Mirrors 11
Chapter 4 Where to Begin 19
Chapter 5 Private Money: What Is It and Why Is It Required? 22
Chapter 6 Before Lending and Deal Analysis 26
Chapter 7 Due Diligence 30
Chapter 8 Don't Be a PITA (Pain In the A$$): 34
Communication Is Key
Chapter 9 Credit 38
Chapter 10 Increase Rental Property Revenue 47
Chapter 11 Personal Residence: Creating an 54
Asset from a Liability
Chapter 12 The Smith Manoeuvre 58
Chapter 13 Arm’s Length Mortgage 65
Chapter 14 Networking the Opportunities 68
Chapter 15 The Hassle-Free Landlord Program (HFLP), 70
Proudly Presented by Epic Alliance Inc.
Chapter 16 The Limited Partnership 78
Chapter 17 Investing in the Limited Partnership, 80
Proudly Presented by Cynthia Aasen
Conclusion 86
 “In times of turmoil,
stocks are dumped and money is lost,
whereas real estate is an asset that allows,
with some creativity,
the preservation of capital.”
— J o d i Ve t t e r l
 ACKNOWLEDGEMENTS
This book was not created alone. I am blessed and surrounded by
women in real estate who inspire me every day. They are some of the
smartest people I know and operate with the highest of standards.

My acknowledgements include many people. When it comes

to real estate, I was incredibly fortuned to be mentored by Janet
Lepage, CEO of WWC, who helped me acquire real estate across
the border. Her supportive and patient coaching methods through
the difficult process has never been forgotten.

Rochelle Laflamme and Alisa Thompson, cofounders of Epic

Alliance Inc. I am so proud to have these two powerhouse women.
They continue to believe in me every day and are always there to
listen and provide stellar feedback.

Cynthia Aasen, owner and managing broker of IRR, for her

creative thinking and ongoing support and encouragement.

I would also like to acknowledge and thank all my sponsors for

their contributions and everyone who provided me with quotes and
feedback.

Special thanks to Alannah Jaret, founder of A Thing for Fashion,

for helping me with outfits during a time when I wasn’t feeling the
best about myself.

And to two of my dearest friends, Jane Delost and Pamela

Burton, thank you for always being there for me and helping me
overcome my insecurities so that I can follow my dreams. You are
both the loveliest of lovelies.
 ACKNOWLEDGEMENTS

Of course, thank you to my hubby, Greg, for all his loving support
and encouragement as well as my mom and dad, Mo and Herb.

Last but not least, I would like to thank my publisher Gerry Robert.
The system and the team you have created that help transform an
average writer with an idea for a book into a published author who
now has the ability to positively impact others' lives is something
that needs to be recognized and acknowledged.
 FOREWORD
By Gerry Robert

Many of us grow up with unhealthy mindsets about money. We are

conditioned to have some sort of financial professional manage our
money because we are led to believe that we are not capable of this
ourselves—the opposite of The Millionaire Mindset (my bestselling
book).

We fail to consider those who are managing their own financial

future and think that they must be more intelligent or have more
time and money than us. We also believe that we have to work our
whole adult lives until the age of 65 to pay off our mortgages and
invest in a retirement plan so we can finally retire with hopes that we
have the health to enjoy the last quarter of our lives.

Jodi Vetterl turns our heads with the gift of empowering her
readers to change their financial mindset so they can move forward
with a healthy relationship with money. While providing her readers
with the education and tools to help set goals and plan for their
financial future, she also pulls back the curtain and gives ideas on
where to find capital to invest. She also educates the reader on
how and where to find opportunities and analyze deals so that risk
is mitigated.

She writes without the high-brow style of typical economic or

finance books. I love this book because it is written is simple terms
that anyone can understand.
 FOREWORD

There are many ways to invest money. Smart investors who win
more than they lose do things differently. First, they get educated
and understand what they are invested in. Secondly, they are
invested in real estate.

Upon meeting Jodi, I was instantly amazed at how she’d

accomplished her financial freedom. She was in a job feeling stuck
and took it upon herself to find the strength to get unstuck. Many
people I come across struggle with creating change until it is forced
upon them. Jodi is out there educating herself so she can share with
those who are ready for change and desire.

If you are prepared to be educated and take charge of your

financial future, buckle up and start by reading Beyond the Banks.
Don't just read this book... apply it. Read it with a highlighter and
notepad. It will change your finances forever.
—Gerry Robert
Speaker and international bestselling author of
The Millionaire Mindset, Multiply Your Business and
Publish a Book & Grow Rich
www.gerryrobert.com
 PREFACE
Having a baby in my mid-forties while working full-time selling
engineering simulation software for a publicly traded company
became overwhelming. I felt as though I were treading water, trying
to stay afloat. I truly loved aspects of the job, especially the clients
and technology. It took having a manager that lacked leadership
and management skills before I became very unhappy. Even
though loyalty to the company was always there, I couldn’t seem to
do anything, no matter how hard I tried, that was going to shift the
dynamic between the manager and myself. I got to a point where
stress was taking over, along with the ongoing viruses that my son
brought home from daycare. A point came with my manager when I
realized I could no longer work for that person so I devised a plan.

Through the wonderful gift of having a child, coupled with the

most difficult time in my career, I became very clear about what my
why is. I have used this as the driving force behind my perseverance
to accomplish my financial goals so I could ultimately leave the rat
race for good. My why is my son. Even deeper, I didn’t want my son
to grow up with a mom who felt haggard, stressed, low energy—
someone treading water while despising her boss and job. It’s not
who I am, and it’s certainly not what I wanted to expose my son to.

Many of the great entrepreneurs speak about the concept of

why and how important it is to identify your why because it will push
you through learning curves and difficult times when fear shows
up and teases us with the idea of quitting before achieving the
outcomes we desire.
 “Owning real estate
more than other types
of investments has consistently
been proven over and over.”
— J o d i Ve t t e r l
 INTRODUCTION
Have you ever wondered why banks make so much money? Do
you ever stress about where your money is invested and how well
it's managed? Do you have a mortgage that you would like to pay
off early while being able to re-access those funds? Do you have
your home or rental property paid off but no money to invest? Do
you desire a financially-free lifestyle but are unclear about how to
achieve this for yourself?

If you could use your home equity to retire without creating more
or new debt, would you be interested in knowing how? If you are
asking yourself these types of questions and feel stressed about
when the next market crash will be, this book is for you.

Many of us were invested during the stock market crash of 2008.

Money was lost. There were countless stories of retired people
having to go back to work; the soon-to-be-retired had to continue
working. If we did stay and ride specific stocks out, it took years to
make up for those losses.

In 2003, I attended an educational real estate program that

opened my eyes to the concept of financial freedom. What is
financial freedom exactly, aside from a cliché term we hear a lot
out in the world of educational product sales and get-rich-quick
marketing scams?

Financial freedom will vary from person to person. The term

evolved for me over the years as I worked through my career and
eventually had a family. It changed as my values shifted from being
a single person and growing my career during my 30s to having
a family in my 40s. The essence, however, has always been the

1
 I N T R O D U C T I O N

idea of being able to have a financial foundation so enough passive

income is being generated to support the lifestyle I am comfortable
with, without having to work in the corporate rat race.

I will never forget the exercise the instructor had us do. He asked
us, “How much do you need to be financially free?” Many people,
including myself, wrote down several million dollars. I remember one
person said he could not retire unless he had 20 million dollars in
the bank! The instructor, who had done this exercise several times,
read out the numbers to the class, then gave us some additional
details and thoughts on this topic to consider.

First, he had us write out our estimated monthly expenses as

well as what we dreamed of owning and where we would like to
vacation and other types of necessities and desires. Then he asked
a straightforward question: “If you had 10 properties paid off and
you were clearing $10,000 per month in rental income, would you
feel comfortable quitting your job?” The concept of living off rental
income from mortgage-free properties shifted my perspective
about money so profoundly at age 32 that from that point on it
became my vision, and ultimately my mission, to accomplish this
by age 45. Okay, I’m 47 now, and I do not own 10 properties, but I
have overachieved my passive income goal through real estate—
but twisting the original plan by blending a few strategies, which I
will share with you in this book.

The goal of this book is to open your mind to concepts around

real estate investment that may help accomplish your financial goals
and ultimately take control of your money. Beyond the Banks will
provide insights into where investment money may be accessible
to you and take a close look at how your current investments are
performing, along with how at risk your portfolio is.

2
 JODI VETTERL

It took me many years to learn and implement these strategies.

A compelling event during my last job created the catalyst for me
to take massive action and create the ultimate plan. I worked my
departure by restructuring mortgages, moving money and finding
the right lending opportunities that allowed for the drastic change
of shifting from a high-earning employee to retired.

I have not looked back, and I am enjoying my return to life.

Achieving financial freedom is all that it is chalked up to be—and

more. I have the time and energy now to take care of my health, which
was suffering because I was carrying so much stress weight. As a result,
I have more strength and vision to tap into passions I shelved for years
because I did not have the time or spirit to explore them.

Please note that in sharing the strategies that helped me

reach my financial goals, I continuously consult with professionals,
including accountants, lawyers and mortgage brokers. I suggest
doing the same before implementing any strategies, including from
this book—most importantly before committing to any deals. We will
review best practices for deal analysis and due diligence in future
chapters.

3
 “Investing in real estate
with common sense and
good management is among the
safest investing an
individual can do.”
— J o d i Ve t t e r l
 Chapter 1

TERMS
B efore jumping in too deep, let’s spend a quick chapter defining
terms and the language used in this book.

What is a real estate investor? A real estate investor is someone

who invests in real estate, either passively or actively. There are
countless ways of investing in real estate. However, the purpose
of this book is to teach the reader how to become a successful
passive real estate investor through private money loaned to active
real estate investors. In the context of this book, the passive real
estate investor is the private money lender. The active investor is a
flipper or a rehabber. These terms are commonly used in the real
estate investing world.

A passive investor is someone who invests in real estate without

doing the active work. The active investor is in the market for
homes to buy; inspects and negotiates the houses and signs under
contract; looks for private investors to fund the project; obtains the
permits to renovate; does any demolition; selects the new materials,
appliances, paint, etc.; hires and manages the contractors; stages
and sells the house.

An active real estate investor may also be a landlord even

though rental income is considered passive income.

5
 T e r m s

Being an active real estate investor, whether buying, renovating

and selling houses or being a landlord, takes a lot of energy and
time. The role of a passive real estate investor in the form of a
private money lender is a fantastic opportunity to be in the market,
secured on titles, often making double-digit returns without all the
hassle of managing a project, toilets and tenants.

Being on the title, secured on the title, backed by title are some
of the terms used to describe taking a position on the property.
When holding a mortgage from a bank, the bank takes a position
on the title. When lending privately, you are the bank; therefore,
you take the position on the title as the bank normally would. Your
name or company is registered with the local land registry for that
property. That security protects your investment from being sold
without your knowledge or control.

Debt that is used to invest and earns income and/or is taxable

is referred to as “good debt,” as opposed to “bad debt,” which is in
the realm of credit cards and vehicles, for example.

A limited partnership (LP) exists when two or more partners unite

to jointly conduct a business in which one or more of the partners
are liable only to the extent of the amount of money that partner
has invested. This term is referred to as a limited liability partnership
(LLP) (cited from www.investopedia.com, 2018).

6
 Chapter 2

MONEY RULES
M oney rules is a tool to use for investing, and we need to
understand what our money rules are. Some people may
have a money rule of never buying in Florida, for example; another
may be to not invest more than 10 percent of your portfolio in one
stock or diversified in an investment portfolio. Another rule may be
to never invest with family or friends.

The money rules term first came to me while attending my friend

Loral Langemeier’s Live Out Loud, Big Table sessions in Lake Tahoe,
Nevada, over a decade ago. Admittedly, I had a hard time figuring
out what my own money rules were. It took going through and
working with various financial advisors over the years before I came
to a point where my money rules became very clear.

My career of 20 years was primarily in high-tech software sales.

During my thirties I had vast geographical territories. One of the jobs
was managing all of Canada, and another region I had was all of
Western North America, so I was on the road for most of a decade.
Money was great, and I handed a lot of it over to my financial advisor
who was supposedly one of the best in the province from the top
bank in Canada! And because I was focused on my career, I trusted
this person with my money and felt there was no time to manage
investments on my own. She made me feel as though it was a
privilege to be working with her, when in fact she was careless with

7
 M o n e y R u l e s

a decade of my prime earning years, a precious time I cannot get

back. During these years, I had no meaningful relationships and
therefore no one to create a family with. Being a road warrior, never
being in one place for long enough came with pitfalls.

So I was sacrificing having a family and sending over my hard-

earned money to the financial advisor who made poor investment
decisions.

The financial advisor I worked with over all those years became
more and more uncomfortable and confrontational when questioned
about some of the decisions she was making in my portfolio. My
questions were simply asked to be informed in more detail than
what was being provided. For example, at the time, gold was trading
around $1,800, and she believed the value was headed for $2,500.
Other channels I was in tune with were predicting a collapse in gold,
and history shows this is what happened. My questioning was met
with arrogance and threats to follow her recommendations or go
elsewhere. Eventually, I did leave. It took some time only because I
felt I was in so deep with her and didn’t understand or have the time
to figure out what needed to be done to move my money.

I have several stories of this particular financial advisor who

stated she followed Warren Buffet’s strategies. I realized at some
point that she was in sales, just as I was, and quotas had to be met
by her and each fund manager working with her.

