Real Estate is still the best retirement option you can find out there.
Erwin and I are a very fortunate couple. In the past few years, we have been able to enjoy a week with our family at our friends’ family cottages up north.
This year, we are spending our week at Wasaga Beach.
This summer isn’t exactly the best for beach days. It rains for a few days and then the sun comes out for a day or two.
Coincidentally, one of our long-time friends, Trudi Johnston, recently made the big move to Wasaga Beach!
As you all know, it wasn’t exactly easy to contain one toddler and one pre-schooler inside a cottage during the rainy and windy days. On one rainy morning, we brought our kids over to Trudi’s place for a visit. 😊
She’s in her early 60s. Dennis, her husband, is now retired. They made the decision in April to sell their Toronto townhouse for double of the price they paid for their current Wasaga Beach townhouse.
They’re investing the remaining cash in electronic traded funds earning 5% to 7% return.
The couple combined has 5 children and 6 grandchildren. They decorated their 1,600 sf townhouse with that in mind. We were so blessed that we could visit Trudi’s house, fully equipped with arts and crafts and juices for the kids to enjoy. 😊
We were even more blessed to spend a few hours in the afternoon in the pool in her complex.
We talked about her “retirement life”. She really did seem to have it all figured out! She explained that she had been chatting to a friend in NC who had told her about a retirement planner in Charlotte that she went to. She knew she was approaching the retirement age and decided to plan in advance for living conditions and what she would occupy herself with! And now look at her, she is supposedly living the dream! Perhaps the best decision she made was taking out long term care insurance in her 40’s – before any sort of care was actually needed. This lowered her premiums, and made sure she was always taken care of should the worst happen.
She still works a couple of days a week in Toronto. She still owns a few rental properties in London and Durham.
She helps her daughter in taking care of the grandchildren for a couple days a week as well.
Busy grandmother’s life!
And she’s already discussing about bringing her business to Wasaga Beach; joining a local business network.
That does not sound like a retirement life at all. 😉
Trudi and her husband are able to live comfortably from their return on their electronic traded funds and rental portfolio.
80% of her ETFs were contributed originally from the profits she made from real estate.
We have been recently discussing the war on small business owners and residential landlords from the government in our blog.
Admittedly, government interference makes it a lot harder for real estate investors and small business owners.
But, if you don’t have a pension, how are you going to retire?
My parents don’t have a pension. They have one rental property in Toronto, one rental property (soon to be turned into personal use property), a commercial use office and a couple of parking spots in Hong Kong.
For your information, my dad just spent HKD$1.6M to purchase a parking spot so he doesn’t have to pay rent for it. Yep, a parking spot in Hong Kong is worth roughly CAD$300K.
When you think Toronto housing prices are crazy, think again. We are still way cheaper than some of the most expensive metropolitan cities around the world.
If you are one of the investors who believes that our Toronto housing market is beat up by foreign investors, this also gives you a better perspective why people like to invest in Canada.
These properties are their ONLY assets that they are going to retire from. (Of course, they can always rely on us, the next generation, but having your own asset and retirement fund gives them a lot more freedom.)
When they decide to slow down, they may sell a couple of them and invest like Trudi earning 5% to 6% return annually. They may keep all of them and live off their rental income.
My mother in law is now retired. She has an apartment fully paid off in Hong Kong as her primary residence. She also co-owns another investment property in Hong Kong with two of her friends. She’s all set.
Maximum benefit from CPP in 2017 is $1,114.17 and maximum benefit from Old Age Security is $583.74. Who knows whether these benefits would still exist when I reach 65?
If you don’t have a defined benefit pension, who else is going to take care of you when you get old?
The good news is – you don’t need to have hundreds of properties, one or two is all it takes to help you save.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
Radu
Hi Cherry
I am a professional with no defined pension plan. This fall my plan was to buy my first investment property and hopefully add more over the years. My plan is to create a real estate corporation and borrow money from my existing professional CPC to put a down payment. I am worried about the proposed tax changes and how they would impact real estate corporations. Do you think there will still be an advantage to having a real estate corp (aside from the liability)? Right now I am sitting on the sideline until what is probably a “sham” 75 day consultation period is over.
Cherry Chan, Real Estate Accountant
For some of our clients, we indeed tell them to wait and see before making the decision going forward. But if you already have a large amount of capital in your professional corp and you don’t want to get ding on the huge amount of tax by pulling the money out, I would simply put it in the corporation. Worst case scenario you are taxed the same way as you were to pull out the capital and buy it in your own name. No difference than the tax you would otherwise pay under the proposed rule.
And of course, my two cents is that it is a great time to buy. 🙂 So don’t want to miss the opportunity.
E Chan
Interesting website. My wife and I are MD’s and have professional corporation lending money to our Real Estate Corp. We have accumulated 9 properties with 189 tenants. I cannot imagine running these under our personal holdings. The tax proposals will likely have a negative impact on us.
Cherry Chan, Real Estate Accountant
I agreed. It’s much better to run the rental business in a corporation, rather than personal names, especially because you own a small business to begin with.
The government’s tone seems to be softened up a little bit. We are all sitting tight to see what will happen next. Hopefully it wouldn’t be something as crazy as their current proposal.