Are Canadian Real Estate Prices Too Expensive?

Is Canadian Real Estate Pricing Too Expensive?

It’s one of the most common questions our investors and clients ask us: Are Canadian real estate prices too high? We put together a report to give an in-depth analysis with data and insights from our management team.

Key Points

  • How do Canada’s price to income ratios compare to other markets?
  • How does Canada’s population growth compare to other markets?
  • How does employment quality among Canada’s foreign-born population compare to other markets?
  • How does Canada’s household disposable income compare to other markets?
  • How do Canadians’ ability to sustain higher levels of debt compare to other markets?
  • How can I learn more about private real estate investing?

Our community of investors asks us all the time: Are Canadian house prices too high? Is Canadian real estate pricing too expensive? These questions don’t have simple yes or no answers, so we put together a report on assessing affordability based on a number of factors to give a longer answer. Here, we outline indicative data that might point to some of the reasons why major urban centres in Canada still show a positive price trend, based on how certain factors compare to other markets.

How do Canada’s price to income ratios compare to other markets?

A good place to start when assessing affordability is with price to income ratios. The price to income ratio is the ratio between the price of a home and the annual household income in a particular area. Based on OECD data, when compared internationally, Canada may not appear to be an expensive real estate market. However, when compared to the G7 countries, Canada is currently the highest — in both price to income ratios and nominal housing prices.

How does Canada’s population growth compare to other markets?

Canada receives about 300,000 new permanent immigrants annually, making it the fourth-largest inflow in the OECD in absolute terms. This number is only expected to increase as the Canadian government raises the annual immigration intake. Thus, Canada has an annual population growth rate of 1.1% (0.35% in the USA), the 8th highest in the OECD.

More than 21% of Canada’s population is foreign-born — one of the highest in the OECD. For context, the USA has a foreign-born population of 13.6%.

How does employment quality among Canada’s foreign-born population compare to other markets?

Population growth attracts high quality immigration, immigration making up 70% of the population growth.  Canada’s immigration attracts quality immigrants, as approximately 60% fall under the ‘economic category’ admissions – people selected for their ability to become economically established. 

In absolute terms, more than 69,700 people who became permanent residents of Canada in 2016 were ‘work’ or economic category admissions – more than the number in the USA, a country 10x our size and about equal to the combined intake of the UK, France and Italy

This increases the demand for housing from a productive segment of the population.

How does Canada’s household disposable income compare to other markets?

Canada has one of the highest growth rates in disposable income, driven primarily by high quality immigration equalling approximately 70% of the population growth.  Canada’s immigration is unique since over 60% fall under the ‘economic category’ admissions – people selected for their ability to become economically established. However, is also important to assess household debt as a percentage of net disposable income, and Canada does not have the highest in the OECD.

How do Canadians’ ability to sustain higher levels of debt compare to other markets?

Generally speaking, the higher one’s education level, the more likely they are to remain productively employed and earn a stable income stream. Thus, the more likely they are to be able to sustain higher levels of household debt or have higher levels of savings. More than 64.4% of Canadians aged 25-34 and 50.0% aged 55-64 have a post-secondary education. Both age groups are the second-highest proportion in the OECD, just behind South Korea and Russia, respectively.

How do Canadians borrow in the face of tighter Schedule A bank restrictions?

Financial policies determined by OSFI have been very proactive at managing household indebtedness, including higher down payment requirements, stringent stress tests for borrowers, and higher ratio tests to pre-qualify borrowers for mortgages. As Schedule A banks tighten restrictions, this creates opportunities for private lenders to offer financing solutions to a segment of borrowers that seems to be increasing in borrower quality given tighter and tighter restrictions. The above chart shows the impact of credit tightening and borrower loan quality.

 

References

 

How can I learn more about Canadian housing prices and investing in private real estate?

We’re dedicated to empowering investors. If you’d like to continue discussing Canadian house prices or learn more about private real estate investments, visit our Education Centre at www.fundscraper.com. You can read helpful articles, watch informative webinars, learn about the latest market trends, and get all your questions answered. We also encourage you to sign up for our newsletter to stay up to date on the latest.

When you join our community, you’ll gain access to our most valuable resource: Us! (As well as accessing a variety of exclusive investment offerings). Our experienced licensed dealing representatives will be happy to answer all your questions as you continue on your journey of diversifying your portfolio into passive real estate investments.

 

Fundscraper’s Most Asked Questions – New To Private Real Estate Investing

Barbara Pucher from our team answers FAQ about private real estate investing.*

0:00 Introduction

0:16 What is Fundscraper?

1:08 What types of products are featured in your marketplace?

1:30 How does the marketplace work?

2:36 Are there fees?

2:44 What is the minimum investment amount?

2:59 Why add this asset class to your portfolio?

3:22 Who invests with you?

3:46 What are Exempt Securities and Exempt Market Dealers?

* Fundscraper Capital Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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Explaining RRSP Eligible Investments

What are RRSP-Eligible Investments?  

What investments are RRSP-eligible? 

RRSP-eligible investments are investments you can hold within your Registered Retirement Savings Plan (RRSP)

An RRSP is a type of personal savings plan registered with the Canadian federal government. You can contribute to this throughout your working years and accumulate funds to be used when you retire. 

By placing your income in investments within your RRSP, you invite the potential for it to grow. 

One of the benefits of doing this through an RRSP account is that these investments are tax deferred. You don’t pay tax on income earned through your RRSP investments until you retire or withdraw funds from the RRSP account, the taxes payable are then calculated based upon your current marginal tax rate at time of withdrawal.  

For individuals earning an income during their working years, you will likely be in a higher marginal tax bracket, so it makes sense to set aside savings in your RRSP account, invest it on a tax deferred basis, then withdraw it in your later years (such as when you have retired) in a lower tax bracket. 

Interested in Using Your RRSPs to Invest in Real Estate?

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What Investments are RRSP-Eligible? 

Certain investments can be held within your RRSP. Eligible investments for RRSP include the following qualified investments:

CRA RRSP Eligible Investments:

  • Stocks
  • Bonds
  • Options
  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Savings deposits
  • Treasury bills
  • Guaranteed Investment Certificates (GICs)
  • Some RESPs

What makes an investment “qualified”? 

The Canada Revenue Agency (CRA) decides which investments you can place within your RRSP. Generally, investment grade securities traded on a designated stock exchange, such as one in Canada, are recognized. Canada’s Finance Department assesses which stock exchanges are deemed Designated around the world. 

A foreign stock exchange such as the New York Stock Exchange counts, as well as about 46 other global exchanges. These include the Toronto Stock Exchange (TSX), NASDAQ, the London Stock Exchange, for example.

Explaining RRSP Eligible Investments

RESPs/RRIFs in Relation to RRSPs

In specific cases, RESP funds up to $50,000 can be placed in your RRSP. 

