Investing

My house makes us $819/month - Investing with my Home Equity Line of Credit (HELOC)

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  • Aug 6th, 2022 6:07 pm
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes

My house makes us $819/month - Investing with my Home Equity Line of Credit (HELOC)

--- UPDATED July 15, 2022--------------------------------------------------------------------------------------------------------------------
Updated dividends in title to include the increases interest rate:
- Interest increased 1% or $203/month
New Net Dividends - $819/month

More info:my-house-makes-us-1-010-month-investing ... #p36309390


--- UPDATED June 2, 2022--------------------------------------------------------------------------------------------------------------------
Updated dividends in title to include the increases interest rate:
- Interest increased 0.5% or $78/month
New Net Dividends - $1,010/month

New plan: Because the portion of the HELOC used in our TFSAs can't be deducted, I'll use all dividends to pay that down. This lowers our monthly interest rate AND raises our HELOC available room to later use in our non-registered account (which can be deducted).

More info: my-house-makes-us-1-010-month-investing ... #p36132945


--- UPDATED April 17, 2022--------------------------------------------------------------------------------------------------------------------
Updated dividends in title to include the increases interest rate:
- Interest increased 0.5% or $108/month
New Net Dividends - $1,086/month

More info: my-house-makes-us-1-177-month-investing ... #p35969255


--- UPDATED April 10, 2022--------------------------------------------------------------------------------------------------------------------
Updated taxes; What I owed in taxes was completely offset by deducting the HELOC interest.:
  • -$514 - what I owed from my dividends (I never sold anything)
  • +$786 - what I got back from the deducted interest
  • +$272 - NET Taxes/declared interest
New Net Dividends - $1,177/month

More info: my-house-makes-us-1-165-month-investing ... #p35944682


--- UPDATED March 5, 2022--------------------------------------------------------------------------------------------------------------------
Updated dividends in title to include the increases interest rate:
- Interest increased 0.25% or $53/month
New Net Dividends - $1,165/month

More info: my-house-makes-us-1-205-month-investing ... #p35807897


--- UPDATED January 11, 2022--------------------------------------------------------------------------------------------------------------------
Updated dividends per month in title to include all the raises:
Canadian Banks x 5, McDonalds, DIV, DS, H&R split off PMZ but kept their dividend, added PMZ's dividend
Net Dividends - $1,205/month


--- UPDATED December 17, 2021-----------------------------------------------------------------------------------------------------------------
I updated this thread with my non-registered account to give the full picture.
my-house-makes-us-570-month-investing-m ... #p35451609

Below in post #1 is my TFSA accounts.

TOTAL SUMMARY
  • Principal - $267,500 ($240K of which is from my HELOC)
  • Market Value - $338,385
  • Gains - $70,885 (or 26.5%)
  • Dividends/Month - $1,672/month
  • Bank Interest - $541/month
  • Net Dividends - $1,131/month

--- OG POST November 29, 2021-----------------------------------------------------------------------------------------------------------------
Hello all, I wanted to share how it's been going with using my HELOC to invest. Granted, I'm not up 200% on my investments so I'm not boasting about the returns :) But what I am proud of is that I am making money, albeit slowly but that also comes with the fact that I am stress free while doing this. Again, I'm just sharing so let me know what you would do/did differently or what you think.

And don't say you would have put it all in Tesla for 500% growth haha hindsight is 20/20.

GOAL: To invest with my HELOC at a yield greater than the interest, in stocks whose dividends are [relatively] safe.

In the beginning
I starting with taking $65,000 out on my HELOC at 2.95% interest and invest in:
  • Enbridge
  • Bell
  • Telus
  • Bank of Nova Scotia
  • Bank of Montreal
  • RioCan
In June 2020, that gave me a yield of 6.5%. The plan was to use the dividends to pay the interest and the principal, not using any of my own money for this. As I watched for 3 months, I was happy with the result. Again, the returns weren't crazy but I was making money so I was happy.

3 Months later
I know 3 months isn't a long time so right or wrong, I was going to max out my wife's and my TFSA. At this point, I also learnt that reinvesting the dividends would give me greater return so I used my active pay, the money I make from my job, to pay the interest and loan down (15% each pay) and reinvested all the dividends.

