Author Archives: Boots

Income Property Using Your RRSP or LIRA

Investment Properties Could Be A Gold Mine

Investment Properties Could Be A Gold Mine

Many people in Cobourg, Port Hope and area are sitting on a potential gold mine and don’t even realize it.

We would both probably agree that the investment scene is pretty bleak right now. The fall out form the 2008 melt down was brutal and many folks are just now seeing their RRSP’s come back to even. They have lost 5 years of appreciation and for those close to retirement, that is scary. Do they keep working an extra five years, and try to make up for lost ground? Or do they simply lower their expected lifestyle?

There is one group of people who lost almost nothing in the market flame-out. Those people who had significant investments in Canadian residential rental real estate. It doesn’t matter what happens to the economy, people still have to have someplace to live. Maybe it’s time you considered rental income property?

The big barrier to entry into the rental property game has always been the down payment. Well, if you have an RRSP, you can lend some of that money to yourself as a mortgage. And you are the one that controls the interest rates you charge yourself. It would be foolish to charge yourself too little. You DO want your RRSP to continue to grow. But you don’t have to charge as much as a bank or other institution would for the amount of down payment you might have available. Talk to your financial advisor and tax accountant, but this is eminently doable.

If you are considering cashing in your stake in your company pension fund (if your pension plan allows this) then you are going to be able to shelter only a portion of it. There will be a lump sum that has to have taxes paid on it. For this reason, make sure you retire in January, not¬†December. ¬†You don’t want to have to take back a lump sum AND claim a full years income on top of that. Why not put that lump sum into one or two down payments and arrange for a low ratio mortgage through a mortgage broker (mortgage brokers can get you lower rates than banks, because the banks actually give them access to lower rates than they use themselves). You don’t have to buy two properties at once…in fact, if you have never done this before, I advise you to take your time, but DO set some money aside for the purchase of a second unit.

With a down payment of 20% or more, you are going to immediately be in a position to see positive cash flow. And, your property will likely increase in value every year. And remember there are tax write-offs for anyone in business. Think home office, phone, utilities, vehicle expenses etc. Talk to your accountant about what is and what is not legitimate right at the start so you can take full advantage of this opportunity.

It is not often that we are in a position to use a lump sum to improve our situation, but an RRSP secured mortgage, or a lump sum payment while creating a LIRA are the kind of windfalls that could make getting into income properties a no brainer for you.