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An Exciting Weekend
I just came back from another real estate investing seminar over the weekend (I enjoy these seminars a lot) that focused on just how useful real estate is for the growth of RRSPs, TFSAs, LIRAs, RRIFs, and RESPs. I'm not sure what you've been receiving from the investment of your registered savings plans for yourself or your children, but the numbers that I consistently hear from people is they receive around 3-5% return per year. Those numbers aren't all that exciting to me and the reason is that I know of investments with less risk than mutual funds and the stock market overall that pay better than 3-5%. Today I'll manly use RRSPs as an example, but know this can be done with any of the previously mentioned registered savings plans.
What If?
What if you could invest your RRSPs in cash flowing real estate that was secured against that real estate? What if you could actually know the investor who you are dealing with and understand his or her business plan before you invest so you are confident in how everything will work to grow your money?
One reason I prefer real estate investing over other types (specifically stocks in this case) is it's physical nature. I prefer having something I can touch and visit. Even if I don't go to the property every day, I know I can do so if I choose to. If something goes terribly wrong I know that it is literally impossible for my investment to ever become worthless because it's made out of bricks and sticks (commodities) and is sitting on land.
A second reason real estate is preferable is that I or someone I know controls it. I have to admit I'm nervous about CEOs of big companies having control over stocks and what they may or may not do. Even if I have buy stocks in a good company, I don't know what influences Greece's economy will have on the market. And after these first two points, I also know that mutual fund managers are taking a cut out of my 3-5% (I don't like that either).
I don't have any RRSPs for a number of reasons, but I do have RESPs for my two children. Now, my children are only 2 and 4 years old so their RESPs aren't worth hundreds of thousands of dollars, but that's the beauty of registered savings plans. I can invest in real estate even with as little as 50 bucks if I choose to. I have to admit 50 bucks wouldn't be worth the paper work (this is where real estate investing doesn't compare to the stock market... in stocks I can invest 50 cents if I choose to), but the point is that I can invest smaller amounts of my savings in real estate without needing to purchase an entire property.
How It Works
I won't go into full detail in this post, but I wanted to quickly help you understand how this would work in a property. If you are interested in receiving better than average fixed returns on a physical asset secured against that asset by using your RRSPs to invest in real estate you would first need to go to your RRSP trust company and have them put your RRSPs into a self directed account. Before you do so, make sure it is a company that will allow you to invest in real estate (Olympia Trust is an example). The trust company's job is to make sure payments are coming into your account as well as update you on all that is happening.
The next step is to contact an investment company that is able and willing to give you a fixed rate of return that you are happy with. Make sure you do your due diligence on how the company plans on investing. Meet with the owner of the company to understand how s/he invests and why. If the company does not invest in cash flowing real estate (remember, after all expenses including maintenance and vacancy rate savings the property must produce) then go somewhere else because unless it is cash flowing at a reasonable rate, it isn't proper risk reducing investing. For more information on the importance of cash flow see my previous post on why it is the single most important aspect of investing in real estate.
What this company will now do is use your RRSPs as a mortgage. The company will actually draft a mortgage with a lawyer and you will act as the lender in this case. There are various ways to set everything up at this stage, but as long as you are communicating your desires and needs with the investing company you can ensure you are taken care of. At this point it will be important to understand where you will be on title; is this a first mortgage? Are you in second position? Also confirm with the company that they will pay the annual fees associated with the account in order that you can simply sit back and know your money is growing without worrying about it.
I trust this post was helpful for you or someone you know. If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html and fill out a contact form.
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