To max out the TFSA, I bought:
  • TD
  • Royal Bank
  • ZWC
  • ZWK
At this point I was bringing in around $800/month in dividends while paying $260/month in interest - which means I'm collecting $540/month for free. But because I'm using my active pay for the loan, I get to reinvest all $800.

During the next year, I reinvest all my dividends in H&R RIET.

Where I am now
I like that I have these dividends to protect me (from a crash, losing my job - i could still pay the interest with dividends) AND they help fund the purchase of other stocks, growth stocks.

Speaking of, I'm now reinvesting into:
  • VEQT
  • VFV
VEQT is very diverse globally but the fact is, the US has the strongest economy in the world. Even though VEQT has close to 50% US, I do want more so I supplement that with VFV.

In conclusion
I'm not saying this is the best way - you can certainly make more profit with other picks. But it's what I did with the knowledge I had at the time, and I only mean to highlight that you can use the equity in your home to (relatively) safely invest and make money. Using my HELOC boosted me 10+ years from where I started and I'm so glad I did.

Summary
  • $147,500 principal ($125K is from the HELOC)
  • $209,000 market value
  • up $61.7K (42%) - but I didn't invest with growth in mind - this is just a bonus
  • $845/month in dividends
  • $276 interest
  • Net $570/month in dividends
My house makes $570/month in dividends. Thanks house :)
Last edited by MrMikeDD on Jul 18th, 2022 9:42 am, edited 21 times in total.
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals
589 replies
Member
Oct 6, 2017
377 posts
415 upvotes
Good job Thumbs Up Sign

On $200K, you can get lot more than $845 per month. There are higher yield funds/ETFs like EIT, GDV, ENS, DFN, FTN, LBS.

I average 8.5% so $200K gives me about $1400 per month.
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes
Readvanceable mortgage

I didn't include this above because I did it after but if this does inspire anyone to use their HELOC to invest, I would recommend this - get a readvanceable mortgage. This is where your mortgage and HELOC are now 1 item - a heloc. That single HELOC now has 2 parts:
  • Fixed portion - that's your mortgage
  • Revolving portion - your heloc
The advantage of this is that when you make your regular mortgage payment (that's your fixed portion), your revolving portion goes up by the amount paid to the mortgage principal.

Example:
My HELOC is $800,000 (80% of my home's total value)
My fixed portion is $450,000 - that's my mortgage
Which means my revolving portion is $350K

Now lets say I make a mortgage payment of $1,200. Of that $200 is interest and $1K goes to my principal. Now my HELOC's revolving portion goes up by $1K to $351,000.

A readvanceable mortgage is important if you ever want to do the Smith Maneuver.
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes
rfd911 wrote: Good job Thumbs Up Sign

On $200K, you can get lot more than $845 per month. There are higher yield funds/ETFs like EIT, GDV, ENS, DFN, FTN, LBS.

I average 8.5% so $200K gives me about $1400 per month.

This post is just about my TFSA BUT I have since opened a taxable account and I have those split-share funds in them. ummmmm... actually, I have every single one you mentioned haha

IMPORTANT
The downside to those funds is that in a market crash, if the price falls enough they stop paying a dividend!!!! Terrible when using your heloc to invest and for your stress level.

Like I said, I do have them but that was after a year of investing and reinvesting into safer blue-chip companies whos dividends are, not guaranteed (they never are) but safer during a crash. Safety first! :) Build a safer base and then go for more volatile growth stocks/etfs or split-share funds.
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals
Member
Oct 6, 2017
377 posts
415 upvotes
MrMikeDD wrote: This post is just about my TFSA BUT I have since opened a taxable account and I have those split-share funds in them. ummmmm... actually, I have every single one you mentioned haha

IMPORTANT
The downside to those funds is that in a market crash, if the price falls enough they stop paying a dividend!!!! Terrible when using your heloc to invest and for your stress level.

