When people come to me, fed up with poor returns on their GICs, t-bills, savings bonds, RRSPs, mutual funds, savings accounts, CDs, TFSAs, IPPs, 401(k)s, IRAs, LIRAs, RIFs or life insurance and looking for an alternative, I usually suggest a four step real estate process involving—own your own home, buy some residential rentals, buy some commercial rental property and land. If you are looking for a $72,000 per year retirement income and the best interest rate you can get from your bank is 0.99%, you will need more than $7 million in savings. From experience, I can tell you most people can’t save their way to wealth, they have to invest their way there. But where to invest your money and effort is a key question. I vote for real estate.
In fact, every time I think about investing in another sports team, a tech company, a life insurance policy, a mutual fund, my wife makes me take out a piece of paper I carry in my briefcase and read aloud three times, “IT’S REAL ESTATE, STUPID.” It’s the only thing that has worked for me and, as I get older and there is less runway ahead than behind, the urgency and truth behind this statement becomes more apparent.
So here’s the thing—I have found that if you own your own home, two duplexes, one small commercial property and some land, you can probably generate more than $72k per year free cashflow, 15 or 20 years after you start. This won’t put you in with the 1% but so what? You won’t starve and you will have some inflation protection (real estate tends to increase in value over time). Plus you will have a lot more flexibility than all the other alternatives, which seem to have more rules than a porcupine has quills. Ever try to get your money out of a LIRA so you can create a self-directed mortgage investment? Good luck with that. They don’t call it “locked in retirement account” for no reason.
In a place like Ottawa, if you own your own home, two duplexes, a small industrial condo and a lot somewhere nearby, you probably have a portfolio worth about $2 million. Once your mortgages are paid off, you’re cruising. If you ever get into trouble, you can put a mortgage on one of your properties in a week or so and, presto, you have some tax free money in your hands to deal with an emergency. When you turn 80 and if the above scenario fits your profile, you have my permission to take out a HELOC (home equity line of credit) for $60k and blow it on a 6-month trip somewhere nice (Crete beckons to my wife and I BTW).
Now people who come to me for real estate advice and brokerage services (I’m available), understand every part of this except the commercial side. They think “commercial” means you’ve got to be the size of Minto. Rubbish. I have developed a small retail plaza (Dunrobin Village), a mini storage business (Blue Heron), a mini office business (Terrace Corporate Centres), a travel apartment business (PETA, not People for the Ethical Treatment of Animals, Presidential Executive Travel Apartments), a business newspaper (Ottawa Business News, the precursor of Ottawa Business Journal—this mention just snuck in here). I also dabbled in industrial condos—small, individual units usually with some office space in front and warehouse in back that anyone can buy—investor or end user.
In Ottawa, you can pick one up for less than $300,000 and the nice thing is you don’t have to hassle with the RTA (Residential Tenancy Act) like you do if you are a residential landlord. Someone doesn’t pay their rent in commercial? They’re adios out of there in a hurry. Generally in commercial rentals, leases are longer term (3 to 5 years is typical) so you don’t have to replace your tenant or make-ready your apartment every year like in many residential situations. Industrial tenants tend to be self reliant too so if the toilet blocks, they’ll fix it on their own not call you when it’s bound to be least convenient for you. The downside to commercial leasing is that it seems to take longer to fill vacancies.
The other key to having a decent life and retirement is to control your costs. Friends of mine sold their Kanata home for $600k, bought nice double wides in waterfront communities in McNab Braeside and Florida (for about $100k each) and generated nearly $400,000 in tax-free cash. Ontario is a paradise for 6 months a year. The rest of the time, they’re someplace else playing horseshoes and bocce, and going to campfires with their friends where he plays guitar and banjo, and she sings. Oh yes, I forgot to mention, their monthly cost to live in Canada and the States? $500.
Bruce M Firestone, PhD, Ottawa Senators founder, Century 21 Explorer Realty Inc broker. Follow him on twitter @ProfBruce. Contact him at 613.422.6757 x 250 email@example.com. To explore opportunities, please visit http://www.brucemfirestone.com/real-estate-brokerage/listings/.
POSTSCRIPT: If you would like to read more about real estate investing, please pick up copies of my mini books from Amazon (they’ll set you back $3 each), Real Estate Investing Made Easy http://www.amazon.ca/Real-Estate-Investing-Made-Easy-ebook/dp/B00GG0OQC6 and Retire Rich Retire Early http://www.amazon.ca/Retire-Rich-Early-Real-Series-ebook/dp/B00I5V4214
POSTSCRIPT 2: A former student of mine writes, “I find it too expensive to get in as a young entrepreneur. Property values aren’t like they have been in previous tough times. You could go in and strike a good deal, then flip, lease etc. Those good deals today are few and far between. Add to that rising hydro, heating, taxes, wages as well as increased liability, and there’s a portion of the answer. The big thing now I find is that the revenue that comes through the door has to match increasing costs and that hasn’t happened.”
My answer to him? “You’re looking in the wrong places. For example, how about this?”
Location: close to Eganville, ON
Property Type: Opportunity to own 177 acres of waterfront property on fantastic Constant lake with 3 homes, 3 cottages, 5 RV sites, fish hut, docks, 50-acres tillable land with farm credit. High efficiency wood furnace heats all three homes via underground pipes. Great fishing, boating, swimming, canoeing, kayaking. Has own creek, island & wooded peninsula with superb waterfront.
Remarks: Highest and best use as tourism destination for fishing, boating, RVs, camping… Room for 50 more RV sites. Great income potential. Actual area is over 200 acres with deeded ownership of creek bottom. Tour property from land and water to appreciate potential. Decent existing income. Main home has high ceiling basement with separate entry, ideal for in-law suite.
Directions: From Ottawa, go west on highway 417 to highway 60. Turn left onto 60 (O’Brien road) then left (west) on highway 132. Turn north on highway 41 and east on Constant Lake road. 1 hour 18 mins from Canadian Tire Centre.
MLS # 925888
(Cross reference mls #s 925903, 925904)
To explore this and other opportunities, please visit http://www.brucemfirestone.com/real-estate-brokerage/listings/.
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