Could an Investment Property be your Pension?

8 Ways to Invest in Real Estate for Retirement | NewRetirement

The recent shock to the economy has had many Canadians thinking seriously about what their life might look like after their paycheques stop. Even if you have a workplace pension plan to look forward to, you may find it falls short of the income you’d like to live on. Is it possible to take your pension into your own hands and create sustainable long-term income?

An investment property has the potential to provide a monthly income and grow your wealth over time. Property values have a good track record of appreciation, and often outperform stocks and bonds over the long term. And this is a wealth-building strategy that is within reach of ordinary Canadians:

  • An investment property can supplement income now and boost pension income later: potentially giving more freedom, sooner.
  • Working Canadians who have found their dream retirement property have decided to buy now and lock in the price, renting for income until it’s time to use it themselves.
  • Some first-time buyers want to skip a “starter condo” and go directly to a single-family home in a neighbourhood they love by using income from a rental suite to help them pay the mortgage. Or when their first home becomes too small, they move to a bigger home but keep the first as a rental property.
  • Parents often realize that the monthly cost of housing for their college or university student might as well support their own mortgage – and not someone else’s – while also gaining a sound investment.

So, what kind of downpayment will you need?

If you will be living in one of the units, then the property is considered “owner occupied”. If you’re not living there yourself, you’ll need a larger downpayment:

  • Owner occupied: 5% down for 1-2 units on the first $500,000 and 10% on any amount over $500,000; 10% down for 3-4 units
  • Non-owner occupied: 20% downpayment is required, and the funds must come from your own savings (you cannot use gifted funds)

Another option if you already have equity in your primary residence is to refinance your home to generate the cash for the investment property.

Ideally you want it to be cash-flow positive right from the start, so be sure to think about closing costs, needed repairs, and whether you can cover the costs for this and your own property.

If you are thinking about an investment property, get in touch to have all your questions answered. I can help you determine your downpayment options and run the financial calculations that you will want to see for cash flow and capital appreciation.

Source: Sean Rankin, Mortgage Agent with Smart Debt Mortgages

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