Like I said, I do have them but that was after a year of investing and reinvesting into safer blue-chip companies whos dividends are, not guaranteed (they never are) but safer during a crash. Safety first! :) Build a safer base and then go for more volatile growth stocks/etfs or split-share funds.
O cool. You are right about Split Share. You just have to pick the ones with the strong NAV. My Split Share funds are 30% of my portfolio. Rest are Income funds and CC ETFs. My favorite of all is EIT income fund. It's not a Split Share and it has consistently paid 'dividend' even during covid crash.
Deal Guru
Feb 9, 2009
12356 posts
11240 upvotes
The fact I read more and more people leveraging to invest is actually scaring me...
Member
Oct 6, 2017
377 posts
415 upvotes
Just to clarify, I do not use leverage for investing or at least haven't so far. It's my regular TFSA and other savings.
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes
Sanyo wrote: The fact I read more and more people leveraging to invest is actually scaring me...
What scares you about it? and is there anything specific that I did and you would suggest I or others do differently - aside from using heloc money to invest I mean :)

My guess as to why you are scared
If stocks plummet, now your house is on the line OR what happens if you lose your job and can't make the payments.

1. Stock prices crashing
This isn't a concern because the main focus is on dividends. As long as the dividends keep coming in, I don't care if the prices fall 30% or whatever amount. That means your dividends can buy more shares :)

2. Losing your job
This is also why you want dividends. If you did lose your job and couldn't make the interest payments, your dividends can. "But what if they get cut" - that's why you pick blue-chip companies that pay above your interest rates. Even if they cut a but, you can still make the interest payments.

I'm not saying this is all risk free - dividends could get cut to the point where you are not making the interest payments - it CAN happen. But it has a high chance of success if you go slow and pick safer stocks. and it gets more safe as time goes on and your portfolio grows with reinvested dividends.
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals
Sr. Member
User avatar
Dec 28, 2007
538 posts
215 upvotes
Ottawa
Thanks for the inspiration OP. I'm signing up for a readvanceable mortgage today, and am looking to implement this strategy soon. Hopefully it works out for me as it did for yourself!
Sr. Member
Oct 25, 2009
853 posts
1093 upvotes
MrMikeDD wrote: What scares you about it? and is there anything specific that I did and you would suggest I or others do differently - aside from using heloc money to invest I mean :)
it will scare most people, because in general that's how people operate, 99% will want a sure thing and will ask themselves "what if this happens" "what if that happens" (as well as lack of market experience because let's be real here, you need to go through some rough waters to know what's what)... also, you can't deny that what if someone deployed $500k+ right before covid or something like that, they would be down $300k on paper and it would be tough phycologicaly (even for the most experienced it's not a walk in the park either)
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes
dpwr wrote: it will scare most people, because in general that's how people operate, 99% will want a sure thing and will ask themselves "what if this happens" "what if that happens" (as well as lack of market experience because let's be real here, you need to go through some rough waters to know what's what)... also, you can't deny that what if someone deployed $500k+ right before covid or something like that, they would be down $300k on paper and it would be tough phycologicaly (even for the most experienced it's not a walk in the park either)
ahhh, so, unless @Sanyo corrects us, they're just generally saying it scary. Yes! I was scared too. As best as I could, I tried to go slowly. Invest a little, go slow and see how it goes. Make adjustments and deposit another small amount. I invest for 4 years before I did this - granted I only invested $22K up until that point so $65K was scary but as you saw, I picked safe good companies that have been around a long time. Sure they could go away but nothing in the market is 100%. I did bet that they would still be around and went with those big names. It's only as time went on that I went from blue-chip companies, covered call ETFs to split-share funds, adding more and more money over the course of a year and a half. .... which admittedly is still on the fast side.

So to you're point, don't deposit $500K in one go haha
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals
Sr. Member
Apr 23, 2016
621 posts
685 upvotes
Kelowna
I wish I took a hard look at getting a HELOC when I redid my mortgage almost 2 years ago. My lender does not offer HELOCs so the only option I have is to break it (5k) or establish a 2nd mortgage with them at a high rate (5%). I have a ton of equity that's completely inaccessible to me.
Deal Addict
Oct 1, 2006
2474 posts
2772 upvotes
Montreal
Thanks for sharing OP. May I ask for how long you have been investing into equities?
Member
Jun 6, 2017
216 posts
371 upvotes
Great post, I did similar in June 2019. At the end of the day you never know what is a good time to start and I kept waiting for a pullback to "load up", but I also didn't go all in during the COVID crash. I focus more on dividend growth (avg yield ~3%) as I don't want the maximum extra income at this moment for tax reasons but like this style of investing for leverage for the reasons you mentioned. Most of my non-leveraged money is in Index fund and a small portion gambled on growth/speculative.

