Investors hear it all the time: real estate is a sure thing. Or, at least, it's as close to a sure thing as can be expected; safer than going for a white-knuckle ride on the stock market and seemingly simpler than muddling around with bonds and RRSPs.
Property values, proponents of this mantra like to say, only partly in jest, will keep going up so long as we're making new people faster than we're making new land.
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This is, experts warn, an over-simplification, and one which creates risk for those who plan to use real estate to bankroll their retirement.
A recent report from the Bank of Montreal says almost one in three Canadians, upon finding they do not have enough money set aside to retire, has sold his or her home in order to generate more cash — opting for a smaller house, condominium or rental unit.
Downsizing after one's children move out makes sense. But financial planners warn that selling off real estate is no replacement for more conventional retirement savings, despite Canada's healthy housing market.
Empty-nesters might go into retirement planning to sell the five-bedroom house in which they raised their kids.
Smaller and "reasonably priced" bungalows are a hotter item, at least near Ottawa where Cheryl Green operates her financial planning firm Counting Chickens, presumably because they are the sort of homes all those empty-nesters want to buy.
Green understands the appeal of real estate, given that interest rates are at an all-time low and pay-outs from government plans and other investments have tended to track down over the decades. But she takes a dim view of clients who overextend on real estate — either because they plan to "grow into" an over-sized house or cash in upon retirement.
She is among those who say the value of real estate as an investment must be balanced against the need to diversify one's portfolio. People must also consider how they want to spend their golden years.
Retirement, says one observer, is about having choices — to have fun, travel, go back to school, etc. — and putting too many eggs in one basket runs the risk of limiting choices down the road.
"We always worry about cyclicality," he adds. "Whether investing in the stock market, the bond market or the real estate market, we always worry about [clients] retiring in a down market."
An investor with a diverse portfolio has the flexibility to sell off some but not all of his or her assets. An investor who relied too much on real estate might be left with the all-or-nothing option of selling the house.
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