Accelerate Your Path to Financial Freedom with The Smith Maneuver Strategy

In this episode of The WealthGenius Podcast, host Alfonso Cuadra is joined by Rob Smith, expert and advocate of the Smith Maneuver. Rob shares the story behind this powerful financial strategy, developed by his father Fraser Smith, which allows Canadians to convert their non-deductible mortgage debt into tax-deductible investment debt. Together, Alfonso and Rob discuss the intricacies of how the Smith Maneuver works, how it can transform a mortgage into a wealth-building tool, and the various accelerators that can fast-track financial freedom.

ABOUT ROB SMITH

Robinson spent a total of just over seven years in China in foreign trade and investment banking, He has dined and mingled with the likes of Henry Kissinger, Prime Minister Jean Chretien, and the Premier of China, yet somehow still manages Upon return from China, Robinson opened his investment advisory in Victoria, BC, and guided over 500 families on the implementation of The Smith Manoeuvre mortgage conversion strategy Over an advisory career spanning 12 years. In the middle of 2018, Robinson sold his advisory practice to write his book, Master Your Mortgage for Financial Freedom which hit #1 in 22 categories on Amazon on launch day. Robinson also established The Smith Manoeuvre Certified Professional Accreditation Program whereby financial professionals from across Canada earn accreditation as Smith Manoeuvre Certified Professionals in order to best serve Canadian homeowners. Robinson now dedicates his time writing, speaking and training homeowners, educators and financial professionals in The Smith He lives in Sooke, BC, with his wife, Heidi, and their dog, Harley.

Connect with Rob:

• https://smithmanoeuvre.com/
• Instagram: http://instagram.com/thesmithmanoeuvre
• Facebook: http://facebook.com/TheSmithManoeuvre
• LinkedIn: https://www.linkedin.com/in/robinson-smith/

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Transcript

SPEAKERS

Alfonso Cuadra, Rob Smith, Carl Richards

Carl Richards  00:05

Welcome to the wealthgenius podcast brought to you by the Expand wealth Real Estate Fund. Expand your wealth by investing in apartment buildings. Go to expandwealthfund.com to book your info session the wealthgenius podcast, strategies for multifamily real estate investing mindset, community success. The wealthgenius podcast with your host, the godfather of real estate, Alfonso quadra, who has expansive experience in business and massive success as a real estate investor. The wealthgenius podcast, let's dive into today's episode.

Alfonso Cuadra  00:44

Let's go.

Rob Smith  00:45

Let's go.

Alfonso Cuadra  00:47

Smith Maneuver. Where did this maneuver come from? I know there's a story there. And I'd love, love for you to share it. 

Rob Smith  00:55

Yeah. My father, Fraser, became a financial planner in Vancouver. This is back in the mid 80s, and he was interested in the fact that the Americans could deduct a good portion of their mortgage interest on their principal residence, and we Canadians could not. Of course, he didn't. He didn't think that was very fair at all, right? So, you know, he picked up the Tax Act, which is a fascinating read, and he wanted to level the playing field, so he read that, he he just took different pieces of the puzzle, mortgage, investing, tax, and he came up with the strategy, which allowed, effectively, Canadians to start writing off the interest on their principal residence mortgage. So now we Canadians actually have the upper hand on our American cousins, because while they can deduct interest already, they don't get the capital gains exemption. Whereas we can now do both. We get the capital gains exemption and we can deduct the interest on our mortgage.

Alfonso Cuadra  01:44

And do you find a lot of people are following this type of strategy? Or-

Rob Smith  01:48

Yes, it's really increasing in in popularity and awareness now. It's- like I said, it's been around for 40 years, but apart from the book that my my dad came out with in 2002, shortly thereafter, he went out of retirement to go back into advising. So he wasn't marketing the book, he wasn't marketing the strategy, so he was just taking on private clients, as was I when I joined him in 2006. But Fraser passed away back in 2011 and I kept advising until I think, the middle of 2018 when I sold my practice at that point, because it was important to me to be able to stand up on my soapbox and let every Canadian homeowner know that we've got a solution to a lot of their problems. And I couldn't do that as a registered advisor. So that's when I sold my business, wrote my book, master your mortgage for financial freedom. 

Alfonso Cuadra  02:34

Yes, I have it.

Rob Smith  02:36

Yeah. Great, great. And have been working at promoting the strategy for Canadians, because, as you know, as well as anybody, it's not easy out there. We've got a lot of challenges. 

