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I am planning on buying a house with my TD HELOC of $300,000 in Edmonton. Some of you already know that the real estate market in Alberta is somewhat bi-polar and houses have lost value in the past 2 years...

How risky is it going to be to implement the Smith Manoeuvre on a house in Edmonton? I know that in the long run I should have my head out of the water, but in the medium and short term, what are the problems that might arise?

Cheers!
 

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I can't speak for Edmonton, but problems you might encounter could be:

Rising interest rates - This means higher payments on LOC and likely lower real estate values which would make it hard to sell the property.

Job risk - Adding leverage usually increases your financial obligations so being unemployed for a length of time might be tough.

Value of house could go down - This won't really matter as far as cash flow, but it's tough to be underwater on your investment.
 

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Another risk is concentration. I can't remember the specifics of your situation - but I seem to recall you are planning on betting pretty heavily in real estate...and one property in one location is an additional source of concentration.

If you could just buy a house with the kitchen in Montreal, maybe the back yard in Toronto, the dining room in Winnipeg and the bedrooms in Edmonton, you would be able to add some diversification. :)
 

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I forgot about the SM part of it. The investments could go down in value which really sucks. Yes, they should do ok in the long run, but it won't be enjoyable if the market drops.
 

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Discussion Starter #5 (Edited)
Another risk is concentration. I can't remember the specifics of your situation - but I seem to recall you are planning on betting pretty heavily in real estate...and one property in one location is an additional source of concentration.

If you could just buy a house with the kitchen in Montreal, maybe the back yard in Toronto, the dining room in Winnipeg and the bedrooms in Edmonton, you would be able to add some diversification. :)
That's a good one... Actually, I'd love to buy a vacation home by Montreal, because I am originally from La Belle Province and all of my family still lives there... but I'd rather buy the dining room in Saskatchewan to keep the hard core Riders fan in-laws happy...! Oh and as someone from Montreal, I would not even bother about Toronto... (I'm kidding, I believe that Toronto is a nice and vibrant city).

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I am planning on buying a house with my TD HELOC of $300,000 in Edmonton. Some of you already know that the real estate market in Alberta is somewhat bi-polar and houses have lost value in the past 2 years...

How risky is it going to be to implement the Smith Manoeuvre on a house in Edmonton? I know that in the long run I should have my head out of the water, but in the medium and short term, what are the problems that might arise?

Cheers!
Main problem (aside from real estate risk) is that HELOCs are callable. The bank can call them at any time, forcing repayment. If you can come up with the funds (probably through a mortgage) that should be fine.

Why not use a mortgage to accomplish the same thing? The main advantage of HELOCs over mortgages is that they are easy to draw more credit on, and they can be repaid at any time. A closed mortgage offers a lower rate of interest, though.
 

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When you think short term, really you are trying to time the market. I don't think this is the best time in the RE market to be buying.

However as an overall strategy, some good points have already been made about that.
 

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Yes, they should do ok in the long run
Define long run....
Recent experience has shown that average investors with 10 years or more in the market have ended up with nothing to show for their "long run".
Dividend stock holders have maybe 3 - 5% to show for their investments.
I think the long-term growth of stock investing has been oversold by the interested groups and overbought by unsuspecting average investors.
 

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Define long run....
Recent experience has shown that average investors with 10 years or more in the market have ended up with nothing to show for their "long run".
Dividend stock holders have maybe 3 - 5% to show for their investments.
I think the long-term growth of stock investing has been oversold by the interested groups and overbought by unsuspecting average investors.
50 years. :)
 

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I just bought a home in Edmonton with two sources of funds. My TD HELOC on my old place charges 3.75%. My new open mortgage charges 1.9%. I will be paying off the HELOC first. ;)
 
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