In an investment landscape largely dominated by ETFs, publicly traded shares, bonds, and hedge funds, private real estate investments often remain underappreciated.
In an investment landscape largely dominated by ETFs, publicly traded shares, bonds, and hedge funds, private real estate investments often remain underappreciated. Real estate offers unique advantages, including steady returns and robust portfolio diversification. Unlike stocks, it is generally less affected by market volatility, making it a reliable long-term asset.
What many Canadians may not realize is that they can leverage registered accounts to build net worth and grow wealth through private real estate investments.
With registered accounts, real estate investment options can include development projects or other vehicles such as Real Estate Investment Trusts (REITs) and Mortgage Investment Corporations (MICs).
While direct ownership of real estate is not allowed within registered accounts like TFSAs, RRSPs, or RRIFs, there are effective ways to utilize registered funds in the Canadian real estate market.
One straightforward approach is to open a self-directed investment account, giving investors the freedom to select and manage their own investments. This differs from non-self-directed accounts, where investment choices are managed by a financial advisor or institution on your behalf.
Registered investments are an essential part of many Canadian investment strategies, offering numerous savings incentives and tax advantages when used thoughtfully.
Let's go over the basics to help you get the most out of registered investments and into private real estate.
What are registered investments?
A registered investment account is one that the government has designated as tax-deferred or tax-sheltered. Income earned on the account is not taxed until withdrawal, or in the case of a TFSA, is typically not taxed at all.
We will go over the 3 most common registered investment accounts:
1. Tax Free Savings Account (TFSA)
A TFSA functions similarly to brokerage trading accounts, holding any combination of eligible investment vehicles, such as cash, stocks, bonds, GICs and mutual funds, the growth of which will be tax-sheltered. Investments within these accounts will incur no taxes, contributions can be made, and interest, dividends, and capital gains are tax-free for life. For 2024, the yearly TFSA contribution limit for each individual is set at $7,000. Unused contribution room from one year is carried forward and applied to the next year's TFSA contribution limit. Most people are unaware that they can use their TFSA accounts to invest in private real estate.
2. Registered Retirements Savings Account (RRSP)
RRSPs are most often associated with post-retirement income, but they also help Canadians grow their wealth and diversify their portfolio before leaving the working world. There are two major tax advantages to RRSPs. To begin, contributors may deduct contributions from their income. Second, RRSP investment growth is tax-deferred. Unlike non-RRSP investments, returns are not subject to capital gains, dividend, or income taxes. This means that RRSP investments compound on a pre-deferred basis. While traditional investments such as Mutual Funds and GICs are the most common holdings, lesser-known alternatives, like private market investments and exempt market securities are finally becoming more attractive as interest rates rise.
3. Registered Retirement Income Fund (RRIF)
An RRIF is a registered account that provides you with income from the investments and savings in your Registered Retirement Savings Plan (RRSP). RRIFs, like RRSPs, provide a variety of investment alternatives, allow for tax-deferred growth of qualified investments, and monies are taxable as income when withdrawn. However, unlike RRSPs, you cannot make fresh contributions to an RRIF; instead, you may only transfer funds from an RRSP or another RRIF.
How to Use Registered Funds in Real Estate
Registered accounts such as RRSPs and TFSAs offer Canadians a valuable way to grow their savings with tax-free or tax-deferred advantages, making them ideal tools for long-term investment strategies. As the real estate market presents promising opportunities, more investors are looking for ways to tap into this asset class using their registered funds.
Though it may seem appealing to use registered funds to directly purchase rental properties or investment homes, there are restrictions. Except for the Home Buyer’s Plan (HBP), which supports first-time homebuyers in purchasing a primary residence, RRSPs cannot be used directly for real estate investments, such as funding down payments or mortgages for rental properties. While TFSAs are more flexible, allowing tax-free withdrawals for purchases, they do not permit the direct holding of physical real estate assets.