Alfonso Cuadra  02:45

Well, I love the strategy because, you know, as you know, if you're into investing in everybody knows and understands that your primary home is basically a liability because it takes money out of your pocket, you know. And so what you're doing is actually reversing that. You're making it into an asset, which I love. The way I know the term is Debt Swap, and that was something that, you know, I heard a long time ago. And basically the idea is, we- you pay down your house, and then you get a mortgage on it, and then you take the funds from that mortgage, and then then you invest into an asset. So that would be like a Smith Maneuver on steroids, kind of thing. 

Rob Smith  03:20

Well, the the Smith Maneuver is actually a debt swap on steroids. When we talk about the Smith Maneuver, we're talking about when you have the right type of financing on your home, the right type of mortgage, it allows you to access the equity as fast as you're creating it with just your regular mortgage payment. 

Alfonso Cuadra  03:36

Yeah.

Rob Smith  03:37

Nothing else is required. Now-

Alfonso Cuadra  03:38

So explain to me, like, I guess the details of it, how it works, like, what kind of mortgage do you need, and what is the investments? Or how do those investments work? 

Rob Smith  03:48

Yeah, so the Debt Swap that you mentioned is one accelerator out of five, but the basic Plain Jane scenario, we Canadians need a re-advanceable mortgage on our home. A lot of Canadians just have this typical mortgage, they borrow 400, 800, 1.2 million and they commit to paying that out over 25 years, 30, 40, years. But a re-advanceable mortgage has another component to that big chunk of non deductible, expensive debt, and that is the HELOC home equity line of credit. So these two sides of the mortgage talk to each other, and the HELOC limit will increase whenever you make a payment against your mortgage. So it's kind of like you're refinancing your own home every month because you make your regular mortgage payment, a lot of that goes to interest, non deductible interest, it's gone goodbye. You'll never see it again. But what does reduce principal? You're able to access that again and get it invested. And the important thing here is that you invest with the reasonable expectation of generating income, because if that's the case, you can deduct the interest on that borrowing. So if my mortgage goes down by $1,000 with my mortgage payment, I borrow back $1,000 and invest it. I've just converted $1,000 of non deductible debt to beneficial tax deductible debt, and we do. This each and every month. 

Alfonso Cuadra  05:01

And how long does it take to fully convert the debt into fully deductible interest type of mortgage?

Rob Smith  05:11

This all depends on your personal situation, the Plain Jane Smith Maneuver, which is only using your regular mortgage payment, which you're making anyways, that we typically see about two to three years off someone's amortization, so 25 down to 23 or 22 years, and that bad debt is gone and a net worth improvement of between three to four hundred thousand dollars and that's simply by restructuring your existing cash flows and your your personal finances with your mortgage. But we've got, as I mentioned, five accelerators, and if you can implement one, two or all of those which most Canadians have the ability to we're seeing results of a typical Canadian mortgage net worth improvement over the course of a typical amortization period of upwards to a million dollars or more, and a 25 year am non deductible mortgage debt gone in 5, 6, 7, years. 

Alfonso Cuadra  05:56

Wow.

Rob Smith  05:57

Yeah.

Alfonso Cuadra  05:57

Wow. 

Rob Smith  05:57

It's extremely powerful stuff. And the biggest accelerator, I think of interest to people who follow you, Alfonso would be, well, one the Prime The Pump, which allows you to access the equity in your home to finance a rental property, for example, when you have to get into the right type of mortgage to implement the strategy, but more importantly, the cash flow down, because now we're able to take revenues that we're getting from our renter and make extra payments each month against our own mortgage and access that back to pay the expenses on that rental product.

Alfonso Cuadra  06:26

So you have, for example, you have a like, an income property, yes. And usually what people do is, they put it, they put it, they have a separate account, right? But what you're suggesting you have one account, which is your RE advanceable mortgage, and the rents that you collect, along with your own mortgage payment and everything that you have goes into this re advanceable mortgage. 

Rob Smith  06:49

That is accurate. The way that you actually structure this depends on the type of re advanceable mortgage you have. And there are products out there that work pretty much exactly as you just described it, but you're absolutely right. I did this. I went and got my first rental property. Fantastic. So excited. I opened up a bank account. Nothing but income from my rentals going in there, nothing but expenses going out. But you quickly learn, once you figure things out that don't take the revenues and put that into that bank account, put it into your personal bank account where you can apply it against your mortgage. Say it's $3,000 in addition to the regular mortgage payment, when that line of credit opens up, that $3,000 then goes into that bank account where you can track the expense payments you're making, so you can show the CRA if they ever asked, "Yes, all the expenses I'm paying on my rental property have come from borrowed money." Therefore this is tax deductible because you are borrowing-

Alfonso Cuadra  07:40

That portion. Just that portion, yeah.