After many attempts to understand mutual funds and the fees and
commissions, along with the other products she was investing in, I
realized that it was simply not straightforward. I could never figure
out why after so much time, my money wasn’t going anywhere. It
always seemed to be down from the principal. From this experience,
my first money rule was established: Never invest in anything I
do not understand.

8
 JODI VETTERL

After experiencing the stock market crash of 2008, the stress

was almost too much to take. I had also experienced another
stressful investment of a different sort with a person who had a cool
invention and what seemed to be a very solid business plan. Luckily,
I had used a lawyer to review the original contract and had some
security written in, so out of 22 investors and $2.2 million raised,
I was one of the only people that not only got all my money back
but also the interest owed. The person ended up in prison charged
with multiple counts of fraud, and although I was extremely lucky, I
went through stress that I never want to experience again. Through
these stressful events, my second money rule was born: Can I
sleep at night?

My third money rule also comes through the experience of

investing in opportunities that sounded great, but exiting out of
the deals was unknown. For example, I invested in a couple of
companies where the exit was for the company to IPO or be bought
by another company. As good as these sound when being sold
on them, many variables can stretch out the time that money is
invested. The more time it is invested, the more you want to have a
good return. Many of these do not pan out. In fact, out of three so
far, one of them I’m able to use as a capital loss after the money has
been tied up for six years. In another—well, as mentioned, the CEO
ended up in prison. The other may still pull through, but it’s been a
few years with no returns. Out of these three experiences, my third
money rule evolved: What is the exit strategy?

With these three questions, I no longer chase shiny objects. The

spin doctors out there can spin away, but if I review each of these
rules, I keep out of trouble.

9
 M o n e y R u l e s

I do have a few other money rules, such as only investing in

revenue properties—for example, not buying into a vacation
property or vacant land unless it can earn income. Another rule is
to keep good debt clean so it doesn’t turn into bad debt. A later
chapter will cover this in more detail. In a nutshell, it means that any
money loaned out, whether cash savings or loans from a line of
credit, is not spent on credit card payments, vehicles, entertainment,
or vacations, which will create bad debt. Work to pay down what
is personally owed on mortgages. Use bank credit and property
equity to earn income, and use that income to pay what is owed
initially until mortgage-free. The more the original mortgage is paid
down, the more equity is available to lend to earn passive income.

Don’t mix good debt and cash savings with lousy debt and poor
spending.

10
 Chapter 3

SMOKE AND
MIRRORS
T he definition of smoke and mirrors is obscuring or embellishing
the truth of a situation with misleading or irrelevant information.

Magicians often use smoke and mirrors to create illusions and

obscure your vision of a bit of trickery. A person who is using smoke
and mirrors is creating an illusion.

My experience in working with financial advisors who invest in

the stock market, especially mutual funds, is that they are a bit like
a magician and often have a talent for creating an illusion around
what is going on with the portfolio they are managing.

There are a few reasons why I initially started working with a

financial advisor. First, I was too busy to figure out where to invest
and to manage my earnings. The second was fear of not doing it
the right way and losing all my hard-earned money. The third was a
comfort, in that I felt my money was in good hands being managed
by a professional. The management fees appeared to be minimal,
around 2.5 percent, and it all made sense at the time.

We all have that friend who wakes up with the market to trade.
It is intimidating how immersed and knowledgeable he or she is
with their stock trades. We listen to CNN Money, BNN and other

11
 S m o k e a n d M i r r o r s

experts talk in a language that can feel foreign. By the time the
market information hits the news, it’s often too late to invest in what
the experts are talking about; the market moves fast. How do you
do it, what trade platform do you use, how does it work? Just signing
up for a trading platform can be a learning curve in itself.

During the span of my 20-year career in high-tech sales, a road

warrior covering vast territories, I did not have the time to figure out
how and where to invest, let alone manage it. As well, trading is all-
encompassing. There are rules and guidelines that the successful
traders follow so they do not get caught up in the emotion that
comes from stock movement. Time, knowledge and fear play into
why we send our hard earnings over to a financial advisor.

Fear-based marketing is nothing new. Banks spend millions

of dollars marketing. The intent is to make us believe that we are
incapable of managing our own money.

Investing and trading are two very different approaches. We

know we do not have the time to become an independent stock
trader, so we look for a financial advisor who is an accredited
professional and follows a strict code of conduct. We do a risk
analysis survey so the financial advisor can understand our risk
tolerance. They are supposed to take the time to understand our
goals and invest accordingly. It can be reassuring listening to them
talk about how they are going to structure your portfolio because
they know the fundamentals and performance levels of each fund
they are buying with your money.

A mutual fund in the purest form, as defined in dictionary.com,

is “an investment program funded by shareholders that trade in
diversified holdings and is professionally managed.”

12
 JODI VETTERL

Often, we use our friend’s or family member’s financial advisor

and hand over our money to someone who is selling a product
that the company they represent is telling them to market. What I
heard from many people, and I shared the experience myself, was
that it becomes too uncomfortable to leave our advisor as it’s often
relationship based.

The financial advisor and the institutions they represent,

generally, work with a set of funds and fund managers. All involved
have quotas to meet and stockholders to appease. Not only are
fees and commissions skimmed off the top of your investment, but
you could also end up in some funds that are meeting the needs of
a company or individual’s quotas that may not be in the best interest
of your portfolio growth.

Remember: These folks make money on your portfolio, whether or

not you do. Every time they move your money, fees and commissions
come off your investments.

My personal experience was that I would go in for my annual or

bi-annual reviews to learn the overall performance of my portfolio.
Every time I had these meetings, I came out more confused, not
knowing if I was up or down from where I started.

It appeared there were a few stocks or funds that were above

the market or paid enough dividends to defend their position in my
portfolio. These funds were balancing out the other funds that had
not done so well. I learned with great enthusiasm that one fund was
up 32 percent. I questioned the length of time for the impressive
32 percent gain. In a very deflated voice, I learned the increase
accrued over a seven-year period, which is only 4.5 percent
annualized. The delivery of this gain appeared as a distraction from
the other funds that were in the red. Overall, my portfolio was, in
fact, underperforming.

13
 S m o k e a n d M i r r o r s

I call this the spin doctor portfolio review. It always left me

confused between the relationship I had with this advisor whom I
admired and the delivery of the portfolio performance. It was so
smooth that I always came out of the meeting feeling good. Upon
returning home and reviewing the documents, I realized that what
the advisor revealed was not the truth. It was a positive spin to
the reality of the portfolio health. Reading and understanding the
statements were never straightforward because it was difficult to
determine how much I started with and if I was up or down. After
several years of this confusion and manipulation, I yearned to learn
how to take control of my wealth management.

When I started asking questions about my portfolio, I learned

that I couldn’t sell out of some funds without penalty until a specific
date. There was a fund for $25,000 that had been deregistered so
it reads as N/A. I still have the pleasure of looking at it every month
on the statements.

It’s easy to transfer funds to these people and have them start
buying the product for you. However, getting your money back out
without taking on losses and penalties can be a challenge.

If you are starting to ask how your funds are invested, that is
good because it’s likely that questions need to be asked.

In taking it a step further, have you ever looked at registered

retirement savings plans (RRSP) or IRA charts from banks
demonstrating how investing in RRSPs from early on will grow your
funds into significantly greater amounts by retirement? For the
sake of the discussion in this chapter, the Canadian RRSP is used;
however, the same concept is relevant to products in the US.

There is no doubt that contributing to your RRSP annually can be

beneficial for retirement. However, how it is invested and managed

14
 JODI VETTERL

over the growth years is what matters. The banks want to do this for you
so they can make money from your hard-earned retirement savings.

Let me introduce you to some details that may explain why your
registered funds never seem to be growing as fast as you would like
or are led to believe.

Here is a typical chart we see in banks, especially during RRSP

season:

15
 S m o k e a n d M i r r o r s

Take note of the * beside the projected amounts on the RRSP

charts. It will say something to the effect of “The example assumes
a 6 percent annual rate of return in a Registered Retirement
Savings Plan.” Then it will explain that the “example is strictly for
illustrative purposes only and not intended to be representative
of the performance of any actual or future investment available
to investors. The actual client returns may differ substantially.”
(Source: Royal Bank of Canada)

The RRSP charts the banks use for marketing never include
potential fees and commissions. The fees and commissions referred
to are the MER, short for management expense ratio. MER fees are
paid to the firm whether you make money or not.

The MER is made up of four components:

1. Management: A management fee covers the cost of paying the

mutual fund company and investment professionals that decide
how the fund invests its portfolio. Management costs may also
cover compensation to the investment dealer and financial
advisor who sell the fund and provide ongoing financial advice
and service to investors.

2. Administration: The fixed-rate annual administration fee covers

operating expenses incurred by the fund manager and by the
fund itself. Services provided by the fund manager include
unitholder processing and client services; fund administration;
and legal, tax and financial reporting. Direct fund expenses
include custodian safe-keeping fees, audit, prospectus filing
fees, mailing and expenses related to the funds’ independent
review committee.

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 JODI VETTERL

3. Taxes: Fund companies pay taxes on the management fee and

certain operating costs.

4. Other costs: These include interest, borrowing costs and any

new governmental fees. These other costs are small and,
on average, represent less than 0.02 percent of the MER.
(Source: www.mackenzieinvestments.com)

The impact of the MER fees and commissions in the investor’s

portfolio is so profound that I had to find an example to put into a
dollar amount so that you can understand that what looks like a
small fee, is substantial.

Advisor.ca wrote an article on mutual fund fees titled “Mutual

Funds Cost Investors more than $300K in a Lifetime.”

“Over the course of an investor’s life, mutual fund fees can end
up costing the average Canadian household $323,654.50,” says
digital wealth management Nest Wealth.

“Put in context, the average Canadian household will spend

$80,000 more on investment fees than they’ll spend to raise their child
to the age of 18,” says Randy Cass, founder and CEO of Nest Wealth.

“Nest calculated the fee by assuming an investor who starts

saving at age 25 with a $10,000 initial investment. Each year for the
next 39 years, she adds $5,800 to her investments. At age 65, she
starts withdrawing either $22,000 a year, or 3.5 percent, whichever
is greater. Nest presumed a rate of return of 6.5 percent and used a
2.35 percent annual fund fee. Morningstar data shows 2.35 percent
is the average equity mutual fund MER in Canada. With those rates,
the average balance of the investor’s account over the investment
lifetime is $229,000, while the fees she pays are $323,654.50.”

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 S m o k e a n d M i r r o r s

Can you get your head around this? Because I cannot. How is
it possible that over decades of investing our hard-earned money,
the institutions, with the MER fees, make more money than we do?
Moreover, it’s our earnings that are being skimmed off. How do our
governments allow for this racket? No wonder the banks are the
wealthiest corporations in the country!

The banks’ marketing machine makes us feel as though investing

our money on our own is an impossible task. Please stay open and
keep reading. I’ll introduce some simple strategies to start taking
control of your wealth management by looking beyond the banks.
No one will ever care about your retirement portfolio the way you do.

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 Chapter 4

WHERE TO
BEGIN
W hen taking control of wealth building, it’s imperative to set
goals. For each goal, take the time to figure out the meaning,
purpose and value of each goal. If we do not understand the meaning
or our why, then it’s easy for the goal to drop off when we settle in
to be comfortable. Sometimes we adjust to the pain and discomfort
of our current situation over making a life-long change because we
simply do not understand the meaning, purpose and value of our why.

Simon Sinek, author of Start with Why, says, “Working hard for
something we don’t care about is called stress; working hard for
something we love is called passion.”

What is your why? My why was my son. I did not want him growing
up with a stressed out, exhausted Mom who is unhappy at work.

What are you trying to achieve? Is it leaving your job and pursuing
some passion? Do you have an entrepreneurial spirit you would like
to fulfill but are held back because of work, time and stress? Do you
love your job but want extra money for your children’s education
or to buy a new home or to vacation more often? Do you have
loved ones to take care of, maybe aging parents? Do you have a
philanthropic spirit and wish to give back in some capacity? These
are your goals so you decide.

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 W h e r e t o B e g i n

Put a dollar value on the goals so you know how much they will
cost. I mentioned earlier that I had a goal of bringing in $10,000 per
month as my target to leave my job. The amount covered my cost of
living and established financial comfort.

The next step is to start looking at what funds are accessible.

Call your financial advisor and ask: If you were to sell everything
today, what would the approximate amount be? I am not saying to
turn around and sell everything. However, knowing what amount is
being managed by this person is an important first step. Learn about
each fund you’re invested in and their individual fund performances.
Find out if selling any of the funds results in penalties and if so, how
much? Some funds may be locked in for a few years so you will
need to record the expiry dates.

Do you have property? Is a mortgage owed? What kind of

mortgage: conventional fixed, variable or home line? When is
the expiration date of the mortgage? What do you believe is the
appraised property value—have you had it assessed recently?

Don’t worry if you don’t have this exact information at this time.
Sketching out what funds you may have access to is a great place
to start.

How much personal debt do you have? What kind of debt is

it (mortgage, credit cards, vehicle), and what are the interest rates
being paid out?

Do you have funds in your registered accounts, such as a tax-

free savings account (TFSA) or RRSP (in the US, any IRAs or 401ks)?
Are these funds also invested and managed by the financial advisor?
Have you been maxing out your Canadian TFSA every year since
2009? If you are unsure, contact CRA and enrol for online access so
you can view your registered fund history.

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 JODI VETTERL

It’s always a good idea to review your monthly cost of living

whether you are looking to retire or not.