Your RESP must have been in existence for a minimum of ten years, and all beneficiaries must be 21 years old or older, and not pursuing higher education. If you don’t transfer your unused RESP money to an RRSP, you will be charged special tax on the interest earned from funds in the plan, plus an added 20%.

You can have an RRSP and a Registered Retirement Income Fund (RRIF) at the same time up until you turn 71. At this point, you must convert your RRSP to a RRIF, or some other form of retirement income. 

Want to Learn More About Saving Funds and How You Can Use Them? Read these Articles Today:

Some types of investments are not allowed to be held within your RRSP.

Prohibited investments that cannot be held within an RRSP, at risk of penalty as per Canada’s income tax folio include:

Ineligible RRSP Investments: 

  • Direct land
  • Employee stock options
  • Business investments in small business
  • Commodity futures
  • Investments/stocks within a private company in which you are a designated shareholder
  • Personal assets (jewelry/art)
  • Precious metals
  • Bonds issued by a wholly owned subsidiary whose shares are not publicly traded
  • Naked put and call options
  • Mortgage loans on a commercial property that’s owned by a relative
  • Bonds and debentures issued by companies with shares listed on a designated foreign stock exchange, even in cases where the company’s shares are eligible

To build investments RRSPs, contact nearby financial institutions.

 A bank or credit union can assist with making deposits of money into an RRSP, and both have a similar obligation to provide you with the most recent information.

eligible investments for rrsp

Ensuring Your RRSP-Eligible Investments are CRA Qualified 

Your banking or trustee institution can administer your RRSP for a fee. 

Professionals can advise you on which investments to include, annual contribution limits, deadlines, and more. You may also choose to self direct your RRSP. This means you determine which self directed RRSP eligible investments to place within your RRSP and control all decisions. 

In some ways, a self-directed RRSP can provide you with increased freedom and control of your finances, if you are dedicated to researching your decisions thoroughly. 

When determining eligible investments for RRSP, as stated above, you need to ensure what you choose is approved by the CRA. With rrsp eligible investments private companies promote such as securities, you must ensure what you select is traded on at least one global stock exchange that has been deemed a Designated Stock Exchange by Canada’s Finance Department. 

When searching for RRSP eligible investments CRA online, you can find a list of Designated Stock Exchanges on the Government of Canada’s website. Click and scroll down to find an alphabetized list of all Designated Stock Exchanges. Included exchanges are those within Canada, Europe, Brazil, Australia, New Zealand, parts of Asia, Jamaica, Bermuda, and South Africa. 

Getting Help with Your Eligible RRSP Investments 

At Fundscraper, we help you get to the most out of your RRSP investments. 

Many people are unaware it’s possible to invest in mortgages, private mortgage investment corporations, mortgage trusts and mutual fund trusts that focus on real estate assets, within your RRSPs. Private real estate can present an opportunity for diversification and capital growth. Our team takes into account your investment portfolio, experience, tolerance for risk, and needs and expectations to find the appropriate products for you to consider. 

In a few simple steps you can set up a self-directed RRSP to get started. 

Contact us today to learn more. Grow your future nest egg!

Fundscraper Capital Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

The EMD – The Layperson’s Guide for Everyday Real Estate Investing

Introduction to the Exempt Market Dealer

Many Canadians are keen to invest in real estate-backed securities. 

After all, Louis Glickman, the renowned American investor and philanthropist famously said: 

“The best investment on earth is earth.” 

Yet often all the bureaucratic and complicated legal protocols hold us back. 

This article intentionally avoids arcane legalese and references to specific provisions of statutes and regulations, policies, bulletins and adjudicated cases. That’s right, there will be no long explanations of what a national instrument 45-106 prospectus, national instrument 31-103 or 45-106 prospectus and registration is.

Instead, the intent is to explain in understandable language how a layperson can best participate in real estate investing using an Exempt Market Dealer (“EMD”) to a meaningful advantage.

A Background on Exempt Market Dealers

It’s important to understand the basic background related to the regulated Canadian securities investment landscape

Start with the fact that interests in real estate are considered “securities”. 

Securities legislation and regulators across Canada are increasingly looking to implement appropriate levels of consumer protection measures, especially since the financial crisis of 2007-2008. 

Typically, companies who offer stocks, bonds, mutual bonds and the like in the publicly traded capital market are required to prepare a disclosure document called a “prospectus” and have it precleared by a securities regulator like the Ontario Securities Commission (the “OSC”) before going public. 

However, there are some important prospectus and registration exemptions, one of which is where there is an offering memorandum (“OM”) detailing all the material facts to assist prospective purchasers in their decision whether to invest in the securities being offered by an issuer. An OM is similar to a prospectus but need not have the regulator’s prior sign-off.  

Interested in Learning More Inside-Industry Real Estate Investing Knowledge? Read these Articles Today.

It is this OM Exemption that gives birth to alternative investments exempted from the rigours of a prospectus and brings into play an Exempt Market Dealing representative, all within what is called the Exempt Marketplace

Exempt Market Dealer

Examining the Exempt Market Dealer

The Exempt Market Dealer is the vehicle that facilitates your purchase of real estate-backed securities in the Exempt Marketplace. 

An Exempt Market Dealer is a fully registered government-regulated securities dealer who acts as a dealer to distribute prospectus-exempt securities to qualified investors. Those include various categories of investors, defined by prescribed income and asset tests and investment limits. An exception is made for so-called “accredited investors” where investments and investment funds are not capped. 

The criteria for determining where you fit in can be complex and is beyond the scope of this paper, but suffice it to say, the Exempt Market Dealer will figure it out as part of their “Know Your Client” (“KYC”) obligations.

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This means collecting salient information about a client’s complete financial circumstances, investment objectives and risk tolerance. Importantly, any Exempt Market Dealer in Canada must ensure the exempt market security is “suitable” for the investor. 

For example, an elderly investor’s proposed investment of 90% of their wealth into a risky long-term real estate play is “unsuitable” and in the ordinary course must be rejected by the Exempt Market Dealer.

Why Choose Fundscraper as Your Exempt Market Dealer?

Fundscraper Capital Inc. (“FCI”) is Canada’s premier online platform for real estate investing. FCI is registered on the Exempt Market Dealer List as an Exempt Market Dealer with the Ontario, British Columbia, Alberta, Quebec, New Brunswick, and Prince Edward Island Securities Commissions.

Want to Learn More About How Fundscraper Works?

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As such, FCI files regular reports to and is subject to periodic audits by regulators. It meets government requirements for operating capital (such as mutual funds) and must make timely reports to clients.

What sets FCI apart?

