Insights & Resources

Retirement planning can be overwhelming, especially when you have rental properties or real estate. You may be wondering whether to keep the properties and live off the income or to sell the property and invest in the financial markets. In this article, we will share a story of how we helped one of our clients make this decision.

Case Study

Meet Mike. Mike had a piece of land in British Columbia that was yielding a small annual income from a local heavy machinery company that was using it to store their equipment when not in use. Recently retired, he had a RRSP, TFSA, was collecting CPP and OAS, and owned his home in Toronto with a small mortgage remaining. Mike had beneficiaries that he planned to leave the value of his financial accounts to when he passed.

In order to help him determine whether to keep his BC property or sell it, we put together a retirement cash flow plan and modeled three scenarios.

• Scenario 1: He keeps the BC land and continues to receive the rental income.  
• Scenario 2: Sell the BC land and invest the proceeds in the financial markets
• Scenario 3: Sell the land and use some proceeds to pay off his mortgage and with the remaining proceeds,  purchase an annuity that would provide him with lifetime guaranteed income.

In going through the scenarios we concluded the following:

Scenario 1

Keep the land and receive the rental income. The current rental income was not enough to supplement his current income needs and would not allow him to do the things he wanted to do in retirement. While the land was worth almost $1M, he was not able to access the full value of it by only renting it out.

Scenario 2

Sell the land and invest in the financial markets. While investing $1M into the financial markets could provide sizable returns, it is not guaranteed. Mike did not want to risk losing any value of the money in the event of a stock market downturn.

Scenario 3

Sell the land, and use some of the proceeds to pay down his mortgage and purchase an annuity that would provide him with lifetime guaranteed income. In this cash flow scenario – Mike was able to realize the full value of the land through the sale.

A portion was used to paydown his mortgage, relieving him from his monthly mortgage expense. The annuity would provide him with more than enough annual income that he needed to pay his expenses and do the things he wanted to do in retirement.

A guarantee was also put in place to ensure his beneficiaries would receive some of the principal back in the event he passed away – thus allowing him to leave a modest inheritance still.

Conclusion

After analyzing these scenarios, we concluded that Scenario 3 was the best option for Mike. It aligned with his preference for guaranteed income and allowed him to access the full value of the land. We were also able to take advantage of the favorable interest rate environment for annuities, which meant higher payouts for Mike.

We can help

If you are in a similar situation and need help with your Real Estate Property, we would be happy to put together a cash flow plan. We are here to help you meet your investment goals and we welcome your questions. We work with business professionals, executives, and families to grow and protect their wealth using our Wealth Plan formula. To discuss our approach and if it is the right fit for you, we invite you to schedule a no-obligation discovery consultation.

Disclaimer

Jacqueline Ozdemir is a Financial Advisor with Assante Capital Management Ltd. Please contact her to discuss your particular circumstances prior to acting on the information above.