Put all of this information aside and keep reading. We are about
to get into some strategies. Having a snapshot of your net worth
and defining goals will help you to start visualizing how you can
begin to restructure and take control of your wealth management.

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 Chapter 5

PRIVATE MONEY:
WHAT IS IT AND
WHY IS IT
REQUIRED?

I n real estate, there are many reasons why private money is

commonly used. In this chapter, you will learn some of the key
areas about where and why private money is utilized and how
private money fills a hole in the market where big banks cannot play.

The House Flipper

This person actively flips houses, buying a property at a price allowing

room to renovate and resell in a short period of time. We also refer
to this person as an active investor, flipper or rehabber. The active
investor is usually putting a house with a distressed property owner
under contract. There are many reasons for distressed property sales.
Owners have to sell quickly because they are in mortgage default
and the bank is foreclosing on the house, or the owner has inherited
a house and is not in a position to cover property costs while the
estate is in probate. Whatever the situation, often the homeowner has
few options and needs to sell quickly with a cash purchase.

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 JODI VETTERL

The active investor’s goal is to create a win-win so the seller can

get out of their distressed position quickly at a price allowing the
active investor to renovate according to other houses in the area so
they can approximate an after-renovation value (ARV). If the house
price is too high, then the numbers may not make it worthwhile for
the active investor to move forward. They aren’t trying to rip off the
seller by any means. If the seller was about to lose the house to a
bank foreclosure, destroying their credit for years, it is clearly an
opportunity that would allow anyone who ends up in this unfortunate
situation to move forward.

In this situation, your capital can be used towards buying and

renovating the house.

Private Investing through an Independent Mortgage Broker

Aly Chatur, The Appraised Financial Group Ltd., is an independent

mortgage broker in Vancouver. In discussing private lending, he
shared some interesting facts on the changes regarding mortgage
qualification within Canada that big banks must follow, therefore
opening up room for private lending to fill in the gaps. Chatur
states that “our real estate market continues to be impacted by the
evolving nature of the Canadian financial regulatory environment;
as borrowing rules becomes stricter, the inevitable exodus of
rejected borrowers has placed increased pressure upon the often-
less-regulated alternative lending circuit.” Chatur shares that in
his personal alternative lending portfolio, he has seen a growth of
approximately 50 percent over the past three calendar years.

In other words, because government is tightening up the

financing regulations that big banks follow, a new trend has emerged
with a demand for private lending, which is in fact becoming more
mainstream. Borrowers are being forced into situations where

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 P r i v a t e M o n e y : W h a t I s I t a n d W h y I s I t R e q u i r e d ?

looking beyond the banks is becoming the new norm. Working with
independent mortgage brokers versus the traditional bank broker
may open other opportunities for strategies that surpass what we
have been conditioned to follow. It may be more difficult to borrow
from traditional sources.

As a private lender, working with an independent mortgage

broker maybe an option. Even though risk is a factor to consider in
any investment, working with a professional mortgage broker who
provides a level of expertise in analysing the opportunity as well as
the borrower may be a route to explore.

Whether you work independently as a lender with an active

investor who flips a house or team up with an independent broker
like Aly Chatur, the funds will be secured on the title of the property,
providing collateral. It’s the same as a bank. In essence, if you have
a mortgage with a bank, the bank is on your title. If you default on
payments, then the bank can foreclose on the home because this is
their collateral and they have the right to do so. The bank is in first
position; therefore, they are paid first before taxes, legal fees, etc.
Being the lender in these situations is the same, based on which
position your money is in. If you are in first position, like the bank,
you will be paid first. It’s the most advantageous position to be in on
title. Usually the person or entity that is lending the most amount of
money takes first position.

If you have limited funds to invest and are not able to fund an
entire project, or another party is funding more money than you,
you may be in second or third position on the title. In this case, be
sure that the house is worth more than what you are providing and
consider a buffer.

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 JODI VETTERL

For example, let’s say the house is worth $100,000 and the
renovations are $20,000; the other party is lending $70,000, and
you are lending $50,000. The after-renovation market value is
$225,000, which is a difference of $105,000. The active investor is
providing a 15 percent annual return on the borrowed money and
estimated six months of carrying costs, which is $9,000. $105,000
minus $9,000 is $96,000. There are other carrying costs, such as
insurance, taxes, water and electricity. If a condo or townhouse is
being renovated, then add HOA/strata fees. Six months gives the
active investor time to close and take ownership of the property,
renovate it and sell. Most active investors will try to stick close to a
timeline and allow for a two-to-three-month buffer. The buffer is for
renovation surprises: electrical, plumbing or foundation surprises,
permits they may not be able to anticipate when creating the
business plan and possibly a market slow-down so it may take
longer to sell the house from the market conditions when the deal
was created. The active investor could factor in a 20 percent market
correction to cover their bases and confirm that investors will still be
paid and still be profitable even if the house sells for less than the
anticipated price of $225,000.

As long as there is a buffer for unknowns and the numbers

work for everyone to make some money, then it is a private lending
opportunity to consider. As a private lender, I want the active investor
who is doing all the heavy lifting to make good money from the
deal as they are less likely to walk away and leave it to the private
lenders to foreclose if something goes wrong.

The best-case scenario is that everyone has an opportunity to

make some money in the process of saving the homeowner from
foreclosure. Otherwise the numbers don’t make sense and the bank
wins.

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 Chapter 6

BEFORE
LENDING AND
DEAL ANALYSIS
W hen working with a professional real estate investor who is
flipping houses, some items will need to be communicated
so that the private lender can understand the full scope of the
project and who they are working with.

Someone who has been or is about to start flipping houses

will be able to provide you with a credibility package. They may
showcase various completed projects, including before-and-after
pictures and a case study revealing the numbers they worked with.
If this is their first project and they have gone through some sort
of educational real estate network, learn about the organization.
Understand if they are working with a coach. If that is the case, you
may want to ask for a credibility package from their coach to make
sure they are being directed by someone with experience.

They will also provide a statement of work (SOW), which will

represent the opportunity with all the numbers in place and include
details like the address of the house, the purchase cost, estimated
renovation costs, permits required, length of time, the cost of
borrowed capital and the ARV with a fair-market analysis of similar

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 JODI VETTERL

properties that have already been renovated. Have the investor

walk through all of this in detail so questions can be asked and the
opportunity is fully understood.

The promissory note or contract will outline the amount being

loaned to the address of the house being renovated as well as the
annualized interest rate and any added points to the loan. For example,
a loan may be $50,000 for a minimum of three months, 12 percent
annualized plus two points. The calculation would be $50,000 x .02
pts = $1,000 plus annualized at 12 percent is $50,000 x .12 divided by
12 months x three months, which equals $1500. So the loan of $50,000
for three months will generate $2,500 in total interest.

Balloon payments versus monthly interest payments will also

need to be indicated. A balloon payment is receiving all monies at
the end of the loan, principal plus interest. If it is a longer loan, for
example, nine months to a year, and it’s money to live off or to cover
interest payments from a line of credit, it may be more practical to
choose monthly interest payments throughout the duration of the
loan. The real estate investor managing the project is usually fine
with that, although a balloon payment is often desired. It’s best to
communicate your personal financial goals so that the best scenario
for both parties is defined.

Have the real estate investor communicate the selling strategy.

Will they be actively marketing the house during renovation? Are
they working with a realtor? Will the home be professionally staged?
What is the backup plan if the house does not sell in the established
timeline? What about unanticipated renovation expenses or other
delays? Do they need to obtain permits? Are time and cost factored
in? How much do they have in a contingency if extra expenses
come up? Will they personally qualify for a conventional mortgage
so they can pay out to the investors and rent out the property? What

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 B e f o r e L e n d i n g an d D e a l A n a l y s i s

is the fair-market rent for a house that has been renovated in that
neighbourhood? The more that is communicated and understood,
the better everyone understands and therefore can sleep at night.

The promissory note or contract also needs to disclose the

position on the title your funds are in.

In addition to the credibility package, the SOW and the

promissory note or contract, often the real estate investor will
provide paperwork for the home insurance and title, showing that
it’s clear of any liens or issues.

It is important to set out communication guidelines. Often, when

first working with a new real estate investor who is flipping houses,
the real estate investor will provide regular check-ins on how the
project is moving forward. Ask for the demolition photos; while the
renovation is in play, they can provide weekly or monthly updates.

If communication has not been mentioned enough yet, it needs

to mentioned again. Everyone needs to be communicating. Often
with renovations, unknown circumstances surface that may create
delays. If it is all being communicated and the project takes longer,
interest payments will still be required, so the private lender is
still making money. It is imperative that the rehabber continues to
communicate so that their private lenders do not start to get nervous
and take action due to a lack of communication.

An example of this is a house that was being renovated in

Toronto. The rehabber had some issues and simply stopped
returning calls to the private lender. The lack of communication
made the lender nervous, and because the project was delayed
past the time frame outlined in the contract, the lender called their
lawyer, and a demand letter for funds was sent to the active investor.
The lender has the ability to foreclose; this is the security on the

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 JODI VETTERL

title with a contract in place. The lender had no financial issues with
the delay. In fact, because they were still making money, they were
content with the situation, but after unreturned calls over a period of
time, the lenders became nervous and took action.

The professional real estate investor doing rehabbing is in a

long-term business. For them, the ability to find private lenders is
the difference between doing a project or not doing a project so the
majority of them understand this and take care of their relationships
with their investors. It’s important to always do you your own due
diligence on every deal no matter how well the active investor may
come across.

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 Chapter 7

DUE DILIGENCE
D ue diligence is defined as an action that is considered
reasonable for people to be expected to take in order
to keep themselves or others and their property safe (source:
www.dictionary.cambridge.org/dictionary/english/due-diligence).

Back in the early 2000s, I signed a deal to franchise a wellness

center in Vancouver. I took the contract to the lawyer after the first
stage of the agreement was approved, and I learned something
from that lawyer that has stuck with me ever since. He said to me,
“Jodi, it’s really easy to sign a contract, and it’s quite the opposite
to get out of a contract you should have never signed.” The whole
experience of signing a contract before reviewing it with a lawyer
ended up being a significant lesson in due diligence as well as a
very costly and stressful experience.

When I am considering funding a project, once I have the

contract, I send it through to LegalShield. LegalShield is a tax-
deductible monthly subscription program that gives access to a
local law firm. For example, the provider firm in Vancouver, British
Columbia, is Watson Goepel LLP, a top-notch firm. Their LegalShield
division is mandated to get back to you within four business hours,
and my experience has been consistently to be contacted within
a few hours. LegalShield reviews contracts, provides legal advice
and sends legal letters on your behalf, among many other services.

30
 JODI VETTERL

If the contract is outside of your provider firm’s jurisdiction, you

will be referred to a local firm from the state or province where
the contract is based. As a private lender in various markets in the
US and Canada, I never have to worry about finding a law firm for
reviewing contracts because of the LegalShield network.

My experience before LegalShield was to call a lawyer, who took

a several days to call back, and then have to set up an appointment,
which always seemed to be a week out. The review of documents
is usually billed hourly and often a retainer fee is required. While
working with real estate lending, having access to legal counsel,
often the same day, is key for preparing to lend.

If you do not have a LegalShield membership, look into it.

Having access to quick, affordable legal advice will prevent any
hesitation over contacting a lawyer to review the documents as
well as provide the right questions to ask or request changes in the
contract. Ultimately, working with LegalShield will move you in or out
of the deal in a timely fashion based on sound advice.

Other areas of due diligence will include a review of the active

investor’s credibility package. Check references and spend some
time researching the person and company on the internet and local
real estate networks.

Pull the title on the property by going through the local Land
Titles office. Usually there is a small transaction fee. Having access
to the title will reveal any inconsistencies with ownership or liens
that require explanation.

Request the appraisal document. Ensure that if the active

investor is saying that the house is worth a certain amount, the
appraisal value is consistent.

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 D u e D i l i g e n c e

Review the fair-market report the active investor provides to

you. (If they don’t, request it.) You can also contact a local realtor to
do your market report to find out if the ARV is consistent with what
the active investor is projecting.

Taking the time to speak to your accountant about the investment

and tax structure is also an important area of due diligence. The
accountant will inform you of any changes in tax law that may affect
whether the investment is best made through a corporation or as an
individual and what tax rate will apply. Navigator Consulting Services
in Vancouver has been instrumental in keeping me up to date on
the changes the federal liberal government has made concerning
investing through corporations as well as planning my departure
from my full-time employment and filing my annual Canadian taxes.
They understand the lending strategies I am involved with and have
been able to advise based on the most effective structure for my
tax planning.

Because lending and earning from these investments are self-

managed, there is no one to hold back taxes. This is very important
to understand. Deepk Jaswal, CA at KPMG Enterprise in Vancouver,
explains the significance of working closely with an accountant.
Everyone’s circumstances are different, and knowing approximately
what is being earned in a tax year will help the accountant determine
how much tax to hold back on the investment earnings.

Jaswal also explains the importance of taking the time to map

out your financial goals, income, investments and time frames with
an accountant. The accountant will help establish the structures you
need in order to build the most effective tax plan.

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 JODI VETTERL

In the USA, I consult with Richard Hart of Hart and Associates

for my accounting. He has helped me set up in the US with an
international tax identification number (ITIN), along with structuring
loans, buying and selling homes and annual accounting. He is
always excellent and forthcoming in answering questions related
to investment opportunities and other businesses. Hart and
Associates’ tag line is “You Earn It, We Preserve It,” which is perfectly
stated. You are going through all the trouble to step out of the box of
conventional investing into the realm of creative real estate investing.
There are many ways to skin a cat, so with investing it’s imperative
that you spend the time and money on a good accountant. Like a
good lawyer, the money spent on these professionals to help set up
structure and best practices is worth its weight in gold.