I would caution others who read this and think of it as a sure thing/easy to do. While it is technically easy you need a lot of conviction/confidence to stay the course when everyone is saying it's a mistake. There is risk, as soon as you find yourself saying "I can't lose" you need to think again and I worry about how everyone is jumping on the leverage "band wagon" without fully understanding or having a lot of experience with investing (not directed at OP).
Last edited by AllanMar on Nov 29th, 2021 12:40 pm, edited 1 time in total.
Member
Oct 6, 2017
377 posts
415 upvotes
R35gtr wrote: I wish I took a hard look at getting a HELOC when I redid my mortgage almost 2 years ago. My lender does not offer HELOCs so the only option I have is to break it (5k) or establish a 2nd mortgage with them at a high rate (5%). I have a ton of equity that's completely inaccessible to me.
You can refinance at a lower rate (variable), and 5K penalty is 'nothing' in grand scheme of things if you have tons of equity.
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes
Germack wrote: Thanks for sharing OP. May I ask for how long you have been investing into equities?
I've started investing in 2016. I've heard people say "that's nothing" and sure, I'm not going to argue; maybe I am very ignorant. I wasn't invested in 2008 so there is a lot I don't know. But I did some research - I checked how did the companies I bought perform during the 2008 crash, did they stop dividends, cut them? And I look at the recovery as well. We can only look to the past so based on that, I took this conservative shot :)
AllanMar wrote: I would caution others who read this and think of it as a sure thing/easy to do. While it is technically easy you need a lot of conviction/confidence to stay the course when everyone is saying it's a mistake. There is risk, as soon as you find yourself saying "I can't lose" you need to think again and I worry about how everyone is jumping on the leverage "band wagon" without fully understanding or having a lot of experience with investing (not directed at OP).
I agree 100%! I didn't post this so someone who reads it will go all in and invest $100K. But I do believe it can be "safer" IF you do the following things:
  • go slow. start with maybe $1K/month from your heloc
  • start with good blue-chip dividend paying companies/etfs
  • don't sell - you're in this for the dividends and long term, NOT for the stock price. Chances are in 10 years the price will be much higher so don't worry about the regular volatility (assuming you picked good blue-chip companies)
  • wait while your dividends are reinvested, building up your portfolio's value - this ensures that your market value is always higher than your principal - this is what makes it stress free for me.
If ANY of the above fail, then it gets dangerous.
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals
Deal Addict
Jan 3, 2013
2588 posts
921 upvotes
Sidney
MrMikeDD wrote: What scares you about it? and is there anything specific that I did and you would suggest I or others do differently - aside from using heloc money to invest I mean :)

My guess as to why you are scared
If stocks plummet, now your house is on the line OR what happens if you lose your job and can't make the payments.

1. Stock prices crashing
This isn't a concern because the main focus is on dividends. As long as the dividends keep coming in, I don't care if the prices fall 30% or whatever amount. That means your dividends can buy more shares :)

2. Losing your job
This is also why you want dividends. If you did lose your job and couldn't make the interest payments, your dividends can. "But what if they get cut" - that's why you pick blue-chip companies that pay above your interest rates. Even if they cut a but, you can still make the interest payments.

I'm not saying this is all risk free - dividends could get cut to the point where you are not making the interest payments - it CAN happen. But it has a high chance of success if you go slow and pick safer stocks. and it gets more safe as time goes on and your portfolio grows with reinvested dividends.
Note, I do this as well...but you are missing a THIRD scenario that is equally as devastating.....your house price goes down (and thus your equity). In the land of ever-increasing real estate prices, people forget real estate crashes of the past because they were either not born yet, or they didn't have real estate when they happened. I'm not saying its likely....but it is a much much worse case, worse than #2 losing your job....you can always get another job or do a side hustle....losing my job has NEVER scared me because its in my control to fix it. House prices and stock prices and interest rates are NOT in my control.

