A Registered Retirement Savings Plan (RRSP) is a type of investment account unique to Canada. It allows residents to hold cash and investment assets with several financial benefits, as compared to non-tax-preferred accounts. Many people associated RRSPs with post-retirement income. However, you can leverage RRSPs to grow your net-worth and expand your wealth well before you leave the working world.

RRSP-approved assets include savings accounts, corporate shares, income trusts, bonds, Guaranteed Investment Certificates (CIGs), mutual funds and foreign currencies, as well as mortgage loans. Many people rely on bonds, high-yield savings accounts and corporate shares as their sole RRSP investments. Diversifying your RRSP into real estate can help you make the most of your funds and ensure you’re consistently growing your net-worth.

While many people use RRSPs to plan ahead for their retirement, you can actually leverage your RRSP now to kick-start the process of building wealth. It’s possible to take advantage of the tax benefits of RRSPs to help you make your real estate investments go further.

It’s important to note, though, you can’t use an RRSP to directly purchase a rental property. But, there are a few ways you can use your RRSP funds to become active in the Canadian real estate market.

RRSP real estate options

Because you can’t use an RRSP to directly purchase an investment property, you may be wondering how you can use your investment account to enter the real estate field. Here are some of the most popular methods you can use to leverage your RRSP for a property investment:

REITs: Real Estate Investment Trusts (REITs) are publicly traded companies that acquire high-value real estate for the purpose of growing shareholders’ wealth. While investing in a REIT may not allow you to see your funds grow as rapidly as they might in a direct investment, they’re a safe and dependable way to put your RRSP funds to work in real estate. Your investment is managed by a team of real estate industry professionals.

Lending RRSP funds to investors: If you’re looking for a way to invest your RRSP with a slightly higher risk and the potential for a much greater reward, consider lending RRSP funds to a real estate investor. This is the closest you can get to purchasing a rental property. When you lend to investors, you’re using your RRSP funds to issue a mortgage.

MICs: Mortgage Investment Corporations (MICs) are similar to REITs in that they allow you to safely and easily put your RRSP funds into real estate with very little risk. MICs trade mortgage debt and charge exceptionally high interest rates. This means you can reap a much higher return in a MIC as opposed to some other types of long-term real estate investments.

It’s worth noting, while you can’t use your RRSP funds to purchase your own rental property, you can use them to build or buy your own primary residence. Under rules outlined by Revenue Canada, you can withdraw as much as $25,000 tax-free from your RRSP to build or buy a qualifying primary residence.

While you won’t be able to generate passive income off of your primary residence, it’s still a worth-while investment to consider making. Be sure to consult with a tax attorney before withdrawing the funds to ensure your prospective property qualifies.

Lending RRSP funds to real estate investors

If you want to grow your RRSP funds, consider lending them to another individual investor. While it may seem like a complicated task, it’s actually a simple process. Here’s what you’ll need to do to lend money to a fellow real estate investor from your RRSP:

Identify a borrower: First, you’ll have to identify a borrower. It’s better to lend your RRSP funds to someone you trust, and who has extensive real estate industry experience in their target market. Local real estate investor meetings can be great places to meet prospective borrowers.

Hire a trustee: Next, you’ll have to hire a trustee to administer the funds. They’ll assist you with the process of moving funds around, and funding the loan to your borrower. It’s important to work with a well-known trustee that’s licensed in the province in which you reside and in which the real estate transaction will take place.

Open a self-directed fund: You’ll have to open a self-directed RRSP fund, and move money from your current RRSP to this account. You’re not cashing out the funds, so you won’t have to pay any tax penalties—you’re simply moving them from one type of RRSP to another.

Perform due diligence: Before you complete the transaction and fund the loan, ensure you’re making a wise investment decision. Perform due diligence on your borrower. Take a look at their previous transactions. Do they have a demonstrated track record of growing wealth through real estate investment? If not, you may want to take your capital elsewhere.

Complete the transaction and grow your wealth: Once you’ve performed due diligence, you’ll need to finish up the paperwork and fund the loan. The company you’ve hired as a trustee will help you navigate this process, which is far simpler than it sounds. Once the loan is funded, you can sit back and watch your wealth grow!

Taking your RRSP funds out of the bank and putting them to work can help you maximize your assets and ensure you’re reaping the best possible returns. Investing RRSPs in real estate is an excellent way to sit back and watch your wealth grow with very little activity required on your behalf.

The RRSP is an excellent tool savvy Canadian investors can use to maximize their wealth and retire in comfort. If you’re looking for a creative way to leverage your RRSP, consult with a tax attorney or real estate industry professional to learn more about investment opportunities available to you.

On the flip side of all this, remember you can partner with another real estate investor and use their RRSP to fund your next real estate venture!