If you are a Canadian investing in the US, a cross-border

accountant like Richard Hart is necessary. Of course, this all applies
to our American friends who are looking to invest within the States
and/or investing cross-border into Canada.

In summary, always review your contracts with a lawyer. The

time and cost to do this before signing will save you stress and
money in the long run.

LegalShield is an essential tool in my toolbox. As a real estate

investor, and for life in general, the service has proven itself year
after year. I would not go a day without the coverage.

Reviewing the opportunity, timeline and tax structure of the loan,

along with your financial goals, with your accountant is best practice
for preserving wealth.

33
 Chapter 8

DON’T BE A PITA
(PAIN IN THE A$$):
COMMUNICATION
IS KEY
W hen becoming involved in a deal as a passive investor, it is
critical to work out communication guidelines with the active
investor. Do this before signing the agreement so that both sides
have a clear understanding of expectations.

Create guidelines with the active investor for ongoing progress

reports throughout the project. As the passive investor working
with an active investor for the first time, be aware that bi-weekly or
monthly updates are fair and establish accountability. Some areas
to request updates include permits as well as anything that may
cause delays. Most importantly, request that the active investor
communicate any issues that may cause the project to go sideways
and ask about the backup plans.

It’s important that there is balanced communication. As a passive

investor, you don’t want to request over-the-top progress reports
until the active investor is burdened, which can result in project

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 JODI VETTERL

delays and stress. Quick updates to be assured that the project is

moving along within a reasonable time frame as per the contract are
fair and reasonable.

Establishing guidelines helps avoid any knee-jerk reactions

between the two parties.

Do not be a PITA. Working as a passive investor, recognize that

it is not appropriate to involve yourself in the renovation unless the
active investor asks for input. If you are interested in being involved
in the renovation, then learn how to flip houses yourself and become
an active investor. The active investor will likely not tolerate the
passive investor involving themselves in renovation details beyond
the agreed-upon communication. A passive investor who becomes
a PITA will probably not be asked to fund another project, which
means that they will miss out on low-risk double-digit returns.

The relationship between the active and passive investor

needs to be respected and balanced on both sides. It is a win-win
situation; the active investor requires other people’s money to fund
their projects, and the passive investor makes double-digit returns
on their capital passively. Once the active investor has completed
a few projects, it becomes easier for them to find private lenders.
However, it is their responsibility to take care of your investment and
be informative by communicating project stages and delays.

Rochelle Laflamme and Alisa Thompson of Epic Alliance Inc.,

whom I invest with regularly, shared with me a story of the first
passive investor they ever worked with on a deal. This person
involved themselves in the renovation in such a way that it almost
impacted their timeline and renovation budget. Epic Alliance Inc. no
longer will work with this investor. Five years after that project, they
are in a position where it’s easier to find lenders. They often have
projects funded within 24 to 48 hours.

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 Don't Be a PITA (Pai n In t he A$$): Communicat ion Is Key

Other important aspects to keep in mind are readiness and

commitment.

It’s best to get to know the active investor before a project comes
up. Meet or call them in advance to learn about the types of projects
they are doing. They will likely provide a credibility package. You will
have time to research who they are, along with their track record.

Have your funds ready. You may have money, but if it’s tied up in a
mutual fund that needs selling and transferring to another institution,
this will take some time, so having it done ahead of time is essential.

The active investor will want to know that funds are available so
that when the opportunity to write a contract presents itself, the deal
analysis and legal review are all you need to do. Being ready allows
for a quicker transaction for both parties and puts your funds in a
better earning position faster.

Having a LegalShield membership works well because the

turnaround time for reaching legal representation and reviewing an
agreement is very timely.

Communicate in advance about the best way to transfer money

as well as fee management. It may be a wire transfer. If both parties
use the same bank, often a straight branch-to-branch fee-less
transfer can be done. Usually, the active investor receiving the
funds covers any transfer or wiring fees; they will need the receipts
to write this off as a business expense.

Once the money is in place, details of the transfer are well

communicated, and the active investor is ready to sign a contract of
sale, the passive investor needs to be prepared to move forward.

The contract of sale usually will allow for a few days before
money is required to be transferred. This gives the active investor

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 JODI VETTERL

time to create a deal analysis and due diligence. These details will
be passed on to the passive investor for review. Make sure all your
due diligence concerns and questions are fully answered by this
point. The transactions will move fairly quickly from this time.

The regular practice of rehabbers like Rochelle and Alisa of

Epic Alliance Inc. is to disclose the price paid for the house, the
fair-market price of the home, renovation costs, after-renovation
value (ARV), costs to carry and time frame. As well, they review exit
strategies to cover various “what if” scenarios to mitigate risk.

They will provide a promissory note or mortgage document,

with details such as start date, the property title, position on the title,
annualized interest rate, amount of loan, approximate close time
frame, and extension details or early prepayment details if required.

If everything checks out, then it’s time to make the final

commitment, sign the contract and transfer the funds.

It’s important to note that the active investor has committed to

buying the house with cash based on the commitment from the
lender. Often these types of deals involve helping someone sell
their home before the bank forecloses or other stressful situations.
If the passive investor suddenly pulls out at the last minute, there
could be severe financial consequences for all involved. The
passive investor will gain a reputation from such actions and likely
be excluded from future projects. Local real estate markets are a
lot smaller than one may think, so just as the active investor has
a reputation to uphold, so does the passive investor. Always think
about it from the other person’s perspective.

Earning double-digit returns when a title position secures the

investment can change your life. Take care of the relationships you have
with the active investor so they will work with you again. Don’t be a PITA!

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 Chapter 9

CREDIT
Y ou may be thinking that you do not have any money to invest. If
you do not have any cash savings to invest and are interested
in private lending, look into accessing a line of credit from the bank.

There are two main types of credit accessible by the bank that
I actively use for lending purposes. First is an unsecured line of
credit. Unsecured credit is credit that is not secured against any
real estate or asset. Usually an unsecured line of credit has a higher
interest rate than a secured line of credit, which is secured against
a physical asset, such as real estate.

If you have property, either your own home or income properties,

speak to a mortgage broker about a home equity line of credit
mortgage, also known as a HELOC, which will allow access to money
already paid down on the property as well as market equity gain.
Restructuring an existing mortgage into a HELOC may be a better
solution than sitting on equity that is locked and not earning income.

During the time of writing this book, I have met several mortgage
brokers from banks and brokers who work independently. This is
not true for every mortgage broker who works at a bank, but the
common trait that I have experienced and continue to see is that
the bank-employed brokers want to sell fear and lock you into a
long-term mortgage. The mortgage that appears to be the safest to

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 JODI VETTERL

jump into is a conventional fixed four- or five-year mortgage. This is

the most expensive mortgage. On average, 60% of people tend to
break these mortgages halfway through the loan period incurring
expensive penalties. (Source: www.dominionlending.ca/news/9-
reasons-people-break-mortgages). Kelly Hudson of Dominion
Lending, goes on to explain several reasons why mortgages are
broken before term. In a 5 year term, people may need to move;
divorce may result in selling of property; re-mortgage for lower rates
or to gain access to home equity for purposes of paying down debt.
There are many reasons and the bank is there to cash in on those
reasons. Conversely a variable rate mortgage penalty is usually 3
months of interest only which is substantially less of a penalty than
the fixed rate mortgage penalties.

In my experience, the independent mortgage broker strategically

works to align your financial goals with the most suitable mortgage
product that is available.

Bank and bank mobile mortgage specialists are tied to a

single financial institution. They often engage in the upselling and
cross-selling of products and services unrelated to the mortgage
transaction. For example, life and mortgage insurance; opening
other accounts; investment banking and selling of mutual funds, to
name a few I have personally experienced.

Banks have more stringent rules and regulations as they are

bound to federal and provincial regulations. The bank broker has
limited or no access to alternative lending platforms such as private
lending. The bank broker is also accountable to the institution that
provides their pay cheque. They have quotas to meet. Like any
corporation, the pressure is on to sell so stock prices will continue
to rise, resulting in happy shareholders.

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The independent broker will offer a different experience to the

borrower. If I knew what I know now about the independent broker,
I would have used them in the past. Moving forward, this is the
way I will borrow. Aly Chatur of The Appraised Financial Group Ltd.
explains that he has access to dozens of lenders to choose from
beyond the banks. They have access to a variety of private loans,
commercial lenders, construction financing, equipment leasing and
alternative banking services, such as unsecured loans. If you are
looking into any type of investing, whether buying an investment
property or restructuring existing mortgages that allow for re-
borrowing capital, working with an independent broker will offer
many more avenues and strategies to help you fulfill your financial
plan. They allow for one-stop shopping, and when presented with
your goals, their access to different sources allows them to be
creative in a way that a bank may have limitations. The independent
broker will offer a more streamlined and efficient process to meet
the needs of a fast-moving market. Additionally, for people who are
self-employed, working with an independent broker will provide
the flexibility beyond the regulated bank stress test. It’s one-stop
shopping, with one application and one credit check. Independent
brokers can often shop for more competitive rates than banks
as well. It is a completely different experience dealing with an
independent broker over a bank broker.

Big bank brokers generally use fear about rates going up to lock
you in. I am asked constantly by friends and family if they should lock
in rates because their bank broker is suggesting this because “rates
are going up.” My question back to them is usually, “Well, what is your
plan for that mortgage? What are your financial goals? Would it be
useful to know that you can re-advance your equity and invest where
your money is secured to an asset, which can in turn help pay off the
original mortgage debt faster than by conventional means?”

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 JODI VETTERL

Chatur explains, “There is no one-size-fits-all approach to

mortgages. Everyone has different needs, which come from different
contexts. Individuals who are risk averse typically gravitate towards
fixed loans, and the rest will take a variable or HELOC. Those who
have taken the variable have come out ahead over the past 25-
plus years and this is a fact.
However, you cannot put a price “Would it be useful
on a good night’s sleep, which to know that you can
fixed borrowers will experience re-advance your equity and
more. A bank representative invest where your money is
will provide advice as per the secured to an asset, which
mandates of his or her employer. can in turn help pay off
The advice and guidance are the original mortgage debt
often biased and tainted, often faster than by conventional
not justified by real-world means?”
evidence or experience.”

Another tactic used by big bank brokers is mortgage insurance

coverage. It didn’t even register with me that I was paying so much
money in insurance on my mortgages every month. I couldn’t recall
the initial conversation about mortgage insurance but I had it for
over a decade before I clued in. When I attempted to cancel it, my
bank broker said something to the effect of “If you cancel it now, you
won’t be able to get it back without having a medical examination.
As you get older, it can be more challenging to have bank insurance
so think about it before you cancel.” Here’s the thing. When I
discussed it with people who have had to lean on bank insurance
coverage, I learned they made clients jump through hoops during
a time when they didn’t have good health. What I discovered is that
there are alternatives when it comes to insurance. I learned that in
working with a good insurance company beyond the bank, better
mortgage insurance can be sourced with a bit of shopping around.

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Michelle Hennessy of Perk Benefits Inc. is an insurance broker

who is part of a network that can provide insurance across Canada
and the United States. She explains the differences between bank
insurance and personal life insurance.

“Today there are many options for life insurance. Most people
are familiar with bank insurance versus personal life insurance.
When a person or a couple gets a mortgage, the first reaction is to
add on the bank, life, disability and critical illness insurance because
the bank asks, and it is less stress to add on to the mortgage. Little
do you know that there are restrictions to this coverage. Watch “CBC
Marketplace: In Denial” www.youtube.com/watch?v=qe61HVGIwUo
for an eye-opening account of how the banks operate when it
comes to insurance.

Hennessy goes on to convey “the difference between the new

mortgage insurance versus the old one. The new one is what we call
personally medically underwritten coverage or guaranteed issue if
the health is not so good.”

Why is the new so much better than the old? Because when the
mortgage insurance at the bank is added on, it can be deceiving to
the consumer.

Hennessy goes on to explain the differences.

New Mortgage Insurance

• The face amount on this policy always remains the same. If

you buy $500,000, your beneficiary receives this exact face
amount at the time of your death.

• You can pay other bills with this money, for example, your
children’s education, replacement income, outstanding debt
and taxes.

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• Policies that will cover you for 10, 20 or 30 years, or up to age 100.

• Premiums will only increase at renewal time, and if your health

deteriorates, there is an option to convert to permanent coverage.

• It is a standalone policy—you own it 100 percent.

• It is medically underwritten at the time of application.

• Claims are reliable.

• You can add on the critical illness and disability separately.

Old Mortgage Insurance

• This coverage decreases with every mortgage payment.

• It will only cover the mortgage amount.

• The premiums increase at every renewal, and the individual

is underwritten at the time of claim.

• There is no option to convert the policy if health is an issue.

• Premiums are very expensive for anyone aged 40 and

above.

• When you watch the CBC Marketplace video on YouTube,

you will see that out of 60 people only 6 people get paid out
at the time of claim.

• If you change banks or go to a mortgage broker, then you

must start over with your coverage at the age that you are at
when you buy again.

In summary, we are, by nature, interested in getting involved

with the solutions that take less time to implement and not many
questions are asked. The banks sell this as a package concept.

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My suggestion is to take the time to underwrite and put the right

plan in force to be sure you have the coverage that you desire.
The older you get, the more expensive the policy becomes. This is
not to change your mind about having the coverage. Something is
better than nothing.

