Time to sell investment properties? – Toronto Sun

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Many Canadians shifting financial planning strategies

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It’s been dubbed the ‘perfect storm’: ultra low borrowing costs, tight supply and increased demand for single-family homes have created a super-charged real estate market that’s forcing many Canadians to shift their financial planning strategies.

That includes boomers and Gen X investors who are cashing out their investment properties and urban homes. Should you follow suit and if so, what should you do with your real estate earnings?

“If the purpose of buying an investment property or principal residence was to sell and fund your retirement, you have to ask yourself if it’s going to get much better than this,” says David Semerak, a senior wealth advisor at Meridian Credit Union. “The answer – at least in the next couple of years – is probably not very much, so I think it’s good time as any given what’s going on right now.”

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(An RBC Economics report released in mid-June predicts peak prices have yet to be reached. “Strong competition between buyers is keeping intense upward pressure on property values at this stage,” economist Robert Hogue said. “We’ll need to see a much more significant market rebalancing before prices can stabilize. We expect this to occur late this year at the earliest.”)

If you’ve decided to sell, you must now decide what to do with your influx of cash. Some are reinvesting those funds, often in stocks that pay dividends and/or investments that produce income. “People are staying away from GICs because of the low interest rates. They’re using that cash to create a new income stream for themselves,” Semerak says.

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Others are investing that money to purchase a nicer townhouse or condo with low maintenance. There’s often not much difference in price between the house they just sold and the one they buy, he reports. Still others are helping their adult kids come up with a large enough down payment on a house of their own that they don’t need mortgage insurance (remember, it’s automatically worked into your mortgage when you put less than 20 per cent down towards the purchase price).

Many millennials, meanwhile, are choosing not to follow in their parents’ homeownership footsteps – at least for now. “The entry costs of homeownership are just so burdensome that on a beginner salary, almost 100 per cent of your disposable income would go to fund this mortgage,” Semerak says. “They’re either asking their parents to help him out or they’re opting out and their choosing to spend their disposable income in other ways.”

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Many are comfortable with renting or buying something other than a freestanding house, such as a condominium. Some are splitting a mortgage with others who want to dip their does in the real estate market but don’t have enough money to do it on their own. “My only advice there is to make sure that you have a defined exit strategy should one of the co-owners decide to leave,” he says.

For those who choose to invest their hard-earned cash to save for a down payment, the Tax-Free Savings Account is a “game changer,” says Semerak. “It allows you to invest disposable income in things like stocks, bonds and mutual funds as well as real estate investment trusts and other real estate-like investments where you could get exposure to the market with significantly less capital.”
Structure your investments right and you could generate a tax-free income that could eventually be used to pay rent or a mortgage.

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“The worst thing to do to do nothing and the sooner you start the better,” he says. “If you can get that that ball rolling and make it part of your habitual savings, you’ll be able to get into homeownership – maybe not as soon as the generation before the millennials but sooner rather than later.”

SIDEBAR:

Prices up across the country

House prices across the country have grown significantly over the past year, especially in Atlantic Canada and more recreational locations, according to Century 21 Canada’s fifth annual price per square foot survey.
The survey compares the price per square foot of properties sold this year between January 1 and June 30 compared to the same period last year.

10 most expensive areas per square foot

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1. Montreal, downtown and southwest (detached) $1,350
2. Vancouver, downtown: $1,310
3. Vancouver, west side: $1,208
4. Vancouver: $975
5. West Vancouver: $971
6. Toronto, downtown: $956
7. Montreal, downtown and southwest (townhouse): $937
8. Montral, downtown and southwest (condo): $935
9. Vancouver, east side: $877
10. North Vancouver: $794

10 least expensive cities per square foot

1. Saint John, N.B.: $134
2. Moncton, N.B.: $142
3. Fredericton, N.B.: $147
4. St. John’s, Nfld. (detached): $149
5. High River, Alb.: $176
6. St. John’s, Nfld. (condo): $182
7. Red Deer, Alb. (condo): $186
8. Brandon, Man.: $203
9. Regina, Sask.: $205
10. Red Deer, Alb. (townhouse): $207

Source: www.c21.ca/2021/08/11/price-per-square-foot-2021