If you’re like many Canadians there is likely a gap between your retirement savings and retirement requirements. Or, if you’ve met the basic requirements you want to ensure a higher standard of living in retirement.
It’s important to have a financial advisor who not just understands real estate investing as part of your overall financial plan, but who is supportive of it as an asset class in a balanced portfolio. Such an advisor often needs to put aside their own desire for personal gain since money you invest in real estate may not directly benefit that advisor – but good advisors are willing to do this to ensure the success of their clients.
Why Bother With Real Estate?
With stocks and bonds you’re investing in highly efficient markets which quickly close up opportunities for high returns disproportionate to the relative risk. However, with real estate properties tend to be more unique and it is a somewhat inefficient market meaning you can locate great deals. You can also make changes to the property and/or tenants, and directly have an impact on the value yourself.
In addition, consider that you can borrow to invest – or leverage your funds. Typically lenders are requiring a minimum of 20% down for income properties meaning the bank can lend you 80% of the value. This lets your money work 5 times as hard. You must realize leverage is a double edged sword, but used prudently it is a powerful wealth creation tool.
Real estate also has certain tax benefits such as the ability to claim depreciation (capital cost allowance) and control the timing of your income from the property to an extent. There are also certain expenses which are reasonable for a landlord that may give you additional tax benefits.
3 Ways to Profit
Real estate also provides 3 main ways to profit:
1. Monthly cash flow – you should be looking for properties that put more money in your pocket every month to avoid “painting yourself into a corner” with your portfolio
2. Principal reduction – a portion of your mortgage payment each month is going towards paying off the principal balance so in effect your tenants are buying the asset for you over time
3. Appreciation – as a hard asset we expect real estate values to increase over the long run which means the asset is worth more than you had paid for it
Think About It
Before investing in real estate you need to think it through. In addition to the benefits above there are some cons, and you need to be okay with those. The good news is most of them can be easily mitigated – for example the right insurance coverage mitigates potential liability, and a great property manager will cut into your profits but give you peace of mind and make your investment more passive.
Putting all of your eggs in one basket is usually not a wise strategy, so work with your real estate savvy financial advisor to determine a balanced approach that can increase your financial wellbeing and provide you greater peace of mind.
Learn More – Get the Definitive Guide on Borrowing to Invest
Calum’s new book is a guide for Canadians on how to use real estate as an investment and retirement solution.
Leveraging equity in a principal residence and using it wisely to purchase rental property is the solution to a safe, secure retirement for millions of Canadians.
Many Canadians who own their home have never considered buying a second property. And nearly one-third of retirees are worried about running out of money. The Real Estate Retirement Plan shows how homeowners can use the tools already available to them — their mortgages — to access the initial capital to invest and prepare for their retirement. This is a proven, validated antidote to today’s historically low savings rates, poor current rates of return, and pressure on CPP and health care.
With examples and a detailed discussion of the principles and mechanics, Calum Ross and Simon Giannini demystify real-estate investing and make an irrefutable case for borrowing to invest.
No mortgage or financial planning team in this country does more borrowing to invest or borrowing for wealth creation than our team. We have the business track record and formal education to support your plan and to help you achieve your financial goals. Volatile markets create opportunities and we would love the opportunity to help you capitalize. Call our office today to discuss how we can help at 1-855-410-9905 or email ClientCare@MortgageManagement.ca