Real Estate Talk:
Real estate as a retirement plan

Property is a wonderful investment for many reasons

By Joseph Marovitch

In 1991, my bank manager told me I was eligible for a pre-approval and I asked, “What is a pre-approval?” He said I was eligible to be pre-approved for a mortgage to purchase a residential property. In other words, the bank was prepared to provide me a letter stating they would lend me an amount of money to buy a house or condo. I thought that might not be a bad idea. I was single, my expenses were low and the idea of paying a mortgage instead of rent seemed like a good idea. I accepted the pre-approval and began to search for property in Westmount.

I found a beautiful condo with two bedrooms facing Westmount Park and the mountain. I did a little research on the owner and with that knowledge and some perseverance I purchase that two-bedroom condo for $110,000. Shortly thereafter, I married and had a boy. The two-bedroom condo was too small and after two years I sold that condo for $175,000. I then proceeded to search for another property and finally found a lower three-bedroom duplex just up the mountain north of Sherbrooke. The duplex was not for sale; it was for rent. However, just as I was about to sign the lease, I hesitated because I did not want to pay rent. I told the landlord my issue and the landlord told me she did not really want to rent and would rather sell. I told her I only had $155,000. She said sold.

I was single, my expenses were low and the idea of paying a mortgage instead of rent seemed like a good idea.

Two years later my wife and I had a second child and decided the duplex was too small, so we searched for a larger home in Westmount. I placed the duplex on the market and sold for $265,000. We then purchased a full sized four-bedroom townhouse near Victoria Village for $310,000.

A few years later, I sold the business and took a job in Ville St Laurent, where my wife worked as a principle in a private school. We decided to move closer to work, so we sold the house for $710,000 and purchased a property in Bois Franc which was as large as our last property in Westmount and similar in structure but build in the 2000s and not 1910. We purchased the new property for $405,000.

After one year, I relocated work back to Westmount. Deciding we lived too far from work, we sold the house one year later for $515,000. Today we live in a duplex again, and the story goes on.

I have invested in the stock market and I have invested in real estate. There is nothing more stable than real estate. Land does not grow in density, only in value. Property is a wonderful investment for many reasons. One being that your primary residence can be sold tax-free. You purchase the property and live in it while it grows in value. You can borrow against the property or sell it.

If you purchase a 2nd residential property and later sell that property, you acquire a capital gain, which is taxed at a lower rate than personal income tax.

Here is a plan to create a real estate portfolio. Purchase a small quadruplex in Lasalle or St Laurent. Put down 15%. Two years later when the property has grown in value, borrow against the increased equity in the property, and purchase a second four-unit income property. Two years later, refinance both properties, which have again increased in value, and purchase a third, four or six-unit income property.

‘I have invested in the stock market and I have invested in real estate. There is nothing more stable than real estate. Land does not grow in density, only in value.’

Repeat the process every few years. At some point, you may want to sell some of these properties and purchase a 30 or 40-unit income property. Larger income property leads to more large income property. As well, it is easier to manage one large income property than run around the city managing several small income properties.

Income properties are like fixed income bonds. Income property provides rent and the property increases in value as time goes by. The most successful real estate investors rarely sell income property unless they intend to buy bigger or want to retire. However, even in retirement, it is a gift to pass income property to your children.

Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, go to the search link and type in Joseph Marovitch.

Have a great week!

Next article: Criteria to choose income property to purchase

STATE OF THE MARKET

The Montreal real estate market has been on a roll for the past two years with low interest rates, a busy economy and little supply in a demand market. This has been great for sellers and investors but not so much for buyers. To combat this issue of increasing prices and high rents, Montreal is about to pass a bylaw that would require developers to build off-market less expensive apartments for every new residential high-end building they erect.

Certain developers are not pleased with this plan since certain areas in Montreal are more in demand than others. In every city around the world, the closer property is to the core of a city, the more expensive it is. The less one must travel to work downtown, the more in demand that area is. Areas that are especially in demand are areas where one can be close to downtown but still have green space. In Montreal this includes Westmount, NDG/CDN, Montreal West, Outremont and TMR to name a few.

‘… Montreal is about to pass a bylaw that requires developers to build off-market less expensive apartments for every new residential high-end building they erect.’

Creating affordable housing in the suburbs, away for the downtown core, that are by more expensive developments, is a great idea.

Creating residential developments in the downtown core is an expensive proposition and therefore the units built would be more expensive to purchase.

However, if developers must build less expensive residences downtown for every high-end unit they build, they will likely lose money, which would then halt further development. Montreal is on a roll and progressing further every day to become the number one real estate market in Canada. It would be wise to stay the course.

Image: Pixabay

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