Given these limitations, the most effective way to channel registered funds into real estate is through indirect investments. Options like Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts (REITs) allow investors to gain exposure to real estate markets while maintaining the tax-advantaged structure of their registered accounts. Another approach is investing in real estate development projects, which enables investors to benefit from property market growth without the operational demands of property ownership.
How to Invest in Real Estate with Registered Investment Funds
Canadians can use registered funds to invest in private real estate through self-directed registered accounts. Self-directed registered accounts allow the owner to determine the asset mix held in the account and watch their portfolio grow tax-free. In Canada, transferring funds from a registered account, like an RRSP, to a self-directed account of the same type—such as an RRSP to a self-directed RRSP—does not incur tax penalties, as this transfer keeps the funds within a tax-sheltered environment. The Canada Revenue Agency (CRA) considers such 'in-kind' transfers non-taxable events, as long as they are completed directly between institutions or within the same institution. Avoid withdrawing and redepositing funds, as that could trigger withholding taxes and penalties. When determining how much to invest in real estate, consider factors such as risk tolerance, time horizon, liquidity needs, and other real estate holdings.
Not sure where to start? Reach out to a Parvis Dealing Representative for personalized guidance!
3 Simple Steps to Invest in Private Real Estate through Registered Funds
- Open a Self-Directed Registered Account: Request a self-directed account from a Canadian chartered bank or trust company. This type of account gives you the flexibility to choose investments beyond traditional stocks and bonds, including eligible private real estate options. Make sure to specify which type of registered account you wish to open (such as a TFSA, RRSP, or RRIF).
- Fund Your Self-Directed Account: Transfer funds into your self-directed account. This can be done by depositing cash or by transferring funds from another registered account. Note that transfers from RRSPs or TFSAs may require coordination with your financial institution to maintain tax advantages.
- Direct Your Investment in Private Real Estate: Once funds are in the account, instruct your financial institution to invest in your chosen private real estate opportunity. This usually involves completing a “Direction to Pay” form, a standard form provided by your bank or financial institution, which authorizes the purchase of private investments in real estate. Always ensure that the selected investment complies with the CRA’s registered account regulations.
Why use registered funds to invest in private real estate?
Investing in private real estate through registered funds offers the potential for stronger returns, more diverse investment options, and greater control. Private real estate appeals to investors for its risk-adjusted returns, delivering both strong earnings and stability. This can be particularly attractive for those looking to grow their investment capital and diversify beyond GICs, mutual funds, and bonds.
A key benefit of real estate investing is its potential for steady returns, independent of stock market fluctuations. Including real estate in a diversified asset allocation strategy can help build a resilient portfolio capable of withstanding uncertain market conditions. Many investors incorporate real estate to enhance portfolio performance, as these assets often generate cash flow shortly after acquisition, especially in commercial and multifamily properties.
Real estate investment also allows investors to enhance the wealth-building potential of their registered accounts while preserving the tax advantages associated with these funds.
Investment Opportunities on the Parvis Platform
Parvis offers a variety of real estate investment opportunities that are eligible for registered funds across several provinces, providing an accessible path for investors looking to diversify their portfolios. Below is an overview of options available on our platform:
Ontario
- Avanew REIT
- Equiton Income & Development Fund
- 282 MacNab: Lion Heart Development
- Perch Capital MIC
- Pier 4 REIT
- District REIT
- RealAlt Investments
- Secure Capital MIC
- Vector Mortgage Trust
British Columbia
Quebec
Conclusion
Investing in real estate using registered investment accounts, such as RRSPs, TFSAs, RRIFs, and other eligible accounts, is a smart way to diversify your portfolio and benefit from tax-efficient growth. Parvis offers a range of opportunities that make it easy to get started, allowing you to take full advantage of the real estate sector while maximizing the growth potential of your registered investments.
Explore our platform today to discover the right investment opportunities for you and start building your real estate portfolio with confidence.