Lastly, my perspective on mortgage insurance as a private

lender using mortgage equity, where my original mortgage owing is
paid off, is that if something does happen to me, that money owing
is tied back to a loan that is secured on the title of the property as
per the lending contract. When I thought about how I was paying a
few hundred dollars a month to the bank for mortgage insurance, it
made sense to cancel and explore other products.

In writing this book, I have had the pleasure of meeting with

independent mortgage brokers. It’s been enlightening to learn their
approach to clients. They take the time to make sure they have
set up the best mortgage to reflect clients’ personal and family
goals, not what the banks say you need, which to many of us who
have experienced investing with banks seems more self-serving.
In addition, independent mortgage brokers have access to various
strategies for building a real estate portfolio that you are probably
not aware of. Education is key, and spending time to learn how to
grow your financial future is valuable. People who have wealth learn
and implement strategies beyond the banks, and you can too.

Chatur explains that as the government continues to tighten up

on bank lending, private money is becoming more popular as an
investment funding source, helping many people buy their dream
homes or investment properties. He works with people like myself
who are interested in being passive investors and connecting us with
those who need alternative lending solutions. Being an independent
broker, he is not tied to bank product quotas. Dealing with someone

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who is quota driven versus someone who is independently building

their own business around their reputation and helping their clients
achieve their financial goals is a different dynamic.

In Canada and the US, if you invest using line-of-credit money,

whether it is secured or unsecured, the line of credit or mortgage
interest is tax-deductible.

Hart of Hart and Associates, the US-based accounting firm I work

with, confirms that, just as CRA works, the IRS collects tax on the net
amount between the interest paid and interest earned. Therefore, if
the capital is coming from mortgage equity, in both the US and Canada,
the mortgage interest is tax-deductible on the portion loaned.

The carrying costs of the borrowed money may be taking away

from the overall interest amount being earned. However, it’s capital
that would be just sitting inactive if you were not investing, and there
are tax savings.

A dear friend of mine, Ahmad, was very interested in learning

how to become a private lender. He was in the process of renewing
his mortgage, so we discussed the HELOC mortgage for the purpose
of lending. At the time, he struggled with the interest rates being
higher than for a long-term fixed mortgage. After working through
the math, he could see very clearly with the tax-deductible mortgage
interest rate and a re-advanceable mortgage that he would be
making money on the investment despite the higher interest rate.

In addition, I suggested he speak with the mortgage broker

about an extra unsecured line of credit. He was able to qualify for
an unsecured loan of $50,000 at 5 percent and entered a loan at 15
percent annualized rate of return grossing approximately 10 percent.
5 percent becomes tax deductible and he is earning income on a
bank line of credit, and it is not even his money!

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Banks achieve profits using this methodology. Bank customers

put money into savings accounts or other products that earn a low
interest rate. The bank loans that money at a higher rate of return
and collects on the net amount. Simple as that. We have the ability
to do the same.

Here is an example of a loan at prime plus .5. At the time this

book was written, the current prime rate in Canada is 3.7 percent
so the total interest amount is 4.2 percent. This is the cost to carry,
or the carrying cost of the loan. If $100,000 is being loaned for 12
months, it will cost the lender $4,200 per year which is $350 per
month. If the active investor is paying 15 percent annualized, then
$15,000 annually or $1,250/month is being earned before carrying
costs. Each month, the net amount is $921 before tax. Tax is owed on
the monthly amount of $921.00 or $10,800 annually at your personal
or corporate tax rates.

Earning passively from credit money, whether secured or

unsecured, is a great way to utilize available capital that is otherwise
doing nothing. Even an unsecured line of credit that has a carrying
cost of 5 percent when the interest rate for the loan is 12 percent
annualized earns 7 percent—higher than the average projected
rate of return from working with a financial advisor. In addition, it’s
without bank fees and commissions that will be skimmed off the top
of the principal loan amount and gross profit.

The top four companies in Canada are all banks because they
make money from fees and commissions as well as leveraging
consumer savings, paying a low interest rate to consumers and
leveraging their money at a higher rate of return. It’s that simple.
This is what I have done, which has afforded me the luxury of retiring
from the corporate rat race.

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 Chapter 10

INCREASE
RENTAL PROPERTY
REVENUE
T here are various expert opinions out there about paying off
rental property first versus paying off your primary mortgage.
Some say to pay off the primary mortgage first because rental
properties can write off the mortgage interest and other general
expenses, such as property taxes, insurance, HOA/strata fees and
other miscellaneous expenses. In Canada, mortgage interest on
primary homes is not available as a tax write-off. For Canadians, this
brings in additional considerations.

Some may argue that paying off the rental property is the better
way to go because you can use the rental income to rapidly pay
down the principal mortgage by doubling up the payments. This is
an effective strategy. In fact, I learned from the Passive Income Club
through Fortune Builders it is a proven strategy. If you have more
than one rental property, put all the cash flow positive money on one
mortgage, either the highest interest rate or the lowest mortgage
balance owed. Once one of those mortgages is paid off, you might
use the extra amount that was going towards the carrying costs
plus the cash flow from both places and rapidly pay down the next

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 I n c r e a s e R e n t a l P r o p e r t y R e v e n u e

mortgage. I love this strategy and in fact successfully implemented

it on my properties in the US, where I was able to pay off one of
the mortgages in a fraction of the time. I was able to refinance the
mortgages and start lending privately in the US. What worked in this
case was that no original money was owed on those properties; the
carrying costs are covered by the interest earned and then some.

Going back to paying off investment properties versus the

principal mortgage, what do you do when you have a lump sum
of cash? It’s definitely a number-crunching exercise to do with an
accountant, but if you can put a few scenarios together prior to
meeting with your accountant, the choice will be easier to determine.
We all have individual tax circumstances to consider. There are
many ways to approach any lump sum opportunities we may be
fortunate enough to come across. So what do you do? It has always
been confusing for me when a lump sum of cash is available. Do I
invest the money, pay down my home mortgage or apply it to the
rental property mortgage?

Once I started private lending in real estate with cash withdrawn

from the financial institution and realized the level of security,
simplicity and growth this investing provided, I centered some
financial goals around paying down both the investment properties
and primary mortgage.

This is simply due to a mortgage product available in both the

US and Canada known as a home equity line of credit mortgage,
also known as HELOC. The HELOC provides the perfect win on both
fronts. Paying down what is initially owed on either mortgage by
lending the available equity in an investment that is secured on the
title and earning double-digit returns will accelerate you towards
being mortgage free. When I say mortgage free, I refer to what was
originally owed on the mortgage so that up to one’s comfort level,

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that equity, whether it’s the primary home or an investment property,

is being used to generate income.

Consulting with your accountant and mortgage broker on your

goals and paying down the debt plan are important, if I haven’t
emphasized it enough. Knowing how much and in which tax year the
loans will be paid back is important to share with your accountant to
help with tax planning.

For the readers who currently own rental property, when was
the last time the property was appraised? What is the estimated
value? How much mortgage, if any, is owed? What type of mortgage
is on the property, conventional, variable or HELOC?

In this chapter, you will learn strategies for increasing rental

property revenue without increasing either the rent or square
footage to pay down what’s owed on your mortgage and then turn
around and leverage the equity.

I will share a personal story to demonstrate how I was able

to increase and maximize revenues on a rental property without
increasing rent.

My first real estate purchase in 2003 was a condo I lived in

for several years. At some point, the property acquired a HELOC
mortgage.

I bought and moved to another home and this property became

a furnished rental. At the time, the HELOC was $337,000. I owed
approximately $195,000, leaving $142,000 available as credit.
So I started lending the available equity and making double-digit
returns. The loans were secured on the titles of the properties so I
had collateral.

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 I n c r e a s e R e n t a l P r o p e r t y R e v e n u e

Every time a private loan closed and funds were distributed, I paid
both the principal amount plus interest back on the HELOC, which
then compounded my next investment with an increased principal
amount. Over a short period, between the rental income and the
lending, this property became mortgage free in an accelerated
fashion. What an achievement!

During my last year in corporate America, I was very motivated

to leave. I was sitting on this mortgage-free rental property, grossing
$32,400 per year from rent. It wasn’t enough income for me to feel
comfortable leaving my job. Fortunately, I worked with a mortgage
broker who was able to help restructure the mortgage into a new
HELOC with an updated market appraisal. The property appraised
at $650,000. The breakdown of a HELOC mortgage is generally 20
percent down, 15 percent conventional or variable on a term and 65
percent line of credit. Because the property was mortgage free, the
15 percent conventional/variable amount was available to invest,
as was the 65 percent line of credit portion—$422,500. I invested
$520,000 at 15 percent, making $78,000 annually plus the rental
income. This property’s gross revenue is now $110,000.

At the very first real estate course I took in the early 2000s,
the instructor asked how much money we would need to make in
order to leave our jobs comfortably. Over the years, I was striving
for multiple mortgage-free rental properties that were earning
available rental income, with a goal of clearing $10,000 per month.
Making $120,000 per year from rental income is a fantastic strategy.
However, unless the properties are mortgage free, a high percentage
of the revenue goes towards mortgage payments rather than in
your pocket. Blending HELOC mortgages, where I can re-advance
equity into a private lending strategy, has resulted in achieving the
financial freedom I truly desired.

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Deepk Jaswal of KPMG Enterprise in Vancouver, British

Columbia, explains that when using a line of credit for lending, the
carrying costs are applied against the capital gain. Tax is owed on
the net amount. So if $100,000 is loaned at 15 percent annually,
$15,000 is the gross revenue. If the interest rate was 4 percent
annualized, equaling a carrying cost of $4,000, the tax is owed on
the net amount of $11,000. The tax level depends on the individual
or corporation, but either way, it’s advisable to always consult with
an accountant before entering any deal so tax structure, which is
unique to every investor, is understood.

Chatur explains that when applying for a HELOC mortgage, there

are four requests the underwriters evaluate before approving these
types of mortgages: income, credit history, equity and property
criteria.

Chatur explains that when looking at income, he will need to

know how the client intends to repay the loan. A documented
income source, such as employment or investment revenue, is
required.

Credit history is based on individual credit rating, also known

as the beacon score in Canada and credit score in the USA. Credit
and beacon scores are tracked by companies such as Equifax,
Transunion and Experion. Banks and brokers will request the
credit or beacon score from these types of companies as part of
the application process. You can request your ratings from these
companies as an individual for a small fee. If you are a LegalShield
member, you have access to your credit scores as a member.

When working with an independent broker, one application is

required; they can use it to shop around so multiple requests for
your credit score are not required. If shopping around the big banks,

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an application is required per bank. Any time a credit score or beacon

is requested, it shows up and affects your score. For example, when
I was restructuring my mortgages, I submitted three applications to
two banks and one credit union. Each of these institutions asked me
about the requests from the others that were appearing on my credit
history. Had I simply gone to an independent broker, this would not
have occurred. (The reason it shows up is to prevent people from
going on and accessing credit from multiple sources.)

The third factor that is required in completing the application

is based on equity and down payment. Chatur explains that the
amount of equity in a property will determine the amount borrowed
in relation to the property value. This is known as the LTV or loan-
to-value ratio. The lower the LTV, the less the borrowing risk. For
example, a 20 percent down payment means that there is an LTV
of 80 percent. A 50 percent property refinance means that there is
an LTV of 50 percent. Chatur points out that “the latter scenario is
lower risk in terms of LTV, assuming all other application details are
the same.”

And lastly, Chatur offers an explanation of property criteria in

relation to the application process. “The property must meet or
exceed the lender’s property guidelines. Some lenders will not lend
against certain property types, such as leased land, float homes,
rooming/boarding houses or former grow-ops.”

If the plan is to retire, invest some time and energy into learning
and working with an independent broker to build and execute a
financial plan. Restructure your mortgages and credit access before
quitting your job. Income plays a large role in being able to access
credit so take action sooner than later.

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I can sleep at night because even though I’m re-advancing

equity for lending purposes, knowing that my investment is secured
against collateral is a game changer. Using equity to invest blindly
in the stock market is a gamble because if you lose it, then you will
acquire unsecured debt.

It can be life-changing to have property paid down and in a

position to re-advance equity. Even with carrying costs on money
borrowed, the interest payments are tax- deductible, and the
net results are still higher than average returns on equity that is
otherwise sitting inactive.

If you own your home or rental properties, take the steps to

write out everything and build a plan. Educate yourself; work with
an independent broker to help build a plan, and share the plan with
an accountant for tax-planning purposes. Take action, and execute
the plan. Every day that goes by when you are not investing is time
gone by and income lost that you could be earning. Think of being
in a position, such that if you act now, you could retire 10 years
ahead of schedule. How would that change your life and the lives of
people around you? Educate, plan and execute.

You now are aware of some strategies to increase the income of

your rental properties. How do you do this for your principal home
mortgage, and what tax advantages are available?

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 Chapter 11

PERSONAL
RESIDENCE:
CREATING AN
ASSET FROM A
LIABILITY
R obert Kiyosaki wrote Rich Dad, Poor Dad in 1997. In his
book, he suggests that owning your home is a liability. At the
time, property values were skyrocketing, and many professionals
disputed him for suggesting that owning a primary residence was
a liability, not an asset. Kiyosaki explains that when there is a bank
mortgage on your house, it’s a bank asset, not a personal asset,
until the mortgage is paid off. And unless the home has a rental unit
and is producing revenue, it is a liability because the costs to run the
home are not tax deductible.

