Assist your clients in discovering real estate tactics to achieve financial independence

During a recent conversation with clients planning for retirement, we discussed strategies to secure their future. This included selling their current home and weighing the benefits of continuing homeownership versus stepping away from the housing market.

Their current home is valued at around $1.2 million, with no mortgage. Most of our focus was on optimizing their real estate assets for retirement. If they sold their home, they’d have around $1.14 million in equity to invest, with a key question being how to best use that money to achieve their goals, including frequent travel.

Here’s a look at the options we explored based on their real estate and assets, which could apply to many clients:

Option 1: Sell and invest locally

One possibility was selling their home and purchasing a property in Oshawa with a legal accessory apartment for around $800,000. After covering purchase and closing costs, they would have $300,000 left to invest.

At a 4.0 per cent return, this would generate approximately $12,000 in annual income. Additionally, the accessory apartment could be rented for about $1,800 per month, bringing in an extra $21,600 annually.

This would provide them with a total of $33,600 per year in combined income, which would be taxable but with minimal tax implications given their lower retirement income. Plus, some home expenses could be written off as rental deductions.

Option 2: Buy a seasonal or vacation home

Another appealing option was using the $300,000 to purchase a winter home in Florida instead of investing it in the stock market. After converting the funds to American dollars, they would have about $225,000 to buy a property in “The Villages” northwest of Orlando.

The carrying costs would be about $300 per month. While this option wouldn’t generate investment income, they could still earn $21,600 annually from renting out their Oshawa property. Additionally, renting out their Florida home when not in use could potentially generate $3,000 to $4,000 per month in U.S. dollars.

Helping your clients explore equity-shifting opportunities

This conversation highlighted how many homeowners, especially those who have lived in their homes for decades, overlook the financial potential of downsizing or shifting their equity into different types of properties. Even if they chose to rent rather than purchase a vacation home, the income from investments or property rentals could still comfortably cover their travel and living expenses.

For homeowners in the Durham Region and other areas, selling and reinvesting home equity offers benefits such as financial freedom and increased quality of life. Many regret holding onto their homes for too long, only to find rising maintenance costs strained their budget and limited their retirement luxuries like travel.

At a certain point, it’s crucial to reassess whether homeownership continues to make sense or if downsizing is the smarter financial move. For my clients, their next step was consulting their accountant about the tax implications of owning rental properties locally and in Florida.

Entering this exciting new phase of life is a good problem to have. Your clients may find themselves in a similar position.