Rob Smith  07:42

That $3,000 yeah.

Alfonso Cuadra  07:43

And so you continue to accumulate that portion. So money that you are collecting in rents, you're paying it down, then you're pushing it towards this side. So the more properties that you have, you could pay that. I mean, that would take, you know, in no time, you could pay down that mortgage. And not necessarily pay it down, but completely converted into one that would be, would have the tax advantages? 

Rob Smith  08:06

Yes, absolutely. I mean, I, when I was an active investment advisor, I had over 500 families as clients. I was doing strictly Smith Maneuvers for my clients. And I had this one, this one couple. They were both realtors, and, you know, they sit down, you talk to them about the strategy, and then, "oh yeah, okay, this is great. I see how it's working." And then you throw in the cash flow dam on this thing, they're going, "Oh, wow, I've got, we've got four rental properties," or four or five rental properties they had, and they had, at that time, maybe 21 years left on their principal residence mortgage. It was gone in less than three years. 

Alfonso Cuadra  08:36

Wow. 

Rob Smith  08:36

Two and a half years. 

Alfonso Cuadra  08:37

Wow. 

Rob Smith  08:38

Now the challenge there is, you're often running into your prepayment allowance within three months or six months of the year because you're prepaying your mortgage by so much. And we get calls they say, "Oh, I can't prepay my mortgage anymore. I've hit my allowance." Oh, well, you can technically prepay your mortgage continue to do that, but why don't you call and find out what the penalty is? They call back, "oh, it's not a problem. It's $112 to continue pre paying my mortgage by this massive amount each month." And just the the wealth creation of being able to invest via the Smith Maneuver, the accelerators, even the cash flow dam through investing in a portfolio of securities of your choosing, investment, real estate, the tax reduction and the savings in Non deductible interest that you'll have by not making mortgage payments for 25 years.

Alfonso Cuadra  09:24

Yeah, so that's one thing that most people don't understand. So here's one thing with a Debt Swap. So paid my house off cash, got a mortgage, a new mortgage. Now I have a chunk of money in my hands now when I bought a property in a corporation, so now the corporation's responsible for that mortgage and paying down that mortgage in terms of the interest, and if I had to take money out of my own corporate account, that's income, right? So I'm paying income like we're talking about 50% income tax, right? So I'm losing it's costing me more to pay that mortgage. So if my mortgage payment is, you know, whatever the the interest payment would be on a mortgage payment, let's say it's $3500 mortgage payment. It's costing me double because I have to use already money that I've already paid taxes on. 

Rob Smith  09:24

Yeah.

Alfonso Cuadra  09:26

Right? And so it's not just the the amortization, or, you know what I mean in the the interest is the fact that you paying it with after tax dollars. And if you could somehow or and I'm sure this is what you help your clients do, figure out how to put it into a company or make it a part of a corporation where, you know, you don't have to pay yourself first to make that payment in the first place.

Rob Smith  10:27

There's- there are as many different scenarios and solutions as there are Canadian homeowners. You know, everybody is different. We've got a network of Smith Maneuver certified professionals across the country, mortgage brokers, investment advisors, tax professionals realtors who help our clients do this. And so when we have a client who's utilizing these professionals who've gone through the training and all of this, this is when they say, "Okay, here's what you got going on, your personal life, your corporate life, you're both employed. You're both self employed, whatever it may be. And here's how we're going to structure all of this." And sometimes it's not involving the Smith Maneuver. It all depends on someone's comfort level, where they're at at life. But when it does involve the Smith Maneuver, these professionals can communicate to each other, the investment advisor, the tax professional, mortgage broker, all these people say, this is how we're going to set you up, because it's not just a matter of freeing up $2,000 a month to invest, plus doing the cash flow dam and all these sorts of things. There's when you're talking about holistic financial planning, there's estate planning, there's, you know, there's life insurance and wills and RSPs and TFSAs, non registered investing. So it's so important to have a team around you which can say, Okay, I see where you are, where you want to go. I'm going to go talk to the other people in my network who on your team, and we're going to figure out how to structure this so that you get rid of your non deductible mortgage faster. You're building up your tax deductions faster. You've got as big an investment portfolio by the time you want to slow down at work as possible.