In simple terms, the definition of an asset is something that puts

money in your pocket. The opposite is true for a liability, which takes
money out of your pocket.

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Kiyosaki’s Rich Dad, Poor Dad is a staple book for many of us

who invest in real estate. He believes in investing for cash flow, not
appreciation. Appreciation can be considered a bonus when selling
the property, but if you aren’t cash flowing the property during
ownership, then it is costing money. Your personal residence may
have a lot of equity in it from market value increases, but again,
if it’s not earning income, then under Kiyosaki’s definition, it truly
is a liability.

Taking into consideration the genius of Kiyosaki, when looking

at your personal residence a little differently, a liability can easily be
turned into an asset.

Avoid Creating Bad Debt

During the earlier 2000s, before the market crash of 2008, Americans
were enjoying market appreciation. It was easy to get mortgages
and credit. People were buying cars, vacations and expensive
goods, and paying off credit cards using home equity lines of credit.
Then the market crashed, and people lost everything. They walked
away from the homes they had never actually owned. Because they
had borrowed from the property’s market appreciation to buy those
other things, they were in bad debt deeply.

What is bad debt? It’s debt that is worth nothing and owed to
creditors. If payments are missed, then the creditors come knocking
at your door. What about good debt? Good debt is debt that is
invested earning income.

Over the years of buying my personal residence, I was always

bothered by the idea of my home being a liability, not an asset. My
home does not have a suite to rent out, and I’ve been conflicted on
whether to pay it down or not. Some experts believe that paying
down your personal residence is best because there are no tax

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 P e r s o n a l R e s i d e n c e : C r e a t i n g a n A s s e t f r o m a L i a b i l i t y

incentives to write off against. Others may suggest paying off the
investment properties first, which is an interesting and effective
strategy because once you pay off the investment property, more
cash flow is available to put towards your principal residence
mortgage. Or is it best to take all available capital, not pay down
mortgages at all and simply invest? There are many ways to skin a
cat, which is why it is important to map out goals and align with an
accountant.

To me, it was imperative to pay down the original amounts

owed on my mortgages, both investment properties and primary
residence, to be free of liability-related debt while opening up equity
for investing purposes. Market appreciation for the past few years
has been good to those of us already in the market. A real estate
market crash could happen again in the near future. However, my
point of view is that if I have a property with the original mortgage
paid off and I have the latest market appreciation factored into my
home equity line of credit, should the market topple I will be in
good shape to ride it out while still responsibly accessing equity for
investment purposes.

At first I was only accessing cash from underperforming funds

from the financial planner. Now I access home equity from my
primary residence for investing, which covers the monthly cost to
carry, as well as for providing an income.

I do not use any home equity money for paying off credit cards
or any other spending. Don’t create bad debt by accessing good
debt. Use the monthly interest earned from the investment for the
costs of living, paying down bad debt, wealth building and play.

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Another important point is that when I invest from home equity,

risk must be mitigated as much as possible. My investment has to be
secured on title. It goes back to one of my main money rules: Can
I sleep at night? If the investment is secured on title, then should
something go sideways, there is more security on that asset than if
it were in a mutual fund or stock.

Our homes went from being a liability under Kiyosaki’s definition,

which we didn’t know whether we should be concentrating on
paying off or not, to becoming an income property bringing in six
digits’ worth of revenue without having a rental unit!

The critical points of these past two chapters are investigating

whether a HELOC mortgage is available on your properties, and
if this is the case, only using home equity to invest. Do not use it
towards items or experiences that are not revenue producing
and will create more debt and liability. Second, investigate the tax
benefits of lending equity towards investments that are secured on
title. Although risk exists in any venture, using property equity to
invest in the stock market is a gamble not worth taking unless you
know what you are doing as a self-directed trader placing stops on
your trades. If you don’t know
what this means, then it’s likely a “Don’t create bad debt
sign that some money rules will by accessing good debt.”
be broken.

As mentioned previously, in Canada, personal residence

mortgage interest is not tax deductible. However, with a HELOC,
investing home equity allows for a tax deduction of mortgage interest
that applies to the amount invested against the capital gains. In the
next chapter, we will discuss this tax strategy in more detail.

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 Chapter 12

THE SMITH
MANOEUVRE
F raser Smith was a Canadian financial strategist who pioneered
the Smith Manoeuvre back in 1984, which allows Canadian
homeowners to legally make their mortgages tax deductible in a
simple, elegant and affordable way (source: smithman.net).

South of the border, as Richard Hart, EA, CAA of Hart &

Associates explains, our American friends have had the luxury of
tax-deductible mortgages on their principal residence, however
under the The Tax Cuts and Jobs Act (TCJA), there have been some
changes to the US tax benefit that as an American person, you will
want to read up on and work closely with a good accountant. Please
take time to review the following article from Marketwatch.com:
www.marketwatch.com/story/what-the-new-tax-law-will-do-to-your-
mortgage-interest-deduction-2018-02-09.

Even in this case, there are points to learn from this chapter
across both borders, with a primary emphasis on Canadian
homeowner mortgages.

The difference between the wealthy and the average Canadian

and American is how they structure their finances. With some
reengineering and through applying new strategies, you will soon
feel in control of your wealth building while seeing the results.

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In Canada and the US, we contribute to our RRSP and 401k plans,
which allows our tax brackets to be lowered, therefore potentially
allowing for a tax refund. Smith provides an example in his book of Mr.
Joe Average contributing $10,000 to his RRSP fund. He must earn an
extra $20,000 for the year to give up half to the government for taxes
and the other half for his RRSP contribution. He buys $10,000 in RRSP
and claims a $10,000 tax deduction. His tax refund is 40 percent of
the $10,000 so he receives a cheque for $4,000, which results in a 40
percent return on his investment (www.smithman.net).

As Smith explains, if Joe educated himself on the Smith

Manoeuvre, he would find hidden in his annual mortgage payments
another $10,000 tax deduction with a little rearranging of finances,
without having to earn an extra $20,000.

Once the strategy is understood and implemented, not only are

there additional tax deductions, Joe will be in a position to grow his
investment portfolio and start applying the private lending strategies
outlined in this book!

Part of the formula of The Smith Manoeuvre is having access to

home equity for investing purposes. Investing using home equity
allows for a tax deduction even on your principal mortgage in
Canada. Applying The Smith Manoeuvre goes back to my previous
chapter using a HELOC (home equity line of credit) with an updated
appraisal where there may be equity to access for investing
purposes.

There are two sides to a HELOC mortgage. One side is the

traditional mortgage portion using a fixed or variable rate that is
locked in for a determined amount of time. The other side is the
secured line of credit, which is re-borrowable. The line of credit is
based on simple interest calculations, not compounding interest,

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 T h e S m i t h M a n o e u v r e

and it requires interest-only payments as previously discussed. The

HELOC can be paid down and re-borrowed, just as an unsecured
line of credit works.

Another difference between the HELOC and a conventional

mortgage is that with a conventional mortgage, to unlock the equity,
a refinance is required, which is costly. Having the flexibility of paying
down and re-borrowing from home equity allows for strategies like
The Smith Manoeuvre blended with passive real estate lending
secured on a title to help accelerate paying down the original non-
tax-deductible mortgage and accessing additional lending funds.

One thing that needs to be emphasized is that the conventional

mortgage portion required with the HELOC mortgage is not re-
advanceable. The portion required is generally 15 percent of
the appraised value of the property, unless the property started
mortgage free and the reason for mortgaging the property is for
lending purposes—then it is non-tax deductible.

Investing the available credit allows the homeowner to apply a

tax deduction on the amount invested. The calculation is based on
the interest being paid on the amount invested minus the interest
earned on the investment. For example, if $100,000 is invested for a
year using a HELOC rate of 4 percent, the cost to carry is $4,000. If
the investment is paying 15 percent annually, earning $15,000, then
tax is paid on the net amount of $11,000 at the individual’s tax rate.

The funds are available to re-advance, opening up the potential

for additional investment capital.

It’s great to pay off our mortgages; most people are taking 25 to
30 years to achieve this goal.

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With using partial amounts of home equity to invest when a portion

of the principal mortgage has interest that is tax deductible and the
other portion is not deductible because it’s the original amount owing,
it’s imperative that a clear paper trail is in place so the tax deductions
are clearly documented if CRA questions them.

When lending, regardless of where the money is coming from,

create a spreadsheet to share with the accountant. In the spreadsheet,
list all the loans and include such details as loan date, source of the
funds (include account number and interest rate if funds are from a
line of credit), annualized interest rate earned, date closed and final
amount paid. Always provide the contract to your accountant as well.

As mentioned several times throughout this book, the key is to

use the credit towards investments, not buying things like vacations,
boats, vehicles or non-revenue-producing vacation properties. For
both the CRA and IRS, if you are borrowing to invest, then the interest
is tax deductible.

Smith’s book references a story about a woman who saved

$30,000 to invest in a business. Her car breaks down, and instead
of using the $30,000 in savings, she goes to the bank and finances
$30,000 to buy a new car. She has now created a non-tax deductible
loan. Smith’s point is that if she had used the savings to buy the car
and borrowed $30,000 from the bank as an investment loan, then
she would have a tax-deductible loan (www.smithman.net).

Apply the same principle when borrowing from the primary

mortgage when borrowed money is being used to invest, which
creates a tax-deductible opportunity rather than debt with no access
to tax savings.

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 T h e S m i t h M a n o e u v r e

Let’s look at an example from someone owing $300,000 on

their primary mortgage who has invested $300,000 in the market.
A creative, tax-effective move would be to take the $300,000
invested and apply it to the mortgage. Taking a HELOC mortgage
means they now have access to the $300,000 on their credit line
without fees or penalties, and they can reinvest it in a private real
estate loan secured on a title. In this scenario, they went from paying
tax on any profit from the investments as well as not being able to
deduct the mortgage interest from their taxes to being invested and
having a tax deduction on the profits as well as deducting tax from
their mortgage.

When I first learned about the Smith Manoeuvre around 2004,

I had a HELOC mortgage already and had received stock option
money from my employer. I had a choice to invest the money or
pay down the mortgage. After learning about the Smith Manoeuvre,
I paid down the mortgage. Then I re-borrowed the money and
invested it with the financial planner. I saw first-hand how well the
tax strategy worked and have actively used this strategy ever since.

Places like Vancouver, Toronto, Seattle, Portland and various

other markets throughout North America have seen extreme market
growth. In several cities, people are sitting on millions of dollars in
home equity they are not accessing for investment purposes. It’s
great to have a home that is worth a lot in today’s markets, so taking
the opportunity to restructure your mortgage(s) so equity can be put
to work is a prudent move.

A common scenario I come across when coaching clients

includes $300,000 original debt owing on the mortgage and
$300,000 available in investments. Market growth has resulted in
additional home equity, so by restructuring in a HELOC mortgage
with an updated market appraisal, equity for investing purposes

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is now available. The $300,000 originally owing is still not tax

deductible. However, if the home is now worth $1,000,000 and 65
percent is on a HELOC with 15 percent conventional, then it could
be structured into something like this:

$1,000,000: Appraised value

$150,000: 15 percent conventional (Fixed or Variable)

$650,000: 65 percent HELOC

$200,000: 20 percent remains as the loan to value and is not

available

$300,000: what is owing is split between conventional and

HELOC

$500,000: equity for investment, allowing for tax-deductible

interest payments

Let’s take it a step further and add in a private loan at 15 percent.

The goal is to pay down the original mortgage.

$500,000 in a private loan earning 15 percent annualized

$75,000 interest earned over a one-year period

$19,750 cost to carry based on prime (3.45 percent) plus .5: a

total of 3.95 percent, tax deductible

$55,250 gross amount before taxes

Apply the $55,250 to the HELOC to pay off a portion of the

original non-tax-deductible mortgage and reinvest the same amount
into another loan with more tax-deductible leverage. Rinse and
repeat; the original mortgage will be paid off in a matter of a few
years rather than the 25- to 30-year average. Furthermore, the tax-
deductible borrowing power will have grown exponentially.

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 T h e S m i t h M a n o e u v r e

Once the original mortgage is paid off, set goals for living off
the tax-deductible interest in retirement or building a legacy to pass
down to your children or purchasing that much-desired vacation,
boat or RV. Whatever you chose to do, you will be in a situation
where you are mortgage-free and using tax-deductible interest
earnings instead of creating new debt that is not tax-deductible. It’s
legal, simple and brilliant.

For more information on the Smith Manoeuvre, I invite you to

check out www.smithman.net where Fraser Smith’s son, Robinson
Smith, has continued his legacy. The Smith Manoeuvre book is a
must-read for every Canadian.

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 Chapter 13

ARM’S LENGTH
MORTGAGE
A simple, yet effective, strategy available in both Canada and the
US is Arm’s Length Mortgage Lending. Arm’s Length Mortgage
is when an individual lends money from their Canadian registered
accounts such as registered retirement savings plan (RRSP),
registered education savings plan (RESP), registered disability
savings plan (RDSP) and tax-free savings account (TFSA). In the
US, all types of IRAs, including traditional, Roth, SEP, and SIMPLE
IRAs, as well as Coverdell education savings accounts (CESAs) and
health savings accounts (HSAs), can be self-directed (source: www.
questtrustcompany.com).

The mainstream banks are unable to offer this service, so an

individual must source out a financial institution that is set up for self-
directed investing. These institutions do not give investing advice.
In Canada, Olympia Trust, Canadian Western Bank, Computershare
and B2B Trust are the most commonly used financial institutions for
the Arm’s Length Mortgage strategy. In the US, there is Quest Trust
Company Inc.

