Over the years as real estate has steadily and consistently increased, your home has often become the largest part of your net worth. However, it may not always be the best thing to consider the value of your home as part of your retirement plan, although the majority of Canadians do exactly that.
If your portfolio includes stocks of course they can be diversified across sectors and geographic lines. However, your principal residence is restricted to one sector (real estate), and sub-sector (residential) and also one geographical area (the neighbourhood where you live). You need to remember that when you see home values these are based on the averages and not all homes or types of properties appreciate at the same rate, or even sometimes at all.
But you can still factor in real estate as part of your retirement plan because you will not be limited by sub-sectors or geography like you are for the place you live. There are also other reasons to consider;
- It can be part of a diversified portfolio which helps to spread your risk. Because real estate is such a tangible asset it also tends to retain its value very well over the long term.
- If you are including rental properties (residential or commercial) in your retirement portfolio then they do generate regular cash flow. The added upside of rents is that they can be adjusted regularly and therefore can help you keep pace with inflation.
- With record-low vacancy rates across residential markets and unlikely to change given Canada’s positive immigration approach you can see more predictable returns for rental real estate versus other types of investments.
- There can be tax advantages to real estate investing, for example using a HELOC (Home Equity Line of Credit). If you use the funds from a HELOC to invest, just like if you use a mortgage to invest, the loan interest is tax-deductible. Always check with your financial expert to confirm your specific situation.
- There are ways to leverage your RRSPs to invest in real estate. Indirectly this is easy enough by buying real estate or financing stocks or funds for example. However, there are also RRSP-backed mortgage vehicles that can be used. This is a specialized mortgage arrangement and working with a mortgage agent who is familiar with this type of funding is highly recommended.
If you are considering having real estate, beyond your home, part of your retirement portfolio and plans seeking expert help and insights can be invaluable.
If you would like to understand how TruCapital and its partners can help you with that complete the form below and we can set up an initial no-obligation discovery call to answer more of your questions and see if this approach makes sense for you.