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Rosalyn J. Cronin
Certified Management Accountant

Rosalyn Cronin is a Certified Management Accountant who loves to give people advice on becoming a Savvy Spender.

She has been counseling clients about personal money management for years, steering them away from potential disaster and helping grow a healthy attitude about money. “It is not about how much people earn; it is all about how they spend what they have” is her favorite tip.

What Will I Do with My Money? Part 1

I am not a financial advisor and do not give advice on specific stocks, mutual funds or other investments. This series of articles will explore how to look at options for your money as you near potential retirement years.

When it comes to money, boomers are a generation just starting to realize they might live long enough to retire and require some money to make it enjoyable. But when we are in our middle years, the big question becomes where to park our money to be able to afford a life-style the fits our needs.

The standard advice involves Retirement Savings Plans, where a tax break is an added bonus to compounding growth. But in Canada the monies need to be removed from the plan when we turn 69 and converted to a RRIF or taken into income. Once we hit our 50's there are a limited number of years for our investment into an RRSP to grow. Time to look at a few other options.

In this article we will explore investments in real estate. It seems an easy enough route to making money, after all property tends to go up in value on a constant basis. But there are several factors to take into account before diving head on it.

The first option explored by those with handyman skills is the purchase and flipping of a “fixer-upper,” defined as a house that just needs some paint and a nice garden put it, and we can double out money. Sure. Let's look at some obstacles.

  • The first issue is finding the right home. Real estate agents are already on the look-out for these homes, and either flip themselves or know someone who is interested when the houses come on the market.

  • Another point to consider is ensuring the house does not need serious repairs. I knew a couple who bought a house, had an inspection then discovered the wiring had been done by the owner – a series of power cords and extensions. A costly oversight.

  • Location, location, location. Often those inexpensive homes are on the market because no-one really wants to live there. We can make it beautiful and still there are no takers. We want to be the small, exquisite gem on a street with large, expensive homes.

  • How long can we afford to carry two homes? Many people budget for the down-payment and repairs, but forget the utilities and property taxes. And when counting our potential profits, we need to remember there will be real estate fees and land transfer taxes come sale time.

Alright, what about buying property and renting it out? Seems like a good way to collect regular income, just like a pension.

  • How good are you at repairs? Renters tend not to take good care of the property. Maintenance on an ongoing basis can be required. And a bit of work in between tenants – paint, lawn care, carpet cleaning and windows.

  • Do you know the laws for landlord-tenant relationships in your area? It can be three months before you evict a tenant for non-payment of rent and in the meantime the mortgage payments, property taxes and utilities need to be covered.

  • Can you handle the call at three in the morning when the water tank bursts? You are the owner and the tenant will call you first.

Condo investing might get around some of these issues. Then again, there may be a few issues to explore before getting your feet wet.

  • First up: location, location, location. How sure are you that this will be a desirable place for people to purchase or rent? How close to amenities, how do similar places hold their value, will there be an increase in value to offset your investment?

  • If you are purchasing on speculation and the condo won't be build for several years, can you afford to carry the interest expense? Remember, when you add a line of credit to an existing mortgage, future ability to borrow will be compromised.

  • If you plan to rent through a property management firm, will there be enough income to cover the mortgage and property taxes, their fees and still produce an income stream?

Last point for this article – are you carrying a mortgage on your personal residence? If you consider your home an investment for the future, then check the above points to ensure you are in a place that will increase in value as expected.

As boomers retire, there will be a shift in housing expectations. Condos and bungalows are expected to be in higher demand. Rising gas prices and a desire for an interactive life-style will be driving people back into city dwelling, potentially decreasing values of large homes in the burbs.

Real estate investing is not for the faint-at-heart, nor for the unaware. Do your research before any investing. When it comes to houses, you want to keep your money out of leaky basements.

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