Recent decades have shown that your home is one of your most profitable investments. Real estate assets have shot up in value since 2000. According to the Organization for Economic Co-operation and Development (OECD), Canada has seen more dynamic growth in home value than any other country, with a 168% increase over the past 20 years. Over the same period, prices have risen by 96% in the United Kingdom and France and 56% in the United States.

For seniors, this situation, together with the shortage of single-family homes on the resale market, presents a unique and extraordinary opportunity. According to the QPAREB*, the median price of homes in the first quarter of 2021 was $690,000 in Montreal, $475,000 on the South Shore, $465,000 in Laval and $323,500 for the whole province. The Canadian average is $621,525.

A brick-and-mortar treasure

For couples over the age of 65 who are looking to improve their quality of life, the value of one’s home can be a big game changer. Consider the following example:

Jean-Louis, 72, and Carmen, 70, have four adult children and three grandchildren. They live in Longueuil, Quebec, in a charming cottage-style home that has been carefully maintained. Carmen is a retired teacher and has various sources of retirement income that add up to $2,750 per month. Jean-Louis is a retired grocery wholesaler who receives pensions totalling $2,125 per month. With a combined annual taxable income of $58,500, Jean-Louis and Carmen aren’t swimming in cash, but they aren’t hard up either. When the pandemic is over, they dream of taking a few trips down south or going on a cruise. They don’t have much disposable income at the moment because they just got a new car. Even though their house is fully paid for, the municipal taxes and the maintenance and electricity costs for their oversized home are eating up a major portion of their budget.

Last January, their neighbour Luc put his property up for sale. Built in 1983 by the same contractor, his house wasn’t as well outfitted as Jean-Louis and Carmen’s place and needed some repairs. Notably, the roof had to be replaced. Despite these drawbacks, Luc was able to sell his home for $530,000. This was an “aha!” moment for Jean-Louis and Carmen, and they decided to get in touch with a professional appraiser.

A significant impact on personal finances

After a few comparative analyses, the appraiser presented his conclusions. Considering the vibrancy of the neighbourhood, the current demand for single-family “turnkey” homes and the good condition of the house, Jean-Louis and Carmen could resell their place for about $580,000. To top it all off, since the home was used as a primary residence, the profit on the sale would be completely exempt from taxation.

Now let’s look at how this payoff can substantially improve their quality of life:

Jean-Louis and Carmen had previously considered the possibility of moving into a retirement residence, like some of their friends, but they didn’t think they could afford it. Now things have changed. With the help of a financial planner, they developed the following plan:

  • $30,000 in cash reserves to cover various contingencies, including moving expenses and money to be used for a cruise at the end of 2022.
  • $151,000 ($75,500 each) to max out contributions to their tax-free savings accounts (TFSAs). They have room in their TFSAs and can take advantage of unused contributions dating back to 2009. It’s advisable to invest the funds in a moderately diversified portfolio.
  • $399,000 invested in a moderately diversified portfolio of corporate class funds**.

This type of investment has the advantage of being minimally taxable. It mainly generates dividend income and deferred capital gains. The financial planner who Jean-Louis and Carmen consulted also mentioned the possibility of generating monthly Series T** payouts. Technically, Jean-Louis and Carmen will principally receive tax-free capital payments. In the current economic climate and based on their stated objectives, this is the most advantageous solution.

With a 4% interest rate being forecasted over 25 years, they can generate a net income of $2,815 per month. Further, they will eliminate various fees and costs associated with home ownership, such as property and school taxes and the costs of snow removal, electricity, heat, insurance, maintenance and repairs, which—according to their estimates—would allow them to save at least an additional $740 per month. In total, they will have an additional $3,555 per month. This is more than enough to cover the costs of the retirement home that they are interested in and will even free up money for them to buy gifts for their grandchildren and pay for a trip or two per year for as long as they’re able.

Of course, everyone’s case is unique. When seniors or their family members set out to improve their quality of life in this way, they need to do their homework and seek the advice of various experts, such as a professional appraiser, an accountant or a financial planner.

Quick tips

  • The passive assets of your primary residence or your cottage can become a major source of additional income.
  • A combination of TFSA contributions and Series T corporate class funds can provide substantial income that’s virtually tax-free.
  • This additional income can significantly enhance your quality of life.
  • It’s inadvisable to invest large sums of money in certificates of deposit. The income that these generate is meagre and is taxed as a salary
  • It’s important to work with a financial professional to ensure that your plans are viable.

About Fabien Major

An independent financial planner, Fabien Major knows how to make finance and economics fascinating. Excellent communicator, he can explain complex financial management concepts and infuse his lessons with humour. He is also a personal finance columnist for the Journal de Montréal and Journal de Québec newspapers, and you can hear and see him commenting on financial news in the electronic media.

*Quebec Professional Association of Real Estate Brokers
**Content available in French

The information provided in this article by Fabien Major on is for information purposes only. It should not be considered legal or financial advice. You should consult with your own legal, tax and/or financial professional to determine what may be best for your individual needs. The views, thoughts and opinions expressed belong solely to Fabien Major and not necessarily to Chartwell Retirement Residences or its affiliates.