Building A Real Estate Portfolio For Retirement
Posted: July 10, 2020 by Stephen Oliver
More and more Canadians do not have a defined benefits pension plan. Companies for years have been moving away from this model due to the expense of maintaining enough in the plan to pay out until the employee and survivors pass away. Those who are self employed also do not have pensions beside the Canadian Pension Plan. This leaves a large number of Canadians with a potential hole in their financial futures and questions about their futures in retirement.
What can you do if you fall into either of these categories? How do you save enough to have a sustainable or even comfortable retirement? One solution is to include as part of your investment plan a real estate portfolio that can sustain you and your family over time.
Building a portfolio takes time, planning and resilience. Having a team that you know and trust to work with is a good starting point. If you are reading this newsletter, you likely have a trusted partner with a Coldwell Banker Momentum Realtor® at your side to start the process. The big question is what is the process?
In order to start by purchasing a revenue property you will need a 20% down payment. This can be a huge sum of money with the average Niagara Region home price hovering around $500,000 in 2020. To try and save this amount of money can seem like a daunting task and you could get discouraged as you see continue to see property prices rise. There is a legal work around that is an open secret that Realtors® and other property investors have used for years.
The question is how do you do it? The process isn’t as complicated as you might think. The first step is to purchase a starter home with a 5% down payment. While you are living in the property, it is considered as your primary residence and any increase in value is tax free. Once you have moved in and closed on your new home, start saving right away for your next home. You could also purchase a condo as the prices are usually less than most detached homes in Canadian cities or depending on your market a duplex or triplex where you can have tenants help you save for your next purchase. Once you have saved 5% or if your present home has increased enough in value that you have more than 20% in equity you can remove that extra equity with a line of credit or by refinancing your home (depending on your lender) and you can now purchase a larger home. Now you move to House #2 and rent out House #1.
By taking these steps you will have started building a real estate portfolio. If you repeat this every few years in 20 years you’ll have a portfolio of a number rental properties that could provide you long term income. Is this system for everyone? It is not, but if you are handy or if you don’t mind the expense of hiring a property management company this could be a solution that works for you.
Talk to your financial advisor or accountant first and then meet with your local Coldwell Banker Momentum real estate professional. We can provide answers to your real estate needs.