Having said that, just renewed the mortgage for my final 5 years at 1.1% interest.....insanity.
Deal Addict
Jan 3, 2013
2588 posts
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Sidney
MrMikeDD wrote: I've started investing in 2016. I've heard people say "that's nothing" and sure, I'm not going to argue; maybe I am very ignorant. I wasn't invested in 2008 so there is a lot I don't know. But I did some research - I checked how did the companies I bought perform during the 2008 crash, did they stop dividends, cut them? And I look at the recovery as well. We can only look to the past so based on that, I took this conservative shot :)



I agree 100%! I didn't post this so someone who reads it will go all in and invest $100K. But I do believe it can be "safer" IF you do the following things:
  • go slow. start with maybe $1K/month from your heloc
  • start with good blue-chip dividend paying companies/etfs
  • don't sell - you're in this for the dividends and long term, NOT for the stock price. Chances are in 10 years the price will be much higher so don't worry about the regular volatility (assuming you picked good blue-chip companies)
  • wait while your dividends are reinvested, building up your portfolio's value - this ensures that your market value is always higher than your principal - this is what makes it stress free for me.
If ANY of the above fail, then it gets dangerous.
Great points. And also with the reinvesting....pay the MINIMUM of that HELOC down and stay invested. The dividends grow exponentially over time if reinvested....so what starts out at $570/month in year 1, can be $740/month in year 3. So your cushion to mitigate risk gets larger and larger the longer you play the game. Money (equity) making money!
Deal Addict
Dec 8, 2020
1141 posts
1288 upvotes
S.E corner of Toront…
OP you've posted this before & seems to me the numbers keep changing or I'm not following the accounts .... yours alone, mixed with your spouse?

smith-maneouver-without-readvanceable-heloc-2489811/3/

seems to me that you keep posting different numbers from thread to thread ... either I'm not following - what am I missing?

is it a HELOC investment of $237,000 as stated in the other thread or as posted in this thread a HELOC of $125,000?

simple question ...

how much heloc dollars do you have invested today?

what in interest dollars are you paying annually on that heloc?

on just the invested heloc portion of all your investments invested, what in dollars is the heloc giving you annually?

what is the book & market value total combined of both your TFSA?

are you reinvesting the heloc dividends back to where the heloc money is invested or other?
Last edited by Janus2faced on Nov 29th, 2021 3:10 pm, edited 3 times in total.
[OP]
Member
Oct 29, 2020
422 posts
630 upvotes
favelle75 wrote: Great points. And also with the reinvesting....pay the MINIMUM of that HELOC down and stay invested. The dividends grow exponentially over time if reinvested....so what starts out at $570/month in year 1, can be $740/month in year 3. So your cushion to mitigate risk gets larger and larger the longer you play the game. Money (equity) making money!
First, I want to say you're right. You are :) reinvesting dividends compounds while paying down the loan does not.

For me, it felt safer to just put 15% of our pay onto the loan; that covers interest and the extra goes on the principal amount, making the interest payments cheaper the next month. If it ever got to a point where I had to sell everything and pay back the loan, now my loan is a little cheaper. This is where your own risk tolerance comes in. @favelle75 is right, you will get more return in the coming years if you pay only the interest and reinvest all the dividends and a bit of your own pay. I opted to feel safer than earn more. Not saying its safer haha it just felt safer for me to do that.

And the added benefit from paying down my loan is that.... you know when people say "have cash set aside so you can buy the dip"? Because I've been paying down the loan as well, now when the dip happens, I have access to money via my heloc. Doing what you suggest is still probably better (return wise) but hey, as the saying goes, more than one way to skin a cat haha
.
Search YouTube: Investing with my HELOC, Year in Review - Investing with Leverage
I borrowed money to invest and wanted to document the steps and process. I hope others can learn from my experience.
or in this thread on RedFlagDeals

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