'The couple is banking on appreciation to justify the extra risk, complexity and work of owning two rental properties,' expert says
Family Finance asked Owen Winkelmolen, head of Planeasy.ca, an advice-only service based in London, Ont., to work with Fred and Suzy.The first problem is their heavy allocation to real estate. The couple pays $2,821 per month for mortgages plus $1,784 in property taxes, property management and utilities for the rentals. The properties are cash-flow negative. Fred and Suzy are subsidizing them at a rate of $9,672 per year. Even a small increase in interest rates will double the subsidy needed.
Fred and Suzy want to fund Laurie’s education. They have no RESP, but they can set one up. They can contribute $5,000 for one year, a catch-up allowed by rules. That will attract two years’ worth of the Canada Education Savings Grant of the lesser of 20 per cent of contributions or $500 per year, net $1,000 in this case. There is a $7,200 cap per beneficiary on CESG contributions and a $50,000 lifetime contribution limit per beneficiary. The couple will get close but not exceed this limit.
Combining the two plans, they would have RRSP and DCPP capital of $735,209 at age 60. That sum, annuitized for 35 years to their age 95 at three per cent growth per year after inflation, would generate $33,220 per year. In retirement, the couple would like to be able to spend $70,000 per year, but mortgage payments on their house and two rentals will make this difficult.Article content
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