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Hi everyone:
A bank offer me 5.99% personal loan for up to $10000 and up to 3 years (NOT a Line Of Credit, so it is like a mortgage, where payment is a blend of interest and principal). Is it a good idea I borrow this money to invest in this REIT, which pay around 8% dividend ?

I am aware I need to keep good record in case CRA audit my tax return. I am just wondering what else I need to be aware of in terms of filing and paying my tax if I do so.

I am fine with losing all the money I invest here.
 

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Hi everyone:
A bank offer me 5.99% personal loan for up to $10000 and up to 3 years (NOT a Line Of Credit, so it is like a mortgage, where payment is a blend of interest and principal). Is it a good idea I borrow this money to invest in this REIT, which pay around 8% dividend ?

I am aware I need to keep good record in case CRA audit my tax return. I am just wondering what else I need to be aware of in terms of filing and paying my tax if I do so.

I am fine with losing all the money I invest here.
I don't think it's a good idea. You're hoping that in 3 years you'll be able to sell the REIT for the exact same amount you paid.
What if it goes down?
Plus it's only a 6% gain, or $600

Is the loan fixed rate or prime plus, which makes it even worse.
 

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I wouldn't borrow money at 6% to get an 8% return. Like was said above, there is no guarantee that the fund will increase. It probably will but no guarantees. The only guarantee is you will be paying 6% out.
 

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A bank offer me 5.99% personal loan for up to $10000 and up to 3 years (NOT a Line Of Credit, so it is like a mortgage, where payment is a blend of interest and principal). Is it a good idea I borrow this money to invest in this REIT, which pay around 8% dividend ?
Not a good idea. The odds of you exceeding 6% annual return are NOT that great over the long term. It's a pretty expensive loan.

If it was a 2% loan, I'd say yes maybe, but at 6% there isn't enough of a spread between the expected return and the cost of the loan.

8% yield does not mean you'll get 8% return on the REIT. What matters is the total return (dividends plus share price change), and that's unlikely to be as high as 8% over several years.
 

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Hi JK.

I am fine with losing all the money I invest here.
First of all, what the hell? o_O

lol!

Just kidding. I read you indicating that you appreciate the risk, hope to earn money, but are prepared to lose all. That's a great outlook.

I will present the contrary point of view based on the following points:

  • Borrowing to invest is generally a bad idea, as has been indicated.
  • That rate is high but perhaps it's the best you can manage. Personally, I'd shop around.
  • If you are reasonably young and starting to save, it could be an OK way to get a foothold on a nest egg.
  • That REIT isn't low risk but it isn't high risk, either. I happen to own some of it. We won't know what the books really look like until for about another quarter when they have one year of data online so you are exposed to that. Expect a market cap adjustment; I don't know which way.
  • I strongly recommend paying the loan off at perhaps $500 per month for about 23 months, no matter what the stock does. Just keep paying. Keep the stock for 10+ years or until you no longer believe it is a good business.

I'm willing to bet 95% of people here have invested borrowed money. It may not have been as direct as taking a loan, depositing it into your investment account, and buy stock. Any time someone with debt comes into some money (inheritance, a bonus, tax refund, etc.) and buys stock with it instead of paying down the debt, they are borrowing money to invest.

In 2009, we sold some real estate and could have easily paid off our primary mortgage with plenty to spare but I elected to put all of it into a REIT. Suffice to say, that REIT did extremely well and was bought out by Blackstone, as any well run REIT is, about 7 years later. That decision turbocharged our retirement immensely. It seemed like a big risk. I was prepared to pay the mortgage forever. We paid the mortgage off with our salaries, as we were still working at the time. In retrospect, it was a small risk.

I'm not encouraging you to do it but if the stock is conservative, if you don't trade, and if you make aggressive payments to extinct the loan quickly, it's not something bad. The odds of you losing it all are infinitesimal but the odds of you doing well are reasonably high.

