A cottage or a condo down south are options for some, but these properties are often owned in addition to a “city home.” A more complicated consideration is buying a condo now in anticipation of someday moving into it as your principal residence.
Buying a condo now, and renting it out in the meantime
You can generally buy a property you intend to rent out with at least a 20% down payment and borrowing up to 80% of the purchase price as a mortgage. Depending on where it’s located, a rental property may or may not have positive cash flow with a 20% down payment. For that reason, it’s important for those with tight cash flow to run the numbers, so they can budget properly if they choose this option.
Rental income is taxable on your tax return each year, with property tax, condo fees, insurance, utilities, maintenance and, of course, mortgage interest being tax deductible against the rental income. If you borrow on a line of credit for the down payment, that interest is also tax deductible.
There are challenges to consider as well. One of these is that the property you want in retirement may not be the most desirable to renters in the meantime. In other words, a good retirement property may make a bad rental property.
Another challenge is knowing where you may want to retire. Many retirees decide to stay close to their current home; however, buying a condo now in the same neighbourhood where you already own a home could mean you have a lot of eggs in one basket. Your future wealth would then be closely tied to real estate prices in one area, and that exposure would be exaggerated by leverage from borrowing.
Pre-retirees with children may not be able to foresee where their adult children will end up. Children often move away for school or jobs or partners, and those future moves may change where you want to live in retirement. Retirees with aging parents who need assistance may also have unexpected long-term care issues impact their choice of where to live.
What if your children have children of their own? Grandchildren may change the type of home you want to live in when you retire as well.
What if you decide not to move, after all?
The data also suggests that when people retire, they are less likely to move. Surveys often find that seniors do not want to downsize, and many see a move to retirement home as a last resort. Statistics Canada reported that, according to the results of the 2016 Census, “seniors are less likely to move than the general population.” In fact, that year “only 5.5% of seniors 65 to 74 years old and 4.7% of those 75 years and older had moved compared to 13% of the general population in the previous year.”