  • An informative, easy-to-navigate website www.fundscraper.com
  • Modern technology and best of practice compliance standards.
  • A marketplace with a wide variety of product offerings by proven issuers for the most conservative risk-averse investors to those more adventuresome.
  • In addition, we offer Fundscraper Property Trust sponsored investment opportunities, which qualify for investments by Registered Funds, like RRSPs, RIFFs, and TFSAs. 
  •   A comprehensive dashboard that keeps you informed in real-time of the status of your investments handled by FCI.
  • Concierge services by knowledgeable Dealer Representatives, all of whom have completed extensive training and licensing requirements of the OSC.
  • FCI’s senior management and Board of Advisors are comprised of seasoned experts in real estate development, finance, private equity, law and technology. 
  • FCI’s track record includes 7500+ registered members of its community, 10%+ in earned net annualized return since it launched in 2017 and $420 million in capital placed in real estate projects across North America. 

Conclusion on Exempt Market Dealers

Don’t bother taking an Exempt Market Dealer course. Instead, engage Fundscraper and make us your trusted ally by joining the Fundscraper community of investors.

What is LIF?

Having the funds you need to support yourself in retirement is key to sustaining your quality of life after work. There are various ways you can fund your retirement in Canada, one of them being via a LIF. 

But what is a LIF? How does a LIF work, what can be placed in it, and how are funds taken out?

In this article, we will answer all of those questions and more.

What is a LIF? (LIF Meaning) 

A Life Income Fund (LIF) is a type of registered retirement income fund (RRIF) available in Canada. This type of fund can be used to hold locked-in pension funds and other assets for retirement. 

Some important characteristics of a LIF include the fact that:

  • LIF funds CANNOT be withdrawn in one lump sum
  • LIF funds ARE creditor-protected
  • In many cases, you MUST be of early retirement age to begin receiving LIF funds (55 years old)
  • You CAN choose your LIF investments
  • LIF contributions grow TAX-DEFERRED
  • There ARE legal limits to how much you can contribute/withdraw
  • You MUST start receiving LIF payments AFTER you turn 71
  • You NEED your spouse’s consent to set up a LIF as per pension legislation

LIFs are offered by institutions across Canada. Once funds are withdrawn from a LIF, they are subject to income tax. 

What is LIF?

The Meaning of LIF in the Investment Context 

The meaning of a LIF in an investment context is broad. 

Many jobs in Canada include a registered pension plan. Once you reach retirement, the lump sum value of your vested contributions to your pension plan, plus interest, must be unlocked in order to access the funds. 

How can you do this? Each province has an age at which you can begin to withdraw money from your pension. You can unlock your pension by converting the funds into a LIF, a locked-in retirement income fund (LRIF), a Locked-in Retirement Account (LIRA) also known as a locked-in Registered Retirement Savings Plan (locked-in RRSP), a Locked-in Retirement Savings Plan (RSP) or a Restricted Life Income Fund (RLIF). 

You may also unlock your pension by purchasing a life annuity

Your LIF can hold many types of investments including:

  • Cash
  • Securities listed on a designated stock exchange
  • Mutual funds
  • Corporate bonds
  • Government bonds
  • ETFs

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With your pension funds in a LIF, you can continue to grow your money while accessing it for life needs, over time. Depending on your province, you may have to purchase a secure guaranteed income in a life annuity at a certain age to use the money remaining in a LIF. This depends on where you live, however.  

In addition, if you live in Quebec, Nova Scotia, or Newfoundland and Labrador, you may qualify for something called temporary income as described by Sun Life.

With a LIF, you can control your investments, maximize your tax deferral and name a beneficiary as a recipient of your funds following your death. 

As a positive progression for your pension, a LIF presents a responsible way of dealing with pension income with the potential for growth over time. 

What is LIF: Understanding Withdrawal Amounts 

Why choose to place your pension in a LIF? 

With a LIF, as with other registered products, your contributions are allowed to grow tax-deferred when kept within the fund. In this way, a LIF can keep your investment retirement earnings tax-sheltered. 

You keep more money! In addition, LIF funds are creditor-protected. And as one of many registered products accounts available in Canada, having your money in a LIF can help reduce your taxes

In some circumstances, you can withdraw funds from a LIF at any age as long as they are to be used for retirement needs. These might include situations of non-residence, financial hardship, a shortened life expectancy or having a small account balance if you are 55 or older. 

At the time of this article’s publishing, pensions in federal jurisdictions like Alberta, Manitoba, New Brunswick and Ontario can be withdrawn once in a lump sum. In most cases, however, you cannot withdraw from a LIF before the age of 55 and it must be done gradually.

Meaning of LIF

Understanding the Meaning of LIF: Maximum and Minimum Withdrawal Amounts

It’s important to know that there are normally certain maximum withdrawal limits and minimum withdrawal rules for LIFs. 

The amount you can legally withdraw each year from your LIF is a percentage of your total fund. This fluctuates annually. This percentage is disclosed in the yearly Income Tax Act as information applicable to all RRIFs. 

Want to Become an Expert on Retirement Funds? Check Out These Articles Today:

So, how does it work? 

When you are ready to begin LIF withdrawals, you must specify how much you would like to take out at the outset of each fiscal year. The idea is that you withdraw funds within a certain limited range in order to receive lifetime LIF income. 

Many online platforms have useful LIF withdrawal calculators to help guide you through the process. 

Investing with Fundscraper  

As Canada’s leading private real estate investment marketplace, Fundscraper has customized investments to potentially match your desired income and investment targets

Our goal is to help everyday investors access a world of new wealth that has historically been available to only a small portion of the population. Our easy-to-access online platform allows you to start investing in real estate-backed securities with as little as $5000. 

Our team has helped process more than $420 million in investor capital into high-value real estate-secured investments. 

Join today. It’s time to get your money working for you to produce real results and enjoy the benefits of investing in real estate.

Breaking Down the Offering Memorandum

When presented with long documents, it’s tempting to skim them, sign them, and hope for the best. But not so fast! Take the time to do your due diligence now to ensure you’re making smart decisions for your financial future. Our team broke down the basics of what every investor should know about that ever-intimidating document: the offering memorandum.

Key Points

  • What Is an Offering Memorandum?
  • Why Does an Offering Memorandum Matter?
  • What Is Due Diligence?
  • What Documents Can Supplement Due Diligence?
  • 3 Important Things to Remember When Reviewing the Offering Memorandum
  • 5 Important Questions to Ask When Reviewing the Offering Memorandum
  • What Are the Typical Components of a Prescribed Offering Memorandum?
  • How Do I Get Started?

If a company wants to raise money from investors, it will generally provide them with information about the venture. How the information is relayed to investors is governed by our rules regulating the securities industry. The rules vary per jurisdiction, but in general, securities regulators want to ensure that prospective investors know enough about the business to make an informed decision. This is a concept called “disclosure.”