Don't forget, even if you lose it all, it's unsheltered so you can deduct the loss. This mitigates the downside. Tax also reduces the upside. In this way, it is a small deleverage.
 
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Hi everyone:
A bank offer me 5.99% personal loan for up to $10000 and up to 3 years (NOT a Line Of Credit, so it is like a mortgage, where payment is a blend of interest and principal). Is it a good idea I borrow this money to invest in this REIT, which pay around 8% dividend ?

I am aware I need to keep good record in case CRA audit my tax return. I am just wondering what else I need to be aware of in terms of filing and paying my tax if I do so.

I am fine with losing all the money I invest here.
No, I wouldn't do it. Most people should never borrow money to invest. Only invest money you have and can afford to invest.
 

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... A bank offer me 5.99% personal loan for up to $10000 and up to 3 years (NOT a Line Of Credit, so it is like a mortgage, where payment is a blend of interest and principal). Is it a good idea I borrow this money to invest in this REIT, which pay around 8% dividend ?
I'm not sure it's enough of a spread ... particularly since the distribution can be cut and the trading value when you plan to sell could be a lot different.


.. I am aware I need to keep good record in case CRA audit my tax return. I am just wondering what else I need to be aware of in terms of filing and paying my tax if I do so.
REITs rarely pay all of their income as dividends.

One of the main reasons I moved RioCan into my TFSA was that for a lot of years, most of the distribution paid was taxed the same as my employment income (about 70% to 85% for the last five years with 0% dividends).

One of the types of income paid is return of capital ... which one has to either re-invest or pay down the loan to keep the full amount of interest fully tax deductible.

For the records I have kept, in case of a CRA audit, there's the statements showing the borrowed money and where possible, the memo line on the cheque documented what stock was purchased. I'd buy then write the HeLOC cheque to pay for it by depositing to the brokerage. The monthly statements showing the interest and the annual statement listing the year's worth of interest. For repayments, the brokerage and bank statements show the flow back to repay the interest with any extra repayments made separately (i.e. when selling some/all of the investment).


Cheers

PS
My LoC and HeLOC documented the interest charges, regardless of what the minimum payment was. Most loans I have had would make tracking the interest part more difficult.
 

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... I'm not encouraging you to do it but if the stock is conservative, if you don't trade, and if you make aggressive payments to extinct the loan quickly, it's not something bad. The odds of you losing it all are infinitesimal but the odds of you doing well are reasonably high.
I'd add having experience and trust in one's investment choices as well as the risks. I have many friends/colleagues who without the wrinkles of borrowing had problems. A higher than I would have thought let their one, IMO smallish bad experience take them out of investing for years.


...Don't forget, even if you lose it all, it's unsheltered so you can deduct the loss. This mitigates the downside ...
Assuming a capital gains treatment instead of business income - the loss will only be useful if there are other capital gains to use it against.

Someone who stays investing likely will have capital gains at some point but as I say, some let their bad experience keep them out of investing for a long time ... making the capital loss useless for a long time.


Cheers
 

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I will just chime in with the same info as everyone else. To me it would not make sense. I saw a youtuber recently who was talking about tangerine giving some sort of line of credit and it would only cost 2% to pay back. That makes more sense to use if the return is 8% but again their is no guarantee that will be the yield indefinitely.
 

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@ JOHNNY BE GOOD
Remember that your income form the REIT has to be added to your regular income come tax time. So your 8% return is more than most likely a 5.36% return.
Not worth it.
It you can you get a HELOC with a lot lower fee and pay only the interest expense. You income is taxed but the interest expense is tax deductible. The extra return above the interest expense then pays down the principal and after twenty years you have, hopefully, a nice tidy sum.
Everything does not go up. And when it goes down it is usually fairly fast.
Interest rates will more than most likely be going up next year. So be careful about the sugar coating the bank puts on the loan.

RICARDO
 
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