Various types of RRSP-funded purchases

RRSP money represents a potent tool for those who are looking to participate in the real estate market in Canada, an analyst said.
 
In his column for the Financial Post, income tax professional and Certified Financial Planner (CFP) Jason Heath outlined the various options available to would-be investors.
 
Although the money is not valid for investments on rental properties, RRSP fund users can still withdraw up to $25,000 under the Home Buyer’s Plan (HBP) to purchase or build their qualifying primary residences.
 
Heath warned that such a course of action is fraught with risks for those who are unfamiliar with the lowest interest rates available today, as well as the best possible returns.
 
“Anyone considering a real estate investment given the long run-up in Canadian real estate prices should consider their existing exposure to real estate, not only through their stocks and mutual funds, but also their primary residence,” Heath said in the January 27 edition of his column.
 
“Many Canadians have a high allocation to real estate already in their net worth without targeting real estate specifically in their RRSPs, so use proper asset allocation as the primary test to determine if you should be investing further in real estate in the first place,” Heath added.
 
Another option is a real estate investment trust (REIT), which allows RRSP investors to benefit from residential, industrial, health care, retail, office, self-storage, or hotel properties via professional teams that serve as intermediaries, thus mitigating risk. REITs are also plentiful in the local and global market, with 50 trading on the Toronto Stock Exchange alone.
 
Still another option is holding one’s own mortgage in the RRSP, which uses the posted rate as the mortgage rate. While pretty much ensuring a higher fixed return than borrowing from the bank, this set-up also means that one is borrowing at a higher rate (even if it’s from him- or herself).