Real estate investment attracts many savers looking for additional income. But does it make sense to use your RRSPs to purchase an income property? This article explores the available options and their implications.
The RRSP, a flexible savings tool… up to a certain point
The RRSP is primarily designed for liquid investments such as money, stocks or guaranteed investment certificates. Real estate, with its tangible and less liquid nature, does not fit perfectly with the RRSP philosophy.
Option 1: Withdraw funds from RRSP
You could consider taking money out of your RRSP to finance your real estate purchase. Please note, however: these withdrawals are taxable, because they are considered income. It is therefore crucial to carefully calculate the tax impact before making such a decision.
Option 2: The Home Buyer’s Plan (RAP)
If you are not already an owner, the RAP could be an avenue to explore. This option allows you to use up to $60,000 per spouse from your respective RRSPs to purchase real estate. Plex types are included, and if you respect the repayment schedule, no tax penalties will apply.
Option 3: Invest through a REIT
An alternative is to invest in a real estate investment trust (REIT). This allows you to indirectly own residential or commercial buildings, while benefiting from the flexibility of the RRSP.
In conclusion
Using RRSPs to purchase income property is possible, but it comes with its share of restrictions and tax considerations. Weighing the pros and cons is essential and, often, personal equity remains the best route to take when investing in real estate. Before diving in, consult a financial advisor for a strategy tailored to your situation.