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How it works: You work with an active investor who has the
opportunity to purchase a house they wish to renovate and sell.
Instead of cash or funds from a credit line, an individual can loan
them funds from their registered account.

Step One: Consult with your bank or advisor as to where and what
your registered funds are invested in. If the funds are invested in
mutual funds, ETFs, stocks, etc., then you need to sell and receive
the funds in a cash account.

Step Two: Open an account with an institution like Olympia Trust in

Canada or Quest Trust Company in the US. Indicate which type of
registered account it is, RRSP or TFSA, for example. Each account
is separate. Use the Olympia Trust or Quest Trust Company transfer
paperwork and request a cash transfer. Allow a few weeks for the
transfer to take place.

Step Three: Once the funds have arrived in the account, communicate
with the active investor to let them know funds are available.

Step Four: Review the deal and paperwork with your legal advisor.

Step Five: Sign paperwork.

Step Six: The active investor will work with their legal team to initiate
the transaction. The institution will request an appraisal on the
property so that you aren’t lending more than the property is worth.
This is an extra layer in the due diligence process that the institution
requires before transferring your funds.

In Canada, the active investor must follow the contract guidelines,

paying interest automatically. There are a few options available,
including quarterly, bi-annually or annually. Check with the financial
institution for specific guidelines.

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With an Arm’s Length Mortgage, it is common practice for the

active investor to cover all costs, including legal, appraisal and
account costs related to the transaction.

I love Arm’s Length Mortgage lending because my RRSP, RESP

and TFSA have grown at an accelerated rate. More growth has
happened in these funds in the past five years than the entire time I
was invested in mutual funds with the financial advisor.

Tax is also deferred or if investing in a TFSA, it is tax-free.

In Canada, if you haven’t been contributing the maximum amount

in your TFSA annually since 2009, your contribution room will be
the accumulated amount since 2009 to present year. To check the
contribution history and available room in your TFSA, register online
with CRA. In fact, if you haven’t been contributing and don’t have
the funds to do so, create a strategy from income earned through
one of the other methods and use that money to update your TFSA.
Build up your TFSA as fast as you can because it’s such a fantastic,
tax-free lending tool. The TFSA account needs to be a key focus for
all Canadians and unfortunately because it is a newer product to
Canadians, it is often misunderstood, dis-guarded and underused
as an investment solution.

Although no investment is guaranteed, mitigating risk is

essential. When you are lending through Arm’s Length, you are on
title through the institution. Because the institution also requires an
appraisal of the property being invested in, this adds another layer
of due diligence.

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 Chapter 14

NETWORKING
THE OPPORTUNITIES
B y now, the overall concept of private lending might be starting to
sink in. It may be time to start figuring out where you can meet
the type of people doing projects that require private money.

Get involved in some local real estate market events. To start,

go to www.meetup.com groups for real estate as well as the local
REIN (Real Estate Investment Network). Some of these meetings
may involve a membership and others may not. It’s great to start with
some free Meetup groups. However, often with a well-organized
fee-based group such as REIN, experienced real estate investors
are involved.

In addition to regular local meetings, educational real estate

companies provide a free one-day seminar. They are usually looking
to upsell to a three-day educational weekend, and these can be
great for meeting people who are either already involved in some
transactions or future investors.

Keep an open mind with networking; connections can lead to

partnerships that can help meet financial goals. My relationships
have come through such professional channels, and I have never
looked back.

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In the next chapter, you will learn about Epic Alliance Inc., who I
have been lending to for the past several years on short-term flips,
earning double-digit returns.

Epic Alliance Inc. was founded by two women from Saskatoon.

Both are electricians and have a keen business sense. They work
well with managing trades because they come from the trades.
They work towards a clear vision of buying homes. Then, rather
than selling them on the open market, they fix and flip them into
their renowned Hassle-Free Landlord Program. They offer two
main types of investment opportunities, either funding a full flip or
investing as a hassle-free landlord. Their business is economically
foolproof because they work with social service tenants who are not
affected by market downturns. Epic is responsible for all aspects of
managing the property, including any maintenance and repair costs
to a house within the program. The investor is paid their double-
digit return and holds the mortgage no matter what. Epic covers all
expenses related to the house: the mortgage, property taxes and
house insurance. It’s one of the easiest ways to be in the market
without the hassle of “tenants and toilets.” It’s my pleasure to share
their program with my readers.

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 Chapter 15

THE HASSLE-FREE
LANDLORD
PROGRAM (HFLP)
Proudly Presented by Epic Alliance Inc.

S o you are putting some thought into the idea of acquiring a

rental property and becoming a landlord. The central theme of
this book has been educating you about how to become a passive
real estate investor—owning a rental property can be anything
but passive. Alisa and Rochelle have created a paradigm shift by
designing the Hassle-Free Landlord Program.

While real estate investment in rental properties is undoubtedly

one of the most lucrative and stable investments available, these
opportunities scare many investors away because of the sweat
equity involved. The other overwhelming aspect people struggle
with is the learning curve associated with owning rental properties.

From buying a suitable property to taking care of “tenants and

toilets,” dealing with rent collection and finding a trustworthy property
manager to provide profit-eating services, an active (traditional)
landlord has a lot to do to keep rental properties cash-flowing.

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Combining the words “landlord” and “hassle-free” seems

preposterous, yet with Epic Alliance Inc. the combination is a core
part of their business.

To successfully profit from a residential rental property, a

traditional landlord will have to invest their time and money to look
after the following three significant aspects:

1. Marketing the rental property as well as interviewing and

screening for reliable tenants.

2. Budgeting money and time for all maintenance and repairs,

including emergency calls.

3. Understanding the exit strategy, which is a critical part of

investing. Selling the property to take advantage of profitable
market timing can be a challenge. Having the property sit vacant
creates costs from loss of rent and risks from having the house
unoccupied.

Other factors to keep in mind when purchasing properties

include:

Price: When Epic purchases cash-flowing rental property, they use

the 1 percent rule: the fair-market rent is 1 percent of the purchase
price. Example: A property purchased for $150,000 rents for
$1,500/ month. Alisa and Rochelle first learned about the 1 percent
rule during the Real Estate Education course designed by Robert
Kiyosaki in his Rich Dad, Poor Dad program.

Using the 1 percent rule of thumb, if the property is in good

working order and is rented out long term in line with budgeted
operational costs, a 30 percent ROI on the down payment is
possible. Maintaining a contingency fund for any repairs is critical.

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 T h e H a s s l e - F r e e L a n d l o r d P r o g r a m ( H F L P )

The 1 percent rule does not work in all markets. When purchasing
a rental property, cash flow needs to be the primary factor.

In analyzing the numbers, be sure to include the mortgage

payment, property taxes, house insurance, maintenance (5 to
10 percent of the rental fee, depending on the condition of the
property) and property management fee (8 to 10 percent of the
rental amount is average). Even without a property manager when
you want to manage yourself, it’s good practice to calculate the
costs of a property manager in case one needs to be hired in the
future. The idea of having a rental property isn’t to buy yourself a
job; it is to generate monthly cash flow.

After collecting all the costs in a spreadsheet and subtracting

them from the monthly rental income, if the property cash flow is
less than $100 per month, it is not a good deal.

Do not buy a rental property that does not cash flow!

Some people might be in a market where, no matter what they

do, the property will not cash flow; they buy based on appreciation.
Buying rental property based on market appreciation is very risky
and not recommended. Market appreciation is a bonus, not a
confirmed profit.

Rentability: Knowing the fair-market rents in the area of purchase

is key to figuring out if the 1 percent rule will sustain itself. It may be
ideal to believe that with a $150,000 house, $1,500 monthly rent is
possible, but if the fair-market rent in the area is $750/month for the
same category of rental, then the place will likely not rent.

Advertising to find the right tenant and processing paperwork,

including an application and tenancy agreement, are essential. Are
you able to conduct a criminal and credit check on a tenant? States

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and provinces have different rules, regulations and costs that need
to be researched and followed to complete these types of privacy
check-ups on people.

When you build in a contingency fund for vacant months, do the

numbers still work? What if the area once supported $1,500 rent
and the market changes so the fair-market rent is $1,200?

Condition: Is the property in need of repair? How old are the furnace,
water heater, electrical system and plumbing? In what condition are
the roof and foundation? A leaky roof or poor foundation will cause
all sorts of costs and headaches.

Even with the use of a property manager, you still own the house
and are ultimately responsible for anything that happens or needs
repair.

When owning and operating a traditional rental property, there

are some questions to ask yourself:

• How much time and energy can I afford to invest?

• How well do I handle conflict and stressful situations?

• Am I willing to research and learn the ins and outs of buying,

fixing and operating a full-time rental property?

• Can I separate business decisions from emotions?

These issues and educational learning curves are what separate

owning and managing a property on your own versus owning
through Epic Alliance Inc. with their Hassle-Free Landlord Program.

After listening to and understanding the requirements of

residential real estate investors, Epic designed a unique program.
Their investors invest the money for the down payment and

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 T h e H a s s l e - F r e e L a n d l o r d P r o g r a m ( H F L P )

carry the mortgage, and Epic invests the sweat equity required
to keep your investment property well maintained and occupied
by tenants. The Hassle-Free Landlord Program is a formulated
and proven residential real estate investment model that allows
investors to be entirely passive landlords with Epic as the active
partner. Epic assumes all the hassles of being a landlord, including
finding the right property and tenant, plus anything to do with
tenants and toilets!

How does Epic Alliance Inc. accomplish this? They become

your tenant for the property you own, with the rights to sublet the
property, allowing you to be a passive landlord while Epic covers
costs and issues on the active side.

As a hassle-free landlord, you will experience the following:

1. Have tenants in place from day one of ownership for a consistent

two-year term.

2. Epic Alliance Inc. covers all maintenance and repair costs, plus
vacancies and emergency calls.

3. The exit strategy is in place, with options to renew at the same

rate of interest or to sell the property with 100 percent of your
principal protected.

Whether you are new to the world of investing or you already

have an investment portfolio in place, this residential real estate
investment opportunity will empower you to:

• Passively own a rental property with tenants locked in for a

two-year term.

• Earn double-digit returns on your investment.

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• Have your principal protected and backed by brick and

mortar.

• Diversify your current investment portfolio and minimize

risks.

• Receive consistent returns that are not affected by market

fluctuations.

• Invest without any commission, management fees or

additional costs.

• Have a built-in end buyer for your rental property.

• Have control over multiple exit strategies.

• Safely and comfortably invest in residential real estate.

The Five Benefits of the Program:

1. Consistent double-digit annual rate of return for a two-year term.

2. Purchase prices as low as $125,000 with a 20 percent down

payment.

3. Choose the payout structure based on your needs.

4. The principal amount invested is protected by the property that

you own.

5. Epic Alliance Inc. will assume all costs and management

responsibility for repairs, maintenance and vacancies for your
rental property.

How do you know if the Hassle-Free Landlord Program is right

for you?

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 T h e H a s s l e - F r e e L a n d l o r d P r o g r a m ( H F L P )

Five Common Traits of Our Investors:

1. Qualify for a mortgage

2. Have consistent monthly employment income

3. Can cover a minimum of $25,000 for the mortgage down

payment

4. Prefer the benefits of a rental property but choose to be hands-

off

5. Looking for a safe and comfortable opportunity for residual

income

Getting Started with the Hassle-Free Landlord Program

Step 1: To serve you best, schedule a free discovery session with one
of our experts to learn more about you and your investment goals.

Step 2: Epic will scour the market to find the property that best aligns
with your goals.

Step 3: Apply for the mortgage, make the down payment and secure
the title and deed of the property.

Step 4: Epic becomes your tenants for two years and pays rent to
you on time while covering all maintenance and repair costs.

Step 5: You choose your payout structure and receive a stable and
consistent passive income for the entire term.

Once you have gained this information, you should be genuinely

empowered in deciding whether being a passive or active (traditional)
landlord is for you. If there is interest in owning residential rental
properties, but learning to manage and operate a property on your
own is overwhelming, then the Hassle-Free Landlord Program could
be a perfect fit!

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A good question to ask yourself is, “What would an extra $1,000

a month of passive income do for your life or your family?”

Check the resource section at the back of this book to schedule

your free one-on-one discovery session.

Epic will help create a roadmap that will simplify and accelerate
your financial goals. Knowledge is powerful; knowledge combined
with action is empowering.

Stay Epic!

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 Chapter 16

THE LIMITED
PARTNERSHIP
I nvesting in a limited partnership on large-scale projects can be
perceived as an advanced investing strategy. The reason I say this
is that it requires due diligence of a different scale than investing in
companies that are flipping individual houses, where a position is
taken on the title. Depending on where the investor is from, investor
accreditation may be required in order to invest. Investing in these
types of projects often involves very lucrative returns. However, the
funds will likely be locked in for a few years. If home or investment
property equity is being used, carrying costs need to be factored in.

After leaving my full-time employment, I tend to invest in these

types of projects with cash I have pulled from the investment firm
so there are no carrying costs. Money was invested long term, so
having it locked up in a project for three to five years is comfortable.
The carrying costs on the equity are a tax write-off, so as long as
these costs can be managed, these investments can be a great way
to earn income on home equity.

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 JODI VETTERL

A company that I work very closely with when investing in both

the US and Canada is IRRealty. IRRealty represents Western Wealth
Capital, which focuses on US multi-family buildings, and Western
Canadian Properties, which builds large-scale projects in Canada.