Alfonso Cuadra  11:54

Can you go to any bank and ask for the re-advanceable mortgage, is that how it works? If you have a mortgage right now, is it like, are you like tied into a certain term? 

Rob Smith  12:02

Well, we have, we have people financing out of a mortgage that doesn't work for this into a mortgage that does all the time. 

Alfonso Cuadra  12:08

Okay. 

Rob Smith  12:09

Now, if I was interested in implementing a Smith maneuver, and I go into the bank and I say, "okay, mortgage specialist, I want to do the Smith Maneuver. I need a re advanceable mortgage." Chances are that this salaried employee is going to say, I don't know what the Smith Maneuver is, but we have a re advanceable mortgage, and if you sign up for that again, chances are that it's not the best one for you, given your personal situation.

Alfonso Cuadra  12:28

So it's not the right product.

Rob Smith  12:29

Right.

Alfonso Cuadra  12:29

Right, yeah. 

Rob Smith  12:29

Because every re-advanceable mortgage out there is different. It operates differently, set up differently.

Alfonso Cuadra  12:34

So what are you- kind of walking through? What you do with your clients, like you sit down and what's the process look like?

Rob Smith  12:39

Well, for myself, I don't have any more clients anymore, since I gave up my license. What I focus on now is building out the Smith Maneuver Certified Professional Network. So we're training up all these professionals I mentioned. And so the process is different for every mortgage broker or investment advisor, they're conducting their business the way they always have, but now they're able to slot the Smith Maneuver into that the way that they do business and help their clients. But basically, we need to know, what's your house worth, what's your current mortgage balance, what's your income, your marginal tax rate? Do you have any excess investments right now, like $10,000 in mutual funds? If so, maybe you want to look at the Debt Swap. Do you have the ability to add an extra $300, $500 a month to the regular mortgage payment? If so, Cash Flow Diversion. Do you want to do the Drip Accelerator? Maybe when we refi, you could do the Prime The Pump, Cash Flow Down, all these different things. So it's about, you know, the way a mortgage broker goes and conducts their business, an investment advisor, tax professional, it's the same for them, but they know what to look for when there's a possibility of implementing the Smith Maneuver for their client.

Alfonso Cuadra  13:41

And for you, you mean you've given up a lot. I mean your practice and or your license you said. How did you get into this?

Rob Smith  13:48

I was living and working in in China for about seven years. 

Alfonso Cuadra  13:52

Oh, wow, China. 

Rob Smith  13:53

yeah, in various capacity-

Alfonso Cuadra  13:54

Where?

Rob Smith  13:55

I worked in Beijing.

Alfonso Cuadra  13:56

Beijing, okay.

Rob Smith  13:57

I was at-

Alfonso Cuadra  13:57

Up north. 

Rob Smith  13:58

Yeah. I was at Enron China for a while. 

Alfonso Cuadra  14:00

Wow. 

Rob Smith  14:01

I was at the Canadian Embassy. I was at an investment bank, but that was about seven years and so my dad said to me, "Rob, you got to come home. Your Mom misses you." So, so I said, Let's do it. Let's go home. Plus, when you're six foot five in a city of 15 million people and everyone's looking at you at the same time, you get tired of it real quick.

Alfonso Cuadra  14:17

People are taking pictures of you on the street. 

Rob Smith 14:18

Yeah. So came home and started working alongside my dad. That was 2006. And I absolutely loved it, because my dad was a teacher at heart, and he would, he would sit down with clients who were interested in the strategy, and about three hours later, they're begging to be let out of the room, because he was just so passionate going through all the stuff. But and when I started with him, he trained me up, of course, and that's what I really enjoyed doing, is letting people know what the strategy is, how it works, why it works, how it can help them. Now, I quickly reached capacity as an investment advisor, and I lost the ability to take on new clients and go through that process of education and meeting people and answering questions and. Now I was in my office all day watching the markets go up and down as an investment advisor. So that was part of the impetus in sort of getting me through the door to selling my practice and writing my book to honor my father and every Canadian homeowner across the country who might need some help, which is darn near every one of them.

Alfonso Cuadra  15:20

So your dad had a book? 

Rob Smith  15:22

Yes.

Alfonso Cuadra  15:22

Okay, but it's not the book that we see the, the- 

Rob Smith  15:25

No, no. His came out in 2002 that's called, Is Your Mortgage Tax Deductible. 

