Author Topic: In Canada is it better to invest in realestate or RRSP?  (Read 5948 times)

K-ice

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In Canada is it better to invest in realestate or RRSP?
« on: October 25, 2016, 11:48:00 PM »
So as not to derail another thread in the investment section do you think it is better to invest in real estate or RRSPs?

My SO would rather invest in rental properties than RRSPs.

They already have about 15 doors and are near the self manage limit.

So what do you think?

Is it a good time for Canadian real estate?




Thanks for the replies.

I would be happy to hear any debate of this. My SO is more into real estate investing so that is definitely part of the argument.

I won't even discuss housing and whether housing is a good investment in Canada as that will likely lead to an argument.


Can you make a new thread about this topic (real estate investing in Canada) and I would be happy to contribute. If we start discussing it here it would completely derail this thread.

K-ice

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #1 on: October 25, 2016, 11:54:31 PM »
Here was the original post which focuses more on RRSP vs TFSA vs other options.

http://forum.mrmoneymustache.com/investor-alley/rrsp-tfsa-real-estate-mortgage-regular-investments-in-what-order/

I expect to get a bit of a different view from those that frequent the investment forum vs the realestate forum.

Captain and Mrs Slow

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #2 on: October 26, 2016, 02:15:43 AM »
you might want to check out Canadian Money Forum as well, great place and not as busy or overrun as this one

dess1313

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #3 on: October 26, 2016, 02:50:59 AM »
following!

daverobev

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #4 on: October 26, 2016, 07:04:00 AM »
You can't just say "in Canada", you might as well say "in real estate"... unless you mean in real estate (globally) as a Canadian?

Because - Toronto vs Ottawa vs Windsor vs Kingston - light years apart.

It also depends on your tolerance. Even with property managers, I hate the sinking feeling when "tenant's done x". So, for me, I've decided it's not really worth it, and I'm in the process of selling my rentals. We'll see how that goes, one I think is pretty much good to go, the other I haven't heard anything at all on so I might end up keeping it - funnily it's the one that's been least hassle. But that could change, of course.

Rentals have some pros - you can manage your income with depreciation. There's less of a tax bill if you die unexpectedly, though of course if you've owned for a number of years there may well be significant capital gains (and, if you've depreciated, clawback to your original purchase price at full rates), vs full tax on RRSPs. But that's just an argument - for most people - to withdraw from the RRSP in early retirement - it's planning, not a problem.

The big pro for real estate is you can leverage, and you can buy as much as you want.

Also, remember real estate is a class of investment, RRSPs are a vehicle for investment. The real question, I think, is *stocks* or real estate. And to that, my answer would be - it'll be less risky getting a couple of hundred thousand invested in the stock market first, then moving on to leveraged real estate.

Of course, I did the opposite - bought a house, lived in it, moved out, rented it out. Housing market did ok. Hence, I did ok. But I was contributing to my (UK, sort've like RRSP) pension as well. Then in 2010-ish I started throwing all my spare cash into the outstanding mortgage - when I should've been throwing it into the stock market (well, I did a bit of both, but mostly the house).

Houses are hassle. Much more risk. Much more reward IF you leverage and don't get crappy tenants. Def. easier/more stable if you have a number of properties, ideally in different cities - diversification is a good thing. I mean, imagine you were a property investor in Detroit 20 years ago...

lostamonkey

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #5 on: October 26, 2016, 07:29:10 AM »
Pros of Rentals:
-Easy to borrow against compared to stocks
-Can leverage (take a mortgage) with non-callable debt to make returns (or losses) bigger
-Canadian real estate has appreciated considerably in the last few years particularly in Vancouver and Toronto
-Owning real property is abit of a status symbol
-Real estate market isn't "efficient" so it is possible to buy a property for less than market value
-Some tax deferral opportunities by claiming depreciation

Cons of Rentals
-Since Canadian real estate have appreciated so much in recent years, it is difficult to find properties in bigger cities which are cash flow positive
-Requires some management (can be outsourced to PM company)
-Risk of tenant causing significant damage or extended periods of vacancy
-Cannot be held in registered accounts (RRSP, TFSA)
-Some experts/economists believe the Canadian housing market is overpriced and we are currently experiencing a housing bubble.
-Often requires a mortgage which will make losses bigger if property decreases in value and is sold
-If you live in Quebec: extremely pro-tenant legislation.
-May require repairs which should be factored into monthly costs

Mmm_Donuts

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #6 on: October 26, 2016, 08:56:16 AM »
Personally I would not invest in real estate right now. People who got in 10 years ago did well, but that ship has sailed. It's very difficult to find cash flow positive units in big cities (Toronto or Vancouver) and the burbs surrounding these cities are in extreme bubble territory due to low interest rates.

Why is your SO favouring the idea of real estate over financial investments?

In my mind it is endless Cons:

- Hassle of dealing with tenants, good or bad. My RRSP does not call me in the night because of a leaky basement.
- Difficulty in evicting bad tenants, even if they aren't paying rent - in Ontario the rules are very pro-tenant, I have heard many horror stories
- It's a vulnerable investment because it's a lot of money concentrated in one asset, in one location. REITS are better for diversification, if your SO really believes in RE going up
- Too illiquid. With etfs I can sell whatever amount I want, and that money is almost immediately in my account. With real estate I have to pay an agent and lawyer to sell and this could take months
- Financial investments are more tax efficient

Goldielocks

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #7 on: October 27, 2016, 02:51:41 AM »
Okay. First, know that RRSPs are distinctly better than IRAs or 401ks. RRSPs are designed to balance your income taxes between high and low years at any age.

Next, both are valid options. Run the numbers, and you choose.