Investing in these companies means my money rules are

covered. I understand what I am invested in, and I can sleep at night
knowing that these companies strictly follow systems in which risk
mitigation is a key component and the exit strategies are clear and
sensible.

Because this strategy is more complex, I have asked my dear

friend and mentor Cynthia Aasen to provide us with everything you
need to know about investing in a limited partnership as well as
what to look for in terms of risk mitigation and implementing due
diligence.

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 Chapter 17

INVESTING
IN THE LIMITED
PARTNERSHIP
Proudly Presented by Cynthia Aasen

C ynthia Aasen, founder, CEO and managing broker at IRRealty,

has specialized over the past 25-plus years in helping
individuals and businesses invest in multi-family real estate markets
in emerging high-growth markets across North America. She has
provided details for Beyond the Banks about limited partnership
investments and why such investments can be a sound passive
strategy to meet longer-term financial goals.

Recognizing investors have three tradeable assets—time,

money and peace of mind—Aasen is committed to doing thorough
due diligence to ensure the investments perform as planned. During
her career, Aasen has been directly involved as agent or principal
in hundreds of real estate transactions valued over $500,000,000.

The limited partnership investment structure leverages the

power of multiple investors, allowing independent investors to
finance large-scale projects, starting at just $25,000. It allows

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investors to participate in deals that they would not otherwise be

able to invest in. Typically, the deal size is larger, earning greater
multiples with an investment horizon between three and five years.

The general partner (GP) has management control, shares the

right to use partnership property, shares the profits in predefined
proportions, and has joint and several liabilities for the debts of the
partnership. The GP has the actual authority as agents of the firm
to bind the partnership in contracts with third parties that are in the
ordinary course of the partnership’s business.

Like shareholders in a corporation, limited partners assume

limited liability. This means that the limited partners have no
management authority and are not liable for the debts of the
partnership. The limited partnership provides limited partners
a return on their investment (similar to a dividend), the nature
and extent of which is usually defined in the limited partnership
agreement. General partners thus bear more economic risk than
do limited partners. In cases of financial loss, the general partner is
personally liable.

The LP structure is well suited for a passive real estate investor

looking to leverage equity by investing alongside an experienced
developer. Peace of mind comes from knowing the partner has the
resources, the team and the capability to complete the business plan.

For the purposes of real estate development, think of a limited

partnership as a very sophisticated joint venture. The limited
partnership structure is a legal structure that allows two or more
partners to invest in a business and limits their individual legal
liability (or risk) to the total of their respective investments—and no
more. Limited partners enjoy direct access to the flow of income
and expenses.

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 I n v e s t i n g i n t h e L im i t e d P a r t n e r s h i p

Before investing in the Limited Partnership, take the time to

conduct background checks on the general partner principals,
officers and directors to verify no previous bankruptcy,
misconduct, fraud or lawsuits. Access public records for the
following:

1. Provincial or state securities commissions

2. Corporate online search

Professional reference letters

1. Three major suppliers of existing projects

2. Bank

3. Clients with a five-year history

Review track record: Verify the information and ask for random
details and examples.

1. Copy of the purchase and sale agreement to verify purchase price

2. Title registration for existing property

3. Commitment letter from the bank

Review all the legal documents

1. Private Placement Memorandum

2. Limited Partnership Agreement

3. Subscription agreement

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 JODI VETTERL

Project specifics

1. Request a copy of the financial model, including the base

assumptions

2. Due diligence

a. Title commitment

b. Environmental report

c. Survey

d. Sales and rental comparables

e. Appraisal

External sources

1. Engage local realtor to verify the information and market

overview

2. Commercial real estate reports

3. Real estate marketing company reports

4. Bank reports

5. National real estate organization reports

6. Stats Canada and US Census Bureau

To mitigate risk, you need to understand the waterfall disposition

and the fee structure.

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 I n v e s t i n g i n t h e L im i t e d P a r t n e r s h i p

To elaborate on waterfall disposition, “a distribution

waterfall delineates the method by which capital gains are
allocated between the participants in an investment. Commonly
associated with private equity funds, the distribution waterfall
defines the order in which distributions are allocated to limited
and general partners. Usually, the general partners receive a
disproportionately larger share of the total profits relative to their
initial investment once the allocation process is complete. This is
done to incentivize the general partner to maximize profitability.”
(Source: www.investopedia.com/terms/d/distribution-waterfall.asp)

In understanding more about the waterfall distribution, ask the

following questions: Do you get paid first? What are the fees and
when are they paid? Do you rank ahead of the general partner?
What is the profit share split? Does the general partner invest? Do
they have skin in the game?

A profit-share structure that offers preferential return prior to any

split provides greater certainty that the general partner is confident
on its ability to deliver the forecasted profits. The best is a preferred
annualized return, which protects investors if the project is over
budget, takes longer to complete or the market corrects.

You want to ensure that financial models are available pre-

and post-purchase to provide a transparent look at how each step
impacts overall profits. And there is a plan to provide ongoing
progress reports; online portal access and annual statements are
readily available and easily accessible.

84
 JODI VETTERL

Investment in the partnership involves a high degree of risk

and is suitable only for sophisticated investors. It requires financial
ability and the willingness to accept the high risks and lack of
liquidity inherent in an investment in the partnership. No assurance,
representation or warranty can be given that the partnership’s
investment objectives will be achieved or that investors will receive
a return of their capital, specifically if there is no market for the units.
External market forces may dramatically impact returns like vacancy
rates, interest rates, property values, no guaranteed return, tax
matters and limited partnership organizational structure. Investing
in anything is a risk. Working with investment companies that focus
on mitigating risk for their investors needs to be key component in
the due diligence before making the decision to invest.

85
 

Conclusion
My goals for self-retirement have always been modest. I have not
yearned to buy a yacht, mansion or exotic car. My goal was simply
to be able to leave the daily grind of corporate America without
sacrificing my current lifestyle so that time and space are available
to enjoy my family and explore my passions.

Taking control of my financial growth has been enlightening on

many levels. First, I learned that it is not that difficult to manage and
grow my wealth while keeping it simple. Second, I experienced the
life-long deconditioning from banks and financial planners and had
to change my beliefs from thinking that the only way I could have a
successful financial future was through someone else managing my
money. Third, I learned that being creative with credit and the power
of leverage will grow wealth exponentially and help pay down
mortgages so that I can turn around and re-borrow home equity to
invest and create income.

Living through the 2008 financial sector demise also provided

an appreciation for being invested in real estate where I am in a
position on the title. In times of turmoil, stocks are dumped and
money is lost, whereas real estate is an asset that allows, with some
creativity, the preservation of capital.

The bottom line is that I can put my head down on my pillow at

night without concern about where my money is invested because
it is secured on property titles.

86
 JODI VETTERL

Pulling back the curtain to look beyond the banks for wealth
building and management has allowed me to be financially free.
Living without the stress of a full-time job, a commute or business
travel away from my family allows me to hang out with my son during
prime work hours. There is no more worry about checking in or
how I am going to achieve my quarterly targets. I am present and
free. This freedom has provided me the opportunity to experience
an unprecedented transformation in myself. I feel like it’s just the
beginning and am excited and grateful for each and every day.

Whether you are looking to get out of debt, buy a home, build
financial security, provide for loved ones or have extra money to
use as a tool to go out and
experience life and create “In times of turmoil,
amazing memories, my hope stocks are dumped and
for you, the reader, is that you money is lost, whereas
now have some new-found real estate is an asset that
confidence, strategies and allows, with some creativity,
resources to regain control of the preservation of capital.”
your wealth planning.

Be open to new opportunities and learning. Ask questions.

Consult with professionals. Take the initiative to create and
implement a plan that complements your goals.

Remember that no one will ever care about your money, family
and life the way you do. Being in control of where your money is
invested can be life changing!

It was for me.

87
 Epic Alliance Inc.
www.epicallianceinc.com
info@epicalliance.ca
(306) 665-4663
410 Avenue N South,
Saskatoon, SK,

Passive Real Estate Investing.

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Fortune Builders
Most Creative Deal of
the Year 2016

Rochelle Laflamme &

Alisa Thompson
Innovators
Investors
DISRUPTORS
(20,000+ units, $2.5B+)

(2nd largest owner/operator in Phoenix)

Please contact Cynthia Aasen or

Taylor Steele for more information
about current multifamily projects.

Dallas, TX Atlanta, GA
 YOU EARN IT,
WE PRESERVE IT
Why Use Us
We make it a priority to enhance
our mastery of the current tax law,
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regulations. Our clients pay the
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taxes throughout the year, not just
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Richard Hart EA CAA Hart & Associates
Phone:702-589-4687 Cell :702-985-7148 www.Hartassociate.com
HART & ASSOCIATES
We take care of the complex US
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Services We Offer What People are Saying…
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 TODAY,
THERE ARE MANY
OPTIONS FOR
MORTGAGE INSURANCE
THE NEW INSURANCE VS. THE OLD INSURANCE

When the mortgage insurance at the bank is added on (The “Old” Mortgage),
it is deceiving to the consumer. There are restrictions to this coverage.

The “New” Mortgage Insurance: The “Old” Mortgage Insurance:

• The face amount of the policy always
remains the same. If you buy $500,000,
your beneficiary receives this exact face
amount at the time of your death.
• You can pay other bills with this money.
E.g children’s education, replacement
income, outstanding debt and taxes.
• This policy will cover you for 10, 20, 30
years or to age 100.
• Premiums will only increase at renewal
time. If your health deteriorates there is an
option to convert to permanent coverage.
• It is a stand-alone policy – you own it 100%
• Medically underwritten at time of
application.
• Claims are reliable.
• This coverage decreases with every
mortgage payment.
• It will only cover the mortgage amount.
• The premiums increase at every renewal
and the individual is underwritten at
time of claim.
• No option to convert the policy if health
is an issue.
• Premiums are very expensive for anyone
aged 40+.
• Out of 60 people, only 6 people get paid
out at claim time.1
• If you change banks or go to a mortgage
broker, then you must start over with
your coverage at the age that you are at
when you buy again.
CBC Marketplace
1

• You can add the critical illness and

disability on separately.

Take the time to underwrite and put the right plan in force to be sure you have
the coverage that you desire. We have the right insurance options for you,
including health, dental, disability, or critical illness insurance.

Michelle Hennessy
587.577.9115
michelle@perkbenefits.ca
perkbenefits.ca
CONNECTING PEOPLE WITH THE OCEAN
Plastic garbage is killing our oceans—harming fish, birds, whales
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TURNING THE TIDE

Ocean Ambassadors Canada is a not-for-profit company that is
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BUILDING COMMUNITY
Ocean Ambassadors is working with businesses and business
communities to reduce single-use plastics. Our team brings
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More details: www.oceanambassadorscanada.org

Alison Wood | alison@oceanambassadorscanada.org | 604-639-2530

“People protect what they love.” - Jacques Yves Cousteau

Ot h e r B O Ok s r e cOm m en ded By
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The Millionaire Mindset
How Ordinary People Can
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Chris Dyson
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Eternal Optimism
How to Make Things Happen
James Baker, PhD
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Beautiful, Inside and Out
What You Ought to
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How to Embrace the Unique
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Sazini Nzula, Ph
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www.blackcardbooks.com
Publish a Book &
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How to Use a Book as
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Gerry Robert
ISBN: 978-1-77204-546-8
Flight of Your Life
How to Get from Where You
Are to Where You Dream to Be
Theresa Barnabei
ISBN: 978-1-77204 -732-5
How Cash Works
Exploring the Unexpected
Benefits of Property
Investment in the New Age
David Tong
ISBN: 978-1-77204-895-7
Is Salary a Bribe?
Don’t Forget Your Dreams
William Phua and
Christina Heng
ISBN: 978-1-77371-026-6
No one will ever care about your retirement portfolio the way you do. Use
the insights and strategies in Beyond the Banks to take control of your money
and exceed your financial goals.
Good debt is invested to create income. Investing in real estate using
common sense, good management and Jodi’s strategies can safely secure
the future you dream of.

“Private money lending is a business that can change your life.

It is a great way to supercharge your returns and achieve the growth you have
always wanted in your portfolio. Jodi makes it very easy for you to understand the
entire life cycle of a private money loan and the business model of lending.”
—Than Merrill
Amazon bestselling author, A&E’s Flip This House star, philanthropist, educator, real estate entrepreneur

“Jodi offers an honest, transparent snapshot of how she achieved financial freedom.
As someone who first became a millionaire through real estate, I can say for certain
that her strategies are effective and proven.”
—Loral Langemeier
Millionaire maker, five-time bestselling author, international money expert

Jodi Vetterl’s 20-year career in software sales for publicly traded

software companies resulted in multiple sales achievement awards.
In her career, she closed seven-digit deals and enjoyed several
President’s Club trips around the world. In 2003, she attended an
educational real estate program that opened her eyes to the concept of
financial freedom. Desiring a role outside corporate America, Jodi has
spent the last 15 years building a passive investor real estate portfolio
in both the US and Canada, using such strategies as investing in
buy-and-hold single-family homes and multifamily buildings through
limited partnerships as well as private lending to active investors who
rehabilitate homes. As a result of these strategies, Jodi retired from
corporate life when she was 46.
She shares her strategies and insights in Beyond the Banks because she enjoys educating
others about the resources and knowledge that have helped her create a life balanced in a more
heartfelt way. She now fulfills her passions for writing, speaking and consulting.

USD 32.00

BUSINESS & ECONOMICS/PERSONAL SUCCESS