Alfonso Cuadra  15:30

Okay.

Rob Smith  15:30

My book, shameless plug, Master Your Mortgage For Financial Freedom.

Alfonso Cuadra  15:34

Yeah. And I think there's one that says, actually, it's a- The Smith Maneuver, right? There's one that has that title? 

Rob Smith  15:39

Yeah. His, his book originally was called The Smith Maneuver, then he changed it around to Is Your Mortgage Tax Deductible.

Alfonso Cuadra  15:44

Yeah, because I've seen a few versions of it, that's incredible. I mean, everyone should know this. Everyone should have a re advanceable mortgage. It is just common sense, right? I mean, this is kind of what you want to do. Now, I'm thinking about the tracking. How do you track each, because each month there's a new level of tracking. Is that part of the service, or?

Rob Smith  16:03

The education on how to track is absolutely part of what our SMCPs Take care of for the clients. Because, again, as I mentioned, every re advanceable is a bit different. And depending on which type you have, which is most suitable for you, the individual Canadian homeowner, the process might be different. And so our SMCPs have processes that they will say, "Okay, you are in this type of re advanceable that's been selected for you, because you have the ability to use a whole bunch of the accelerators." So on on a monthly basis, this is what needs to be done. And it's not that onerous at all. It's depending on the lender. Maybe you have to make a phone call once a month or go online. So it's tailored to the client, and we provide our SMCPs, provide that education process. And here's what you do. When to do it. 

Alfonso Cuadra  16:48

Love it. I love that you came all the way here. And, you know, we we've known each other for a while. In fact, we were like, randomly in Costa Rica, and you said "Hey,Alfonso!" Yeah, yeah, remember that? 

Rob Smith  16:59

We were at the airport. Yeah, it was- 

Alfonso Cuadra  17:03

That was kind of cool. 

Rob Smith  17:04

I wouldn't recognize you, except you had your WealthGenius T-shirt on.

Alfonso Cuadra  17:08

That's good, that's good. And you've come and done a lot of events for our members, which we appreciate very much. I know a lot of people are excited about the Smith Maneuver. What inspires you?

Rob Smith  17:19

I love like my father teaching, and what really inspires me is the fact that I get to teach Canadians something that really helps. I've always said that a financially stronger Canadian is a financially stronger Canada. And so I get to- I and my team and all the Smith maneuver certified professionals get to contribute to the building of Canada, because we're building up Canadians' personal finances and leaving them better off when they get down the road.

Alfonso Cuadra  17:45

Beautiful, Rob, all your information will be in the show notes, so they're going to know how to get a hold of you. Smith Maneuver, and I definitely want people to connect with you. Do they have, like, a consultation? How to- what do you want people to do?

Rob Smith  17:58

Well, yeah, the first step, hopefully for everybody is to read the book, because it's great if you already have a basic understanding. 

Alfonso Cuadra  18:04

So get the book number one. 

Rob Smith  18:05

Get the book. And if you don't want to invest the 25 bucks for the book from smithman.net go to the library and check it out for free. You can get it for free, but do a little bit of self education when you're ready, go to smithman.net and we have a little button that says, find an SMCP, and we can connect you to Smith Maneuver Certified Professionals near you. 

Alfonso Cuadra  18:23

Beautiful. Last question, what's a quote that you live by?

Rob Smith  18:27

"Isn't it strange that princes and kings and clowns that caper in sawdust rings and common people like you and me are builders for eternity. Each is given a bag of tools, a shapeless mass, a book of rules, and each must make, ere life is flown a stumbling block or a stepping stone."

Alfonso Cuadra  18:44

Love it. That's beautiful. You brought tears to my eyes. Love it. Thank you for coming by, sir. 

Rob Smith  18:50

Absolutely a pleasure. 

Alfonso Cuadra  18:51

Rob Smith, Smith Maneuver. Alfonso loves you. We'll see you all at the top.

Carl Richards  18:57

Thanks for listening to The WealthGenius Podcast, presented in part by expand investor conference December 13 to 15th at Western Harbor Castle, Toronto. Get your tickets now@wealthgenius.ai/expand. If you have a question or comment about something you heard today, reach out to The Godfather via social media or email him anytime. All that information is in the show notes, and of course, don't forget to subscribe so you never miss an episode of The WealthGenius Podcast. The WealthGenius Podcast, until next time see you at the top.