One of the ways privately-held firms meet these disclosure requirements is to issue an offering memorandum (OM). There are two types of OMs: prescribed form and non-prescribed form. “Prescribed form” means the document must be prepared according to a guideline required by the regulators. This article breaks down the prescribed form of the OM.

What Is an Offering Memorandum?

An OM covers a substantial amount of legal and marketing material, including an executive summary, deal structure details, risks and disclosures sections, and an investor suitability form. It can be overwhelming to digest, but we’re here to break it down for you and highlight the crucial elements every investor should be aware of. You’ll likely find it useful not only for researching opportunities from Exempt Market Dealers (like Fundscraper!), but also private placement issuers, private equity and capital firms, and private mortgage funds.

In theory, OMs should provide investors with as much relevant information as possible. In practice, they’re complex documents written by lawyers for regulators.

Why Does an Offering Memorandum Matter?

Oftentimes, everyday investors don’t understand what an OM is or why they’re receiving it. They don’t have the experience or legal/financial/accounting training necessary to decipher 60+ pages of fine print—and that’s okay!

Since investors can only rely on an OM to make their decision, the reality is that many retail buyers do not know what they’re investing in unless they read the OM. They may grasp the general concept that they’re investing in real estate but be unaware of the minutiae that can alter the outcome of a deal. When they later discover unfavourable elements about the project, they often feel lied to and dismayed. Lack of awareness is one of the greatest risks associated with private investments.

At Fundscraper, part of our due diligence is making sure you understand yours.

real estate investing

What Is Due Diligence?

An investor cannot make a good decision without knowing all of the facts. We call this “doing your due diligence.” You may want to understand the following before deciding to purchase:

  • Management fees
  • Investors’ voting rights
  • Indebtedness of the business
  • How the investment will be repaid
  • Conflicts of interest

All investors should know it’s impossible to disclose everything about an opportunity. A proscribed OM is designed by the regulators to deliver the minimum information the regulator believes a reasonable investor would require to make an informed investment decision.

With that in mind, use the OM as part of your due diligence before making an investment decision. You’ll want to investigate the industry, past performance, and the firm’s management team. Download the Fundscraper Due Diligence Checklist.

An Offering Memorandum is a crucial part of due diligence, but it’s just part of the equation.

What Documents Can Supplement Due Diligence?

The OM may refer to additional documents that prospective investors can receive upon request. For example, if the issuer is a trust (rather than a corporation or partnership), the OM might reference a declaration of trust or a trust indenture – documents that govern its mandate and management. You may want to understand exactly what the powers of the managers are and how the business must be run in far greater detail than what’s being disclosed. Investors should therefore scour through an OM for any mention of additional documentation.

For example, the OM may read, “ABC Trust will issue 1,000,000 trust units, pursuant to Section 4.1.3 of the Declaration of Trust.” While the declaration of trust is technically being disclosed, many investors will not realize that there is an entirely separate set of documentation that they should read before investing.

At Fundscraper, we aim to give you as much documentation, information, and transparency about properties in our marketplace as possible. The “Material Agreements” are available to you in the “Documents” tab of your account—see below.

3 Important Things to Remember When Reviewing the Offering Memorandum

  1. Regulators do not endorse investments.
    While an OM may reference securities regulators and state that it has been filed with the authorities, that should not be construed as being endorsed by the regulator as a good investment. The Canadian Securities Administrators, the body representing the 13 provincial and territorial securities regulatory authorities across Canada, are not responsible for performing due diligence on behalf of investors with respect to OMs. Rather, it and its members exist to protect the integrity of the capital markets and to enforce the law.
  2. Consider hiring independent counsel.
    While an OM may contain dozens of pages written by lawyers, accountants, and auditors, those professionals are representing the issuer, not the individual investor. Thus, investors should hire their own advisors before deciding to invest. Do not allow yourself to feel a false sense of security by knowing that the investment was assembled by professionals.
  3. Look for penalties, sanctions, and/or bankruptcies.
    An OM should disclose whether any members of management have any legal or serious financial blemishes. Use that information to help form an opinion about whether your money would fall into reliable hands.

Never make assumptions about a prospective investment. It’s best to hire an independent counsel to review the OM and the terms of the deal with you.

5 Important Questions to Ask When Reviewing the Offering Memorandum

  1. How are the funds being used?
    Never assume that all, or even most, of your money will be deployed into the targeted undertaking. The OM should disclose what, if any, fees will be paid to sales agents, how much will be advanced towards legal and administrative costs, whether there is any debt to service and how much will actually be deployed into the targeted undertaking. Moreover, investors should also understand what the continuing expenses of the venture will be over and above administration fees. These expenses can seriously dilute any available returns.
  2. How is cash being distributed?
    An investor should have a good understanding of how the fund receives income, how it intends to employ it, and how it will distribute any returns to investors. Once the underlying investments make returns to the fund, how much of those returns will be passed onto individual investors and how is that calculation determined? Do the managers earn a piece of the returns? Are there other parties that will share in those returns? Never assume that all or even most of the returns earned by the issuer will be passed onto investors. The flow of funds can turn a seemingly lucrative investment into a poor one.
  3. How liquid is my investment?
    Investments made via OM are less liquid than publicly traded securities on large stock markets. It is not uncommon for one’s capital to be locked up for a period of years in a given investment. Thus, an investor’s ability, or lack thereof, to sell the holding should be clearly disclosed in the OM. Note: Even in offerings where investors can easily redeem their shares, management usually reserves the right to reject redemption requests at their sole discretion.
  4. How am I being taxed?
    The tax implications of any investment are critically important for every investor to understand. What might be considered “tax advantageous” for one investor may be a disaster for another. (To complicate matters, investors and issuers are often taxed differently.) Where an issuer can provide a legitimate tax advantage to an investor, the investor must be fully aware of what the consequences might be if the issuer was to lose its unique tax status. Before investing, it’s important that the investor consult a professional about the tax consequences of the investment.
  5. What are your rights?
    As an investor, you can never assume that you have the ability to voice your opinions or influence management decisions. It’s important to search within the OM for your rights as an investor. For example, do you have the ability to vote, and if so, on what issues? How powerful is each individual vote? Can you attend annual general meetings? Are you able to request financial statements and other internal documents?

If you know what to look for and what questions to ask, you’ll be empowered to make smart investment decisions for your future.

real estate investment documents

What Are the Typical Components of a Prescribed Offering Memorandum?

The following are typical elements in a prescribed OM for a typical real estate investment in a hard asset like a building or development.

