Client Investment Advice: RRSP, or Real Estate?

Published February 4, 2019 by Real Estate Leads

As we’ve said on a number of different occasions, more often than not a successful real estate agent is also a very knowledgeable one, and that’s there’s usually a direct correlation between the two. As it is with nearly every career, the people who don’t stop striving and continue to learn are the ones who get ahead more naturally. As a real estate agent, every single time you can draw on your knowledge and provide sage advice to clients will go a long way towards establishing yourself as a real estate market and real estate investment expert.

Here at Real Estate Leads, our online real estate lead generation system is an excellent way for new realtors to have the power of the Internet hard at work for them generating buyer and seller leads and giving them the opportunity to meet with legitimate prospective clients. The more you know and the more you’re able to share, the more likely it is they’ll come to regard you as someone they can trust with helping them buy or sell a home. We continue to pile up very positive reviews for the service, and it’s not surprising that the consensus seems to be that it’s money well spent!

Real estate is an investment, and that’s true even for people who foresee themselves living in their current home well into their twilight years. In major metropolitan areas like Vancouver and Toronto, some people are explicitly counting on their real estate purchases to be a big part of their retirement. There’s risk to that, as there is for any investment, but the ongoing demand for housing in these cities isn’t going to abate anytime soon given Canada’s ongoing population growth.

The ‘bubble’ isn’t likely to burst like some people continue to insist it will, and in honesty the way the market for detached homes has cooled is about as good as it’s going to get for anyone hoping to see more ‘realistic’ prices for detached homes in Canada’s 2 biggest cities.

But to today’s question, which is a better choice as an investment – Real Estate, or an RRSP? Let’s discuss this and get some perspective from financial and real estate experts

Both is Best

Leverage wealth experts and mortgage brokers tend to agree that Canadians should be investing in both RRSPs AND real estate. It’s true that people tend to think of either RRSPs or real estate investing for their retirement plan, but modern-day realities and an ever-rising cost of living means that the reality is consumers need both.

Diminishing rates of return are one thing, but a growing number of Canadians don’t have defined contribution plans, and if even if they do it’s not like they give guaranteed payouts. It’s fair to say that everyone needs higher amounts of forced savings.

The reality is that for the vast majority of Canadians, their wealth is tied up in their homes. With this reality it becomes that the only solution to RRSP, TFSA, RESP, or investment savings catch-ups is essentially in the home equity of their property.

Add to this the fact that average life expectancies are reaching 90 years old and it’s increasingly likely that your registered savings account will a lot longer than your mortgage. This is why we’re seeing the introduction of investment products designed to make certain rates of return exceed the initial cost of borrowing.

Reorienting Mortgages

In understanding this and understanding its relevance, we need to see retirement not as the point at which somebody stops working, but rather when they no longer need to work. Sufficient money in investment accounts means debts are easily repaid in full. Then the acquisition of a mortgage becomes a by design move, and not one made out of necessity.

It’s also helpful for people to know that real estate investing doesn’t have the same tax deferral on capital gains that RRSPs have. Home equity appreciation can be used as an RRSP catch-up, and for many people this is a very valuable resource to have at their disposal.

Of course, cash flow is still an important component in investing, and investors seeking blue-chip properties they can own directly is always going to be preferable – provided they choose the right property (for which, as you should expect, they will be looking to you for expert advice).

Choosing Wisely

Choosing the right property depends on the current state of the economy, as well as its projected state. You don’t just evaluate the property based on today, and instead you should be looking to where the underlying economic fundamentals will likely be in five or 10 years. The two biggest predictors of where a property will be are actual net migration of population inflow (which is powering housing demand in Vancouver and Toronto) and areas with strong GDP growth.

Further, properties will positive cash flow will help meet the Canada Revenue Agency’s deductibility elements. RRSP’s offer diversified access to a number of different market options, and when they’re combined with real estate investment then the investors are better guarded against instabilities or market volatilities.

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