Investing In Real Estate With Your RRSP
As you know, real estate has appreciated well over many decades. Recently all over the media there have been stories about big Wall Street companies jumping in and buying real estate rather than stocks… because they know they can get a better return.
So, why are most people still trusting their own retirements… RRSPs… LIRAs… TFSAs… with the stock market?
Answer is, they don’t know any better.
Before we dive into the good stuff… remember, we are not financial advisors and by no means should this guide be meant to act as financial, tax, or legal advice. It’s for informational purposes only. Consult your own professional advisors before you make any financial choices like this.
The Self-Directed RRSP for Real Estate
There’s something called a Self-Directed RRSP. They’ve been around for a while… and in the past several years lots of people have realized that their RRSPs aren’t earning them a darn thing (sometimes even losing money). So, those people (maybe this is you) have started to look for other ways to earn better returns with that same RRSP.
Enter the “self-directed RRSP”.
A self-directed RRSPis simple. It’s a retirement account that has the same tax benefits as a normal RRSP… but, you have more flexibility in deciding what you want your RRSP to be invested in.
You can invest in…
- Promissory Notes secured by mortgages (i.e. – private lending)
- Limited partnerships
- Some types of precious metals
- … and the normal investments like stocks and mutual funds that your normal RRSP can invest in
Basically, this opens it up so you can buy investment real estate with your RRSP… or be a private lender in real estate.
Are There Restrictions?
Yes, there definitely are. There are restrictions on what interest rate you can charge on private mortgages… what types of precious metals… and often times the “custodian” of the RRSP has restrictions on what they think you can and should invest in.
A custodian? Whats that?
Self-Directed RRSP Custodians
The Government wants investors to take more control over their investments while at the same time still getting the tax benefits. But, at the same time… they don’t want people setting up these RRSPs and just doing whatever they want.
So there is a barrier that they have to have in place… and thats the custodian.
The custodian is usually the Self-Directed RRSP company who you have your RRSP with. They act as the “go between” when you’re going to make an investment. Many custodians have guidelines on what you can invest in, how long it will take for you to actually make your money work for you once they approve the investment… etc. Some custodians are more passive… and let you actually have a checkbook where you can write checks from your SD-RRSP to make investments.
You should do your homework and find the custodian that’s right for you. Here’s one that we know and respect:
- Olympia Trust – https://rsp.olympiatrust.com/
Do some research to find the right fit for you.
Some have more expensive fees than others… and some give more flexibility than others.
What To Ask A Self-Directed RRSP Company Before You Work With Them
Before you sign on with a self-directed RRSP company… ask them a few key questions.
- What are your fees? – Fees can vary wildly. Some charge an annual fee based on the value of the account, some charge an annual fee, some charge large setup fees, etc. Find out what works for you. But, the idea is that by being able to invest in real estate with your RRSP… you’ll more than make up for the fees you’re paying with your higher returns.
- What’s the process for approving an investment? – Some companies can take up to 30 days+ to fund an investment after you send it in for approval. Some SD-RRSP’s give you what’s called “true checkbook control”, where you actually get a checkbook where you can write checks from your RRSP account… which gives you immediate access to the funds (i.e. – to close a deal quickly). Checkbook control usually is a tad more expensive to set up than an RRSP account that requires all investments to go through the sometimes lengthy custodian approval process, but again… find out what’s best for you.
- Are there any restrictions on what I can invest in? I want to invest in real estate and make private loans. – Some SD-RRSPs with larger more traditional companies put restrictions on what your account can invest in. Some don’t allow real estate… while others do. Just ask.
- Is my retirement account eligible to “roll over” into a SD-RRSP? – Not all retirement accounts can be rolled over into a self-directed RRSP. Most RRSPs can be. Just ask your financial advisor and ask the representative at the SD-RRSP company you’re working with.
- How long will it take for my account to be up and running and have funds available for investment? – Some people wait way too long to get this process rolling. If you know you want to use your RRSP to invest in real estate… get the ball rolling on getting it rolled over into a SD-RRSP account asap. Some companies may take weeks or even over a month to have your account setup complete and ready to invest. So, don’t wait until you’ve found a great real estate deal to get started… get started today so your funds are ready to invest when you need them.
Getting Off The Sidelines And Getting Your Money Working For You
If you feel a self-directed RRSP may be a great way for you to invest a portion of your retirement in things you know (rather than the unpredictable stock market)… then dive in, take some time to educate yourself on the pros and cons of a SD-RRSP (those websites I put above are a great place to start. They have all kinds of resources to learn more about self-directed RRSPs and how you can use them to invest in real estate).
If you have any questions on how you can work with us as an investor… just connect w/ us through our contact form or call us anytime at: (647) 557-5979. We offer discount investment properties in Toronto and surrounding areas to investors like you who often buy them and keep them as rentals. Also, for those qualified investors who want to explore private lending… contact us and we’ll talk about how we work with private lenders as well.
Happy investing! We’re here as a resource for you so don’t hesitate to connect with us anytime.