Q&A: Can I buy a condo in my RRSP?
Question: My wife and I are in our early 50s. We live in British Columbia and both work at part-time jobs. Our only large asset is my locked-in RRSP which is currently made up of various mutual funds valued at about $90,000.. Is it possible (and would it make sense) for my RRSP to either:
a) Purchase a condo and rent it to us.
b) Hold the mortgage on a condo for us (we make the payments to the RRSP.) This would actually provide a guaranteed rate of return that is far above current portfolio performances, while allowing us to acquire a home which is otherwise unattainable for us.
If so, do you have any further info on how this is done – perhaps in one of your books? – J.G.
Gordon Pape’s Answer: Option a) won’t work. An RRSP is not allowed to hold real estate, except under rare conditions and then only temporarily.
Option b) might work. RRSPs are legally permitted to invest in non-arm’s length mortgages, as long as they do not provide an advantage over commercial rates and terms. However, whether your particular RRSP can do this is a question you will have to ask the plan’s administrator. Some self-directed plans do not make provion for mortgages of this type because of the paperwork and administration involved.
If your plan does allow for this, be aware that there will be some high expenses associated with setting up everything, including the cost of mandatory mortgage insurance through CMHC or a private insurer.
You can find full details on RRSP mortgages and how they work in Gordon Pape’s 2003 Buyer’s Guide to RRSPs, which will be in bookstores in early November. Alternatively, you can order a copy at www.buildingwealth.ca for shipment as soon as it comes off the press.
Do you have a money question you’d like to ask Gordon Pape? E-mail it to [email protected] and then check our website every week to see if it was chosen for a response. Sorry, we cannot send personal answers.