Is real estate a good vehicle to ensure a prosperous retirement? Absolutely! It is in fact the best
and one of the safest vehicles to produce wealth.
There is a difference between saving instruments like RRSP, where most of the money comes
from your hard savings, and investments where you put in a relatively small initial sum of money
which grows exponentially over time.
Certainly most people regard savings as relatively safe and investments as risky.
The beauty of investing in real estate is that you enjoy at the same time considerable growth and
Many of my wealthy clients do not have a single penny saved in a RRSP; they have invested
their money in real estate. We often refer to our home as our biggest investment and we are
often pleasantly surprised to discover that in fact our home is worth more than we ever imagined
or dreamed possible and its worth continues to grow consistently over the years. Then why not
multiply our best and biggest investment? Instead of limiting ourselves to hold only one house,
why not buy two or three or several houses or condos to hold throughout the years enjoying the
amazing appreciation of real estate on several properties? If a home or condo has brought us two
hundred thousand dollars in a few years, then three homes will likely bring us three times that
In thirty years in the real estate business, I do not recall any of my clients regretting to have
purchased an additional piece of real estate; on the contrary I often hear them regretting not
having bought more.
Although it may sound like a frightening proposition, investing in real estate is quite accessible
to the middle classes: it is less onerous to buy a rental property than buying your own home. Not
only you might not need to put any money down as you might be able to use some of the equity
in your principal residence as down payment for your real estate investment, but in fact you do
not even have to pay the mortgage: your tenants pay the mortgage for you! 15 to 17 years later
(using a bi-weekly accelerated mortgage payment plan) your real estate investment is fully paid
up and you now own a paid up property that has considerably appreciated or even doubled in
value and for which you have paid little or nothing out of your pocket.
The fantastic aspect of a real estate investment is that you enjoy a return on the whole value of
the property, not simply on your original investment. For example, let’s assume you purchased a
rental property for $400,000 and you put down or used $50,000 from your principal residence. If
next year your property evaluates of 10% ( and in the last few years that has been far from
unusual in central areas of the city), your worth increases of 10% of $400,000 ( that is $40,000),
not 10% of your original investment ($5,000). In this case in only one year you would have
almost doubled your original investment.
Can real estate prices drop? In the short run, real estate prices might drop, however, in the long
runb however, in the long run, real estate has proven to be the best tool against inflation and one of the
run, real estate has proven to be the best tool against inflation and one of the safest investment
vehicles. The fact is that, while the population increases, the demand for real estate will continue
to grow and consequently the prices will continue to go up. Obviously we are speaking here
about real estate in Toronto and in the Greater Toronto Area. It is estimated that 250,000
immigrants every year settle in the Greater Toronto Area: that creates a large demand for real
estate in addition to the added demand of the local population and of people relocating from
other parts of Ontario and from other parts of Canada to take advantage of the employment and
business opportunities that Toronto has to offer.
Capital appreciation and income
Whatever the rate of increase throughout the years, you will really appreciate the benefits of
having invested in real estate when you decide to retire. Any investment, when you start taking a
monthly income out of it, progressively diminishes until no more money is left. That is the
problem that is faced by many retirees. “I have enough money to retire “, we often hear, “as long
I do not live too long”. Invest your money in real estate and you will never run out of your
investment; the longer you live the richer you become. Not only with the passing of the years
your real estate will continue to rise in value, but your monthly income, the rent you get from the
tenants, will also keep pace with inflation. You will enjoy your monthly income while your
investment continues to grow; it is really like having your cake and eating it too. Which other
investment can do that for you?
Clearly, in comparison, RRSP pales as an instrument to guarantee your retirement. The fact is
that RRSP , as we were saying, are just a form of saving. In order to accumulate enough money
in a Registered Saving Plan to be able to draw a monthly income to live on, you need to save a
considerable amount of money year after year and, as soon as you start cashing in your RRSP,
the capital will decrease progressively. Ultimately if you live a long life, you may run out of
funds. I do not even take into account converting your RRSP into an annuity, which is only good
for the banks, as annuities are calculated very conservatively, giving you an unjustly poor return
on your investment, not indexed with inflation.
Before entering the real estate profession, I owned and operated an agency selling RRSP,
annuities and other retirement plans for various financial institutions. However, after discovering
the advantages of investing in real estate, I could not continue to sell those products. I entered
the real estate profession splitting my business between sales of residential and investment
properties. In the 28 years I have been practicing real estate, I have repeatedly witnessed wealth
being created effortless, simply with the passing of time and the constant appreciation of real
The money you save in your RRSP is tax deductible, granted, but you will have to pay taxes
when you cash it in: RRSP are nothing else than deferred liabilities.
When you invest in real estate you can also benefit from tax deductions: the mortgage interest of
the rental property is tax deductible and you can deduct from your taxes any money spent on
repairs and maintenance, from the paint to the gardening products to the cost of the gasoline used
to visit your rental property.
Are there any negative aspects of investing in real estate? The tenants can be a problem,
however, if you get proper guidance in renting your home, everything will go quite smoothly.
Basically it is just a question of conducting a proper checking. A knowledgeable real estate
agent would be able to guide you not only through the purchase of the property but also provide
you with the necessary information on rental and management. Hire an agent with sound
experience in rental properties who will be able also to advice you on the best areas where to
invest for higher appreciation.
At some point in time, your rental property will need repairs and maintenance; however a home
inspection done before buying the house will give you a clear picture of what needs to be done.
And unless you do major repairs in the first years after your purchase, you may be able to cover
the cost of the repairs with the rental income. Down the road, you may need a new furnace and a
new roof, but each of those last twenty years, it is not something you have to do frequently and
those necessary repairs are tax deductible.
The last benefit to mention is that Investing in real estate also free more money for you to spend
and enjoy. Having your retirement secured by the automatic appreciation of your real estate
investments, relieves you from the preoccupation of saving large amounts of money, year after
year, and allows you to spend more of the money you make.