Vancouver is not a good real estate bet right now, 1% rule is very unlikely to obtain.

Mattzlaff

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #8 on: October 28, 2016, 02:51:34 AM »
I've been looking at real estate where I live in AB for rentals.

Seems ridiculous to expect to buy any property as an "income" property. But to purchase a property and allow it to only build equity would make a little bit of sense if you can deal with the risk.

Saskatchewstachian

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #9 on: October 29, 2016, 11:17:10 AM »
As someone how just recently bought in Sask I do think that the market country wide is overheated. Understanding that the middle of the prairies isn't comparable to TO or VAn, but to still see a 30 year old detached listed at 450k is absurd. We got ours as a good deal but found one that was listed for close to 6 months because it's stuck in the 80's, poor yard maintenance and overall poorly maintained.

There have been huge price increases in the city while construction of new subdivisions is also running wild.

We bought our place as a home and not as an investment so I don't really care if the bubble pops and prices drop. Would it suck to see our mortgage remain while our equity sinks, sure, but that part of the risk of buying. Overall I wouldn't recommend anyone get into the housing market as an investment but getting in because you legitimately want somewhere to live, that's another story.

dess1313

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #10 on: October 30, 2016, 09:02:00 PM »
The housing market is acting like its on steroids due to the low interest rates that have been around.  at some point interest rates will have to go up and this growing bubble will have to slow down or burst at some point.  Now that they have added the mortgage stress test i think its going to escalate things faster.  A lot of people won't qualify for the mcmansions they were buying or the massively overpriced average houses either

http://www.cbc.ca/news/business/cmhc-red-warning-housing-1.3808364
When even the cmhc is putting out red warnings about the crazy housing markets its time to sit back and wait

scrubbyfish

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #11 on: October 30, 2016, 09:08:34 PM »
I do neither. I did invest in real estate earlier (when I didn't know about any other option, and didn't know about the hassles involved). I lucked out, but I prefer my investing to run on things stronger than luck. So, I would be unlikely to put more than a small portion of my portfolio into Canadian real estate again and even then, only for personal enjoyment, with a tiny portion of my portfolio, and if the annual costs were cheap.

Tenancy laws in some provinces make it too risky, and too tough to landlord "by the book."
Insurance and municipalities can triple their prices licketysplit.
It's hard-to-impossible to recover damages from bad tenants.
It's too many eggs in one basket.

I prefer low-fee index stocks.

snacky

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #12 on: October 30, 2016, 09:18:54 PM »
I'm interested in getting a rental because, if things go well, it builds wealth faster than stock investing. What I mean by that is that I can get a mortgage to get a rental, and so start bringing in more money right away, whereas putting a % of my income into the markets makes things build a lot more slowly. It's much higher risk, but higher return, I think.

Summerinparis

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #13 on: November 02, 2016, 03:04:13 PM »
I do both. Real estate provides leverage and write offs and RRSP's provide immediate tax benefit & longterm compounding.  I wouldn't touch Canadian real estate right now though. 

GuitarStv

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #14 on: November 02, 2016, 03:52:07 PM »
Looking at the past ten years of returns, my home has appreciated in value much faster than my index funds.  I certainly wouldn't count on that though.  The whole time we were paying off the house with accelerated mortgage payments we were maxing out our TFSA and RRSPs too.

Deano

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #15 on: November 12, 2016, 08:40:57 AM »
I would avoid Canadian Real Estate in almost all of the country right now. Maybe PEI and a few areas in the East are ok, Windsor might still have some deals (though being overrun by investors/speculators from Toronto), there is always Elliot Lake!

Your hubby needs a reality check, all in on 1 asset class? Would he think it was a good idea to go all in on gold? Oil? Apple stocks? Probably not.

totoro

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Re: In Canada is it better to invest in realestate or RRSP?
« Reply #16 on: November 12, 2016, 10:35:25 AM »
The real estate market is pretty high in some areas.  If you are looking for cash flow it is going to be hard to come by unless you are on the east coast perhaps.  On the west coast the money is made on appreciation, not rents, like it is on the west coast of the US as well.  Banking on appreciation is risky because you can be cash flow negative each month and you'd better be able to carry this if prices drop. 

We have a number of rental units in BC and self-manage. We purchased 2008, 2009 and 2012 - so not that long ago and we will probably purchase again next year or the year after. 

Long-term rentals will prove to be an effective pension plan as we are both self-employed and the principal and other expenses will be paid down by rents while appreciation does its work.  All the houses have all appreciated, but there was a period between 2009-2015 where the market was flat.  When you count transaction costs if you have to sell you can lose quite a bit even in a flat market.

As it stands, our rentals have covered their costs and they are cash flow positive and we pay nothing for shelter ourselves.  We've made more than 100% return on what we have invested not including principal pay down. 

About half of the gain will be sheltered by the primary residence capital gains tax exemption, the rest is taxable and, of course, not something you have in hand until you sell or refinance.  We did not fare as well in the stock market although stocks are less work.  This is because of the effect of leverage when you borrow to invest in RE - which can also work in the opposite direction quite dramatically when prices decline.

I would say don't buy real estate unless you are prepared to be a landlord, can carry a loss or increase in rates, and are prepared to hold through all markets - at least for seven years.  Appreciation will eventually rectify any downturns, even if you buy high, but you sure can lose big if you have to sell in a downturn.

As for RSPs, those are effective for those with higher incomes.  We've saved some room for the year we sell something as we can then shelter the capital gain from taxes.   

If I was just starting I'd recommend buying a primary residence and renting out part of it first, perhaps using the RSPs you have as down payment.  From there you can decide whether you want to have additional RE or RSPs from a place of experience.