Ed Rempel Org

What is The Cash Flow Dam?

What Is The Cash Dam and How Does It Work?

 The Cash Dam (sometimes referred to as a “cash flow dam”) is a simple but powerful concept, and it’s an especially attractive option for those who are familiar with the Smith Manoeuvre or other tax minimization strategies. Cash Dam can help you with tax optimization if you have a mortgage and own either a small business or a rental property.

What is cash damming?

 The Cash Dam allows the owner of a small business or rental property to more quickly pay down their non-deductible mortgage on their home. It’s a variation on the Smith Manoeuvre, but without additional investing. The Cash Dam is essentially an expedient way to change bad debt into good debt.

For someone who’s using the Cash Dam, what it involves is using a line of credit to pay for business expenses. Then, while using the increased business cash flow, you pay down a non-deductible mortgage or loan. This, in turn, produces an increasing tax-deductible business loan, while paying down a non-deductible mortgage or loan. Be advised that the Cash Dam as described above will only work for those who own a non-incorporated personal or partnership-based small business or a rental property.

Example:

 If you own a small non-incorporated business that has $2,000 in expenses each month and you also have a readvanceable mortgage, then the $2,000 per month expense would be paid by the home equity line of credit (HELOC). You then use the additional $2,000 you have in your business expense account to make a payment on your non-deductible mortgage. Interest paid on money that’s borrowed for business expenses is tax-deductible; by using the Cash Dam, you’ll be left with a tax-deductible business loan and a non-deductible mortgage that’s been quickly paid down.

One of the keys to the Cash Dam, however, is capitalizing the interest on the business line of credit. That way, you avoid using any of your own cash flow and you keep the business line of credit tax-deductible.

How does the Cash Dam differ from the Smith Manoeuvre?

The Cash Dam relies on using a tax-deductible business loan to allow you to pay down a non-deductible debt, while the Smith Manoeuvre allows you to buy investments. Investing from your credit line is why the Smith Manoeuvre has much higher risk and return than the Cash Dam.

Potential applications

 Say that you’re a rental investor, instead of using your own cash flow to pay for rental-related expenses, you can use the Cash Dam and a line of credit. In this instance, using the Cash Dam would help you pay for your personal mortgage and help you satisfy your tax obligations as well.

And if you are a small business owner, the Cash Dam can be extremely advantageous. The strategy gives you a way to quickly pay down your non-deductible mortgage and convert that debt into a tax-deductible business loan.

MONEY News

MONEY News: Mergers and Acquisitions- AT&T and Time Warner Inc.

AT&T’s Stock Could Be a Great Bargain for Investors

AT&T Inc. (NYSE:T) reached a new 52-week low on Tuesday as the company released its third-quarter earnings which failed to impress investors. AT&T’s revenue of $39.67 billion fell short of the $40.10 billion that was expected. Year-over-year, sales were down 3% as the company saw a decline in its legacy wireline services as well as its consumer mobility segment. Earnings per share of $0.74 also fell short of estimates, just narrowly missing the $0.75 that was expected by analysts.

AT&T also add less wireless customers than was expected, although their postpaid churn rate of 0.84% was well below the 1.08% estimated by analysts.

Despite a soft quarter, AT&T did not adjust down its guidance for 2017.

The stock was only down 1% on the disappointing results, but this is because earlier in the month AT&T’s stock declined 6% when the company sent out a warning stating that it was going to show a net loss of 90,000 video subscribers in the coming quarter.

Had the company not sent out that warning, we likely would have seen more of a decline in the share price. However, there is reason for optimism with the company still working on closing its acquisition of Time Warner Inc (NYSE:TWX), which will further expand its offerings and solidify a stronger grip on the market.

With a dividend of 5.6% and a price to earnings multiple of just 16, AT&T might be a great buy coming off a poorer than expected earnings result. Over the long term the future should present plenty of opportunities for growth that will more than offset any short-term struggles.

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