  • Executive Summary: Lays out the high-level description of the investment company (which may control or be the acquiring entity), its mission, the deal being pitched, a detailed description of the executives’ industry experience, and the deal financing requirements.
  • Location: If the OM is promoting a real estate opportunity, it will include the location of the asset. These images may include the property’s location on a map, an aerial view of the site, and a second map highlighting important places near the property such as an airport, public transportation, restaurants, and stores.
  • Investment Summary: Covers various subtopics, each of which has its own separate section and brief description.
  • Property Description: Describes where the property is located, when it was built, how large it is, any repairs it may need, and the current occupancy.
  • Purchase Price: The price for which the property will be purchased and how the purchased price will be financed.
  • Total Capitalization: Describes the “capital stack,” which shows the different layers in the financing of the project. Typically it would be first mortgage debt, next second mortgage, next preferred equity then finally equity. It’s really important to know where your investment dollars are in the “capital stack.” Traditional investment wisdom says the higher up you are, the safer your return.
  • Preferred Return: An investor who earns a “preferred return” means they will get a return on their money before ordinary investors. A “preferred investor” generally comes after debt and before a common investor. Preferred investors will have different return expectations than ordinary investors.
  • Projected Returns: Sometimes an OM will provide an indication of return. It is important for the investor to read the fine print wherever performance returns are disclosed. In a prescribed OM, certain kinds of “future-oriented financial information” must be prepared in accordance with strict guidelines. A licensed advisor can help an investor understand what is really behind an issuer’s projected return boast.
  • Manager or Sponsor: The sponsor company that controls the investment entity. This entity is often referred to as the “promoter.”
  • Property or Asset Manager: A description of the asset manager and their fees, which investors should review closely. They’re generally paid to the issuer, manager, and promoter before anything is paid to the investor.
  • Proposed Structure: The structure of the deal between investors, sponsors, asset management, and property management. An old adage to understand a deal is “follow the money.” Learn who gets paid what, and when.
  • Distributions: How surplus cash, i.e., the profits, are distributed to parties.
  • Acquisition Fee: This can be anything: a flat sum paid on closing; a flat fee plus a continuing interest. Always ask why are these fees being paid this way and if it’s reasonable given the terms of the deal.
  • Management Authority: How the manager holds control over the management and affairs of the property.
  • Proposed Use of Proceeds: How your investment dollars are being used. This could include acquiring the property, making repairs, and maintaining the property.
  • Estimated Sources and Uses: The amount of equity and debt to be raised, which then adds up to form the total sources of funds. Also included should be the uses of funds, including purchase price, closing costs, acquisition fee, working capital, and fronted capital expenditure.
  • Loan Terms: Where applicable or relevant, the loan terms section is broken into the following subtopics:
    • Loan amount: What is the approximate loan amount and the percentage of the purchase price it makes up?
    • Borrower: Which entity will be borrowing and what kind of company it is?
    • Interest rate: What is the locked interest rate?
    • Term: How long is the term? Is it a fixed rate or variable rate?
    • Amortization: Does amortization begin right away, or is there a period of interest-only servicing?
  • Competitive Set: A table depicting the competitors in the issuer’s market.
  • Industry Overview: Every industry is different, whether residential, retail, or another niche. This section describes what the specific industry for the property type is like in today’s market.
  • Market Overview: Similar to the industry overview, the market overview gives geographic-specific insight into the real estate market where the building is located.
  • Risk Factors: This section should include every risk related to the business, tax, accounting, and legality of the property. A typical OM includes 10-20+ risks and each one should have its own paragraph description.
  • Investor Suitability: Real estate deals frequently receive support from accredited investors. This last section in the OM describes what types of investors the deal is suited for, and may be based on rules and regulations with regards to investor accreditation or general solicitation. These are the guidelines that concern the investors’ financial status and their ability to bear the risk of losing an investment.

How do I get started?

As you can see, an OM is a complicated document. Don’t just rush through it and assume the best! Take the time to do your due diligence before you invest your hard-earned nest egg.

It’s critical to have a licensed dealer assess whether the investor is first eligible to participate in the investment and then, secondly, whether the investment is a suitable investment for the investor. That’s where Fundscraper can help!

If you’d like to learn more about private real estate investment, visit www.fundscraper.com and sign up. Once you are part of our community, you’ll have access to the resources our members enjoy that help them explore real estate investment!

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Using Your Registered Funds to Fund Your Mortgage and Buy Non-Bank Products

Put your registered funds to work for you. Our team put together a complete guide to funding your mortgage with RRSPs, including step-by-step lists, answers to all your tax questions, and real-life examples of how much you could be making.

Key Points

  • What Are Registered Funds?
  • How to Use Your Registered Funds to Fund Your Mortgage
  • Pros of Using Your Registered Funds to Fund Your Mortgage
  • Cons of Using Your Registered Funds to Fund Your Mortgage
  • Important Considerations for Using Your Registered Funds to Fund Your Mortgage
  • 5 Steps to Using Your Big Bank RRSP to Buy Non-Bank Products
  • How Do I Get Started?

Most people don’t realize they can invest in private mortgage investment entities like mortgage investment corporations and mortgage trusts, as well as mortgages directly, with their RRSPs. Interested in learning how to invest with your registered funds? We’ll walk you through it.

What Are Registered Funds?

A registered retirement savings plan (RRSP) is a type of Canadian account for holding savings and investment assets. RRSPs are the most popular and well-known registered plans in Canada. They’re established by individuals or often by individuals together with their employers.

RRSPs must comply with a variety of restrictions stipulated in the Canadian Income Tax Act. Approved assets include savings accounts, guaranteed investment certificates (GICs), bonds, mortgage loans, mutual funds, income trusts, corporate shares, exchange-traded funds, foreign currency, and labour-sponsored funds.

These are all called “registered” plans, meaning that they are recognized by our revenue authorities as tax-incentivised wealth management accounts. All of these plans are registered with the Canada Revenue Authority and are provided by approved service providers like banks, trust companies, and insurance companies. Contributions can be made on your own behalf or on behalf of your spouse up to and including the year you and your spouse turn 71.

Once money is deposited into an RRSP, the tax payable on that money (and any money that is earned by investing that money!) is deferred until it is withdrawn.

RRSPs have various tax advantages compared to investing outside of tax-preferred accounts. To encourage people to save for retirement, the Canadian government allows us to contribute a certain fraction of our yearly salary every year without taxing us on it today. Once money is deposited into an RRSP, the tax payable on that money (and any money that is earned by investing that money!) is deferred until it is withdrawn. You pay tax on it when you withdraw – either in a moment of need or at the time you retire. If you withdraw it before your retirement, then you will pay all the tax at once on the amount withdrawn. If you wait until you retire, you pay tax on it (and whatever has accumulated on it) gradually over a period of time until the funds are exhausted.

This applies to Registered Retirement Income Funds (RRIFs) and Tax-Free Savings Accounts (TFSAs) as well.

Did you know you can use registered funds to fund your own mortgage?

