The article “Surging real estate wealth is a golden opportunity for some to accelerate retirement plans” was originally published in Financial Post on November 2, 2021. PHOTO BY GIGI SUHANIC/NATIONAL POST ILLUSTRATION.

Some British Columbia and Ontario residents could do downsizes of $1 million or more and live in comparable homes

Real estate prices across the country have been on a tear with MLS Home Price Index benchmark prices up nationally by 13.9 per cent year over year in September, according to the Canadian Real Estate Association (CREA).

Vancouver Island, Chilliwack, New Brunswick, Moncton and 17 Ontario real estate boards, including Toronto, saw one-year price increases of more than 30 per cent. There were 15 Ontario real estate boards with price increases of more than 100 per cent over the past five years, with Bancroft taking the prize with a 164.5 per cent price difference from five years ago.

For those in position to capitalize, the increase in real estate wealth offers an opportunity to accelerate retirement plans or, if they are already retired, to significantly supplement income. People who can work from home or find a job elsewhere and move to a lower-cost city may be able to get more house for their dollar. Single-family homes in places like Regina, Winnipeg, North Bay and many Maritime cities average under $400,000. Some British Columbia and Ontario residents could do downsizes of $1 million or more and live in comparable homes.

The 2021 Price per Square Foot survey from Century 21 found that seven out of the 10 least expensive Canadian cities had average prices below $200 per square foot, while Vancouver, Toronto, and Montreal had average prices per square foot close to or exceeding $1,000.

Homeowners nearly or already retired who can downsize may be able to have more money for travel, entertainment or to help their kids get into the housing market. Many retirees lament the price of condos though because after sale and purchase costs, they may not be able to stay in the same neighbourhood and net much cash without moving away. In Toronto, a modest downsize could result in 10 per cent transaction costs between real estate commission, land transfer tax, legal fees and moving costs.

So, if you are still working and could pocket $100,000 from a downsize, what could this mean for your retirement? A family with a $50,000 household income would have to work for about two-and-a-half years to earn $100,000 after tax. A family with $100,000 of household income would have to work for about one-and-a-half years. A family that could do a downsize of several hundred thousand dollars could put several years of future earnings into their bank account today and be able to afford to retire many years sooner.

This extra cash could be used in different ways. It could be used to pay off a mortgage sooner or pay it off outright. If you made a large mortgage repayment, you would have two options. You could continue with the same monthly payments and pay the new mortgage off faster than your current mortgage. Alternatively, you could maintain the same amortization or repayment period, but decrease your monthly payments to have more cash flow for other things. Those other things could include investing in an RRSP, TFSA or RESP account, or you may be able to simply spend more on discretionary expenses like travel or entertainment.

If a 50-year-old couple invested $100,000 of downsize proceeds into stocks in their TFSA accounts for 15 years and retired at age 65, it could be like having an extra $10,000 or more of indexed pension income for life thereafter. The ability to contribute downsize proceeds to an RRSP and generate tax refunds or to an RESP and get government grants for a child’s education savings could be even more compelling.

Some people would like to move but have a fear of missing out on potential continued price appreciation. They may worry that if they want to move back someday, they may not be able to afford to return to the same housing market. One option is to move to a lower cost city and keep your current home as a rental property. The rent may more than cover your mortgage payment, property tax and other costs, and your home ownership costs in a new home could be significantly less. You could end up with net rental profit from the rental property, while your tenant pays down the mortgage, and you continue to benefit from future price growth. If you moved and rented in a new city, there is even a tax election you can file to continue to treat your home as your principal residence for up to four years to avoid or reduce eventual capital gains tax.

The Nova Scotia Association of Realtors reported a net inflow of 4,678 people who moved to Nova Scotia from other provinces in the second quarter of 2021. The vast majority came from Ontario.

Just moving across the country is not for everyone, obviously. There are people who need to stay put for work or family reasons. Children make friends they may not want to leave, divorced parents need to mutually agree upon where to live, and those with aging parents may want to or need to stay close to them.

For Canadians with big aspirations, an international move can be even more compelling. The International Living Annual Global Retirement Index rated Costa Rica as the top destination for expats in 2021, and reported that “a couple can live comfortably, but not necessarily extravagantly … for around $2,000 a month. This includes renting a two-bedroom home with North American amenities, air conditioning, plus groceries, entertainment, transportation and healthcare.”

The remaining destinations in the top 5 of Panama, Mexico, Colombia, and Portugal are all very affordable at a cost of US$2,000 to US$2,500 per month, including housing — so could be less than $3,000 in Canadian dollars.

My family and my business are very much established in the greater Toronto area, otherwise, I might be compelled to consider a move elsewhere in Canada or abroad. For those who are able, regardless of age or stage, selling and moving could accelerate or enhance financial independence.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.