Recently, I had a conversation with clients who were preparing for retirement. We talked about their future plans and explored different strategies for using their real estate to create financial freedom. One of the main topics was whether they should sell their home or keep it as part of their retirement plan.
Their home is currently valued at around $1.2 million, and they’ve fully paid off their mortgage. While they also have savings and RRSPs, we focused on how to make the most of their home’s value. If they sold it, they’d have approximately $1.14 million in equity (after selling costs), and we explored how they could use that money to support their retirement dreams, including frequent travel.
Here are some of the options we discussed, which might also apply to your own retirement planning:
Option 1: Sell and Invest Locally
One option was selling their home and buying a smaller property in Oshawa for around $800,000, which has a legal accessory apartment. After paying for the home and other closing costs, they’d have $300,000 left to invest.
If they invested that $300,000 at a 4% return, it could generate about $12,000 a year in income. On top of that, they could rent out the apartment for around $1,800 a month, bringing in another $21,600 per year.
In total, they’d have an income of $33,600 annually. While this money would be taxable, the taxes would be minimal since their overall retirement income would be lower. Plus, they could deduct some of their home expenses as rental property deductions.
Option 2: Buy a Winter Home
Another option was to use the $300,000 to purchase a vacation home in Florida. After converting the money to U.S. dollars, they would have about $225,000 to buy a property in a retirement community called “The Villages,” located northwest of Orlando.
The cost of maintaining the Florida home would be about $300 a month. While this option wouldn’t generate any investment income, they could still earn $21,600 annually from renting out the apartment in Oshawa. They could also rent out their Florida home when they weren’t using it, possibly earning an additional $3,000 to $4,000 per month.
Unlocking the Value in Your Home
Many homeowners, especially those who have lived in the same house for decades, don’t always realize how much potential their home equity has for helping them enjoy retirement. Downsizing or renting out part of their home could free up money that they can use to fund their retirement dreams, such as travel or pursuing new hobbies.
In areas like Durham, selling your home and reinvesting that money could give you financial freedom and improve your quality of life. I’ve worked with people who regret holding onto their homes for too long, only to face rising maintenance costs that ate into their budget, limiting their ability to enjoy retirement.
At some point, it’s worth asking if keeping your home makes sense or if downsizing is a smarter financial move. In this case, my clients are consulting their accountant to better understand the tax implications of owning rental properties, both locally and in the U.S.
It’s a great opportunity for them as they step into this exciting new chapter of life. You might be in a similar position, and real estate could play a key role in your retirement strategy.