If you are making $100,000, the government will allow you to contribute 18% of your earned income (or a maximum of $27,230 for the 2019 tax year). If you make the maximum contribution, the government would only tax you on $72,770!

rrsp definition

How to Use Your Registered Funds to Fund Your Mortgage

To become both the lender and the borrower, you have to set money aside in RRSP accounts. The larger the RRSP, the more mortgage you can create. First, figure out how much of a mortgage loan you can create with the RRSPs you have on hand. (Your monthly RRSP statements will provide that number. Not sure? We can help!)

Those RRSP funds are likely tied up in mutual funds, exchange-traded funds, and other pooled RRSP eligible accounts. To fund a mortgage, these RRSP accounts have to be reduced to cash. Once you have made the decision to fund your mortgage with your own RRSP funds, you will instruct whoever has custody of your RRSPs to sell everything in the account so that the only thing that remains in the account is cash. If you remember one thing, make it this: IT IS IMPERATIVE THE CASH STAYS IN THE ACCOUNT. You are not withdrawing the cash; you are simply reducing whatever is in the account to cash.

When you reduce your RRSP account to cash to fund a mortgage, it is imperative the cash stays in the account. You are not withdrawing the cash; you are simply reducing whatever is in the account to cash.

Next, you will instruct your financial institution to open up a “self-directed RRSP.” It may be most expedient to work with the approved lender required in this transaction. The lender will require you to open an account, which will take very little time.

Once the account is established, you have to fill up your newly created self-directed RRSP account. You will do that with the assistance of the lender who has helped you set up the account. You will complete a “transfer instruction” whereby your lender will request all the other institutions who currently hold your RRSP accounts (that now hold nothing but cash) to transfer all the cash that is in those accounts to your newly created self-directed RRSP account. Once all the forms are completed, the transfer can take up to four weeks.

To maintain RRSP eligibility, funds must move directly from one RRSP account to another – regrettably, you cannot simply withdraw the funds and walk them across the street and deposit them.

Once the funds arrive in your self-directed RRSP account, it’s time for the fun part: telling the self-directed RRSP account to fund a mortgage! You do that by way of delivering to the lender a “payment direction,” which tells the lender to buy the mortgage from you on behalf of the RRSP account for the amount set out in the direction. The lender then forwards the cash to your lawyer, who will now register the loan against the land title to create the mortgage – the mortgage, now registered in the name of the self-directed RRSP and administered by the lender. The mortgage will have the benefit of insurance, most likely arranged by the lender approved to administer the mortgage.

Now you are set and you begin making payments on the mortgage as you would under any other mortgage arrangement.

Pros of Using Your Registered Funds to Fund Your Mortgage

  • You make interest payments to yourself instead of a financial institution, creating immediate cash flow.
  • The RRSP benefits from the interest costs. The longer the amortization period of the mortgage, the more RRSP you create.
  • Monthly mortgage payments that repay the RRSP loan with interest do not count as contributions and you can still take advantage of maximum contribution room.
  • It provides a low-risk investment with a predictable return.

Cons of Using Your Registered Funds to Fund Your Mortgage

  • Setting up and administering the RRSP is complex.
  • Insurance, legal and start-up costs, and administrative fees are high.
  • RRSP funds are tied up at the cost of other investment opportunities.
  • It may inadvertently over-concentrate your retirement portfolio in one investment product.

If your self-directed RRSP account buys from you a $200,000 mortgage that has a 25 year amortization period at a commercial rate of interest, you double it over the period without ever encroaching your contribution room!

Important Considerations for Using Your Registered Funds to Fund Your Mortgage

The mortgage, notwithstanding it is from you to you, has to be legitimate.

Many Canadians hold their RRSPs through “client-held accounts” at various investment and/or fund companies. Every time one opens an account with a different investment company or fund manager, a new account is created. These accounts are generally specific to the investment product being subscribed for at the time. It is not uncommon for Canadians to have several of these kinds of accounts.

The other popular form of account is a “nominee account”. Essentially this is one account held by a “custodian” or “trustee” that holds several different kinds of investments on your behalf. You need to employ a special kind of RRSP nominee account when you want to use your RRSP funds to finance your own mortgage – that account is called a “self-directed RRSP” and they are widely offered by financial institutions in Canada.

Two main takeaways:
1. The mortgage has to be insured by either CMHC or a private insurer. 2. The mortgage has to be administered by a lender approved by the National Housing Act.

what is an rrsp

5 Steps to Using Your Big Bank RRSP to Buy Non-Bank Products

  1. Confirm the non-bank product is RRSP eligible with the help of a licensed advisor like Fundscraper.
  2. Identify how much you want to invest in the non-bank product.
  3. Instruct your bank to reduce to cash that amount WITHIN your RRSP account – your account will thereafter have a component of bank product and cash!
  4. Open up a self-directed RRSP account.
  5. Transfer the cash component to the self-directed RRSP.
  6. Issue a payment instruction telling the self-directed RRSP what to buy.

How do I get started?

This investment strategy is less common, as only a very few can take full advantage of the substantial benefits it offers. Nevertheless, mortgage investment is an imperative in anyone’s portfolio. If you’re looking to engage in this strategy, it’s critical that you speak to a qualified financial advisor — like us! — before moving any money. Fundscraper can help you do an appropriate assessment of the risks and costs associated with this investment approach.

If funding your own mortgage is not an option available to you today, you still have other options. Join our community of investors to learn more about private property and mortgage investment, and how it fits into your portfolio and investment strategy.

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What Is an Offering Memorandum?

“Prospectus” and “Offering Memorandum” may sound like ancient Roman philosophers. But they’re actually documents that inform prospective investors about what’s being offered and on what terms. We put together an overview of what they include and how they function.

Key points:

  • What Is a Prospectus?
  • What Is an Offering Memorandum?
  • How Is an Offering Memorandum Regulated?
  • Eligible Investors vs Non-Eligible Investors
  • How to Start Investing Today

There are two ways for an issuer to raise capital in Canada: publicly or privately. When done publicly, a prospectus is used; when done privately, a term sheet or offering memorandum is used. In both cases, the purpose of the document is for the issuer to inform a prospective investor about the security’s history and credentials, what’s being offered, and on what terms. These documents simply tell a story. Let’s take a closer look at what they include and how they function.

What Is a Prospectus?

If you elect to raise money from the public, you have to use a prospectus. A prospectus is a highly detailed document that is prepared by an issuer together with its lawyers and auditors under complicated rules that govern our public capital markets. A prospectus tells the story of the issuer and why buying the securities of the issuer is a good investment.

The document is first filed with the regulatory authorities who will actually review the preliminary drafts to ensure it complies with legislation requirements. The regulators do not assess the worthiness of the investment; they simply assess whether the document provides the disclosure required by law. This document is generally the only document an issuer can use to solicit the public. There are severe financial and criminal penalties if an issuer fails to use a prospectus to solicit the public or uses it improperly.

For a new issuer, a prospectus can be hundreds of pages and cost in excess of a million dollars taking into account such things as legal, auditing, and printing expenses. It is extremely expensive to raise money under a prospectus. The advantage, though, is that anyone can purchase securities that are qualified for distribution under a prospectus.

exempt market dealer canada

What Is an Offering Memorandum?

If you elect to raise money privately, you often use a term sheet or offering memorandum. Both documents function to inform a prospective investor about the specifics of the investment.

A term sheet is an abbreviated soliciting document that carries significantly less regulatory burden than an offering memorandum. It’s a bare-bones, skeletal overview of a securities offering with just a summary and the terms of purchase and sale. And we mean bare-bones: By regulation, a term sheet can have no more than three lines of text to describe the business of the issuer!

An offering memorandum is a more robust document. It describes, in detail, everything a prospective purchaser needs to know about a security being sold so they can make an informed investment decision, including:

How Is an Offering Memorandum Regulated?

Instead of mandating the contents of offering memorandums, regulators put the onus on issuers to ensure the information they put before investors is accurate. How do they enforce it? By giving them the right to sue an issuer or cancel their subscription in the issuer’s security if a misrepresentation is found in the offering documents.

Wherever an offering memorandum is used, the issuer must (except in very limited circumstances) provide potential purchasers with various contractual rights of action and rescission for any misrepresentation. The actual granting of the right will often be found in the subscription agreement (the agreement by which one purchases the relevant securities).

An offering memorandum is supposed to provide “prospectus-like disclosure.” This often results in many prospectuses being hundreds of pages long and nearly indecipherable. When the offering memorandum is not required to be in a prescribed form, the rule of thumb is to provide the information that an ordinary subscriber of exempt market security would expect upon which a reasonable decision can be made. At the heart of disclosure, it must not contain (i) a misrepresentation or (ii) an omission that would be tantamount to a misrepresentation.

An offering memorandum is supposed to provide prospectus-like disclosure.

What Is the Exempt Market and What Is an Exempt Market Dealer (EMD)?

Instead of raising money from the public, an issuer may raise money privately in the “exempt market.” This is the most common route issuers take. Raising money from the private capital market is also governed by extensive legislation. What makes it easier is that a prospectus is not required.

The exempt market describes a section of Canada’s capital markets where securities can be sold without the protections associated with a prospectus. Examples of activity in the exempt market include:

  • Canadian and foreign companies, both public and private, selling securities to institutional investors and qualified investors
  • Canadian and foreign hedge funds and pooled funds selling securities to institutional investors and qualified investors

Investors who buy securities through prospectus exemptions generally do not have the benefit of ongoing information about the security they are buying or the company selling it. They also often do not have the ability to easily resell the security. There is a presumption that given the wealth or expertise of the investor, or the quality of the security for which is being subscribed, the extensive protections provided by the prospectus requirements are not necessary.

An exempt market dealer (EMD) is a firm that has been licensed to distribute investment securities that haven’t been qualified by a prospectus, but are exempt from the prospectus requirement based on the rules and regulations of each province where the EMD is registered to carry on business.

Exempt market pro: The cost saving is tremendous.

Exempt market con: An issuer is only permitted to solicit certain groups of investors — ones the regulators believe do not need the disclosures and provided by a prospectus.

Eligible Investors vs Non-Eligible Investors

An eligible investor is an individual who makes $75,000 (or makes a combined $125,000 with a spouse) in each of the last two calendar years and expects to make the same in the current year. Alternatively, an eligible investor is an individual who has $400,000 of net assets.

An eligible investor can invest up to $30,000 in any one calendar year and, if a securities dealer has determined it’s suitable, up to $100,000 in any calendar year.

A “non-eligible” investor is a person who does not meet this minimum requirement. As such, they may only invest up to $10,000 in any calendar year.

private placement memorandum real estate

How to Start Investing Today

Intrigued but still not sure where to start? Fundscraper can help. We’re an EMD registered to sell securities in the Provinces of Ontario, our Principal Jurisdiction, British Columbia, Alberta, Quebec, and Prince Edward Island. We recommend learning more about the Fundscraper Property Trust, a private investment vehicle that lets you invest in real estate with as little as $5,000.

Fundscraper has employed the rules of the exempt market to facilitate investment in the private real estate market. Our offerings are unique to Canada – Fundscraper is the only online investment platform today where anybody can learn about, become qualified to invest in, and actually subscribe for in a secure and transparent environment private real estate investment opportunities that have been vetted for consideration. Join our community of investors today and start growing your nest egg.

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LIF Minimum and Maximum

With so many investment options for your registered account, you may be asking, Why should I care about private real estate investments?

The private mortgage market provides a fixed-income alternative for investors looking to diversify away from government bonds and corporate debt. It also provides the opportunity to generate a generally predictable yield compared to some traditional fixed-income vehicles in a low interest-rate environment.

If you’re new to the world of real estate investment, you probably have some questions about your options. Let’s walk through a popular type of registered retirement life income funds (RRIF) offered in Canada: the life income fund (LIF) as well as LIF minimums and maximums.

What are LIF Minimum and Maximum Withdrawals?

A LIF or life income fund is a type of registered retirement income fund (RRIF) offered in Canada that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income.

Owners must use the fund in a manner that supports retirement income for their lifetime. Each year’s Income Tax Act specifies the RRIF withdrawal amounts, including the LIF minimum and maximum withdrawal amounts.

You must be at least of early retirement age (specified in the pension legislation) to purchase a LIF and begin receiving payments.

Why is it Important to Know My LIF Maximum Withdrawal?

The Canadian government regulates various aspects of life income funds, in particular the amounts that can be withdrawn, which are specified annually through the Income Tax Act’s stipulations for RRIFs.

Most provinces in Canada require that life income fund assets be invested in a life annuity. In many provinces, LIF withdrawals can begin at any age as long as the income is used for retirement income.

Once an investor begins taking LIF payouts they must monitor the maximum LIF withdrawal amount. The federal LIF maximum amounts are disclosed in the annual Income Tax Act, which provides stipulations pertaining to all RRIFs. The maximum RRIF/LIF withdrawal is the larger of two formulas, both defined as a percentage of the total investments.

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The financial institution from which the LIF is issued must provide an annual statement to the LIF owner. Based on the annual statement and the LIF maximum withdrawal amount, the LIF owner must specify at the beginning of each fiscal year the amount of income they would like to withdraw. This must be within a defined range to ensure the account holds enough funds to provide lifetime income for the LIF owner.

LIF Maximum Payment Amount Table

Below is the LIF maximum payment amount table showing the minimum and maximum withdrawal percentages for LIF and RLIF accounts in 2021 by province. Depending on your age or your spouse’s age (whichever you select), you must withdraw an amount between the minimum and maximum amounts as outlined by the percentages below.

An example calculation is included below; however, if you still need assistance with determining your withdrawal options, we recommend that you contact an investment professional.

LIF Maximum Payment Amount Table

Notes

  • Quebec, Alberta, Manitoba, New Brunswick, and British Columbia pension legislation permits LIF clients who begin a LIF in the middle of a calendar year with funds transferred from a LIRA or pension plan to take the FULL maximum payment for the year. First year payments under the other jurisdictions must be prorated based on the number of months the LIF was in force.
  • ON, BC, AB, NL maximum calculations are based on the greater of a) the result using the factor and b) the previous year’s investment returns. MB LIF maximum calculation is based on the greater of a) the result using the factor and b) the previous year’s investment returns + 6% of the value of all transfers in from a LIRA or Pension Plan during the current year.
  • Saskatchewan Prescribed RRIF – there is no maximum annual withdrawal and you can withdraw all the funds in one lump sum.

How Can I Use My LIF to Invest in Real Estate

How Can I Use My LIF to Invest in Real Estate?

LIF owners can choose their own investments (as long as the investments qualify). Qualified investments in a LIF include cash, mutual funds, ETFs, securities listed on a designated exchange, corporate bonds, and government bonds.

Unlike some other alternative investments, private real estate investments such as mortgage investment corporations and real estate investment trusts can be incorporated into your RRIFs including LIF, allowing you to grow your portfolio while enjoying tax-deferred status.

Like other registered products, contributions grow tax-deferred within a LIF. Funds within a LIF are creditor-protected and can’t be seized to pay off debt obligations. Contributions can grow tax-deferred until the year after you turn 71.

Want to Learn More About Investing with Mortgages? Check out these Blogs.

The New Mortgage Syndication Rules For Non Qualified Syndicated Mortgages

Mortgage Syndication – What’s Going On?

Of course, there are also disadvantages to setting up a LIF. For example, a minimum age requirement applies to both starting a LIF and receiving LIF payments. Furthermore, the maximum withdrawal limits prevent you from accessing more income when you need it. If you’re new to real estate investing, adding such a large asset to your portfolio may seem intimidating.

But it’s easier and more attainable than you might think. I invite you to check out our marketplace and education centre, which has articles, webinars, tools, and more informative videos for investors of every experience level.

See what it takes to invest with Fundscraper, and how easy it can be!

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Life Income Fund FAQs

At What Age Can You Withdraw Money From a LIF?

You can withdraw money at 55 years old. No withdrawals from a LIF are permitted before age 55.

Is LIF Income Taxable?

Yes. LIF income is taxable and must be added to your annual income. If the withdrawal is higher than the annual minimum withdrawal, taxes are withheld on the excess amount.

What Happens to a LIF When You Die?

Upon death, the balance of your LIF is paid to your spouse. If your spouse denies payment or if a spouse is absent, it is paid to your heirs.

3 Key Takeaways of this Article

  1. A LIF or life income fund is a type of registered retirement income fund (RRIF) offered in Canada that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income.
  2. Owners must use the fund in a manner that supports retirement income for their lifetime. Each year’s Income Tax Act specifies the RRIF withdrawal amounts, including the LIF minimum and maximum withdrawal amounts.
  3. The Canadian government regulates various aspects of life income funds, in particular the amounts that can be withdrawn, which are specified annually through the Income Tax Act’s stipulations for RRIFs.

Fundscraper Capital Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Why You Should Invest in an 18-hour City

Published on September 15, 2021 by Equiton Capital Inc. 

Real estate professionals are increasingly interested in 18-hour cities, especially given the data from South of the Border. A recent U.S study of 18-hour cities discovered that economic and social growth led to a significant increase in property value. Eighteen-hour markets emerged as superior performers in the residential sector, with returns exceeding those in 24-hour cities.

What is an 18-hour city? Real estate investors like Equiton use the term 18-hour city to describe a mid-size city with attractive amenities, higher than expected population growth, and a lower cost of living and doing business than the bigger urban areas. The phrase 18-hour city is a new catchphrase in the commercial real estate world. Real estate investing contains a lot of moving parts, investors need to consider the asset class, purchase price, cash flow potential, and many other factors. Picking a geographic market is one of the most important considerations.

Characteristics Of An 18-Hour City

• Growing population, particularly with millennials

• Job growth, with a focus in the tech sector

• Established transit with a high percentage of residents using the service

• A vibrant, densely populated downtown area

• Low crime rate

• 24-hour conveniences

Hamilton is a premier example of an 18-hour city and one of the reasons Equiton acquired 125 Wellington Street North. Hamilton currently has one of the largest immigrant populations in Canada, drawing in professionals and students not only from abroad but also from nearby cities. Hamilton has an abundance of small businesses bolstered by McMaster University, Hamilton General Hospital and Mohawk College.

Much like Hamilton, Kitchener is also an 18-hour city which is why this past April, Equiton announced its acquisition of a multi-family residential property in Kitchener located at 100, 120 & 170 Old Carriage Drive. We capitalized on our industry expertise of investing in and buying income-producing properties in an emergent 18-hour city with the tech jobs and schools to lure bright young minds from the GTA. Kitchener has a growing downtown, excellent schools, plenty of job opportunities and amenity options that have investors and first-time homeowners migrating west. Kitchener is Ontario’s fourth-largest city and has earned a reputation as one of the largest tech economies in Ontario, attracting young talent while offering a lower cost of living than Toronto. Recent changes in the real estate market due to the pandemic are adding new energy to the phenomenon of 18-hour cities in Canada. Remote working is mak­ing it possible for homeowners to look at moving to these types of communities.

How Are 18-Hour Cities Established?

Eighteen-hour cities are created in two ways. One is gradual with the evolution of rural population into urban centres. The second way is faster with a reverse population shift in which people seek the savings and space of suburban living and can grow their own identity and create a fun culture. In Ontario, a change occurred with only 31 percent of millennials saying that they still prefer to live downtown while those that would rather live in a suburban area is already at 35 percent. Those who would like to buy a home in a town, or a small city are at 23 percent, while those who’d opt for a rural area are at 11 percent. This is based on research done by Ipsos for the Ontario Real Estate Association (OREA).

Economic Influences Of 18-Hour Cities

The economic influences and shifts caused by the pandemic mean investors need to consider diversification as a high priority. Equiton believes that’s what makes real estate investment opportunities in 18-hour cities so enticing, you can find great deals in high-quality locations like Hamilton and Kitchener and make an investment amount that suits your portfolio. As markets recover their foothold, we believe there will be an acceleration of 18-hour cities that were already attracting people.

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7.0 – 10.0%

Target Net Annualized Return
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