Real Estate

Pay off rentals or add to RRSP?

  • Last Updated:
  • Sep 3rd, 2015 10:49 am
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[OP]
Member
Jul 1, 2009
364 posts
54 upvotes
Coquitlam

Pay off rentals or add to RRSP?

I own two rentals, one is a condo and another is a rancher (1 story house). My TFSA is topped up already and im unsure if it's wiser to pay off my rentals quicker (even though they are paying themselves off via tenants) or add to my RRSP? With RRSP obviously my money will be locked in so im thinking its better to add to the equity and pay off rentals.

Any advice?

thanks
2 replies
Deal Expert
Aug 2, 2004
33221 posts
6884 upvotes
East Gwillimbury
Mortgage rates are really low

I think you're better off investing in your RRSP. It will or should give you a higher return and it will help you reduce your income tax
Deal Expert
User avatar
Aug 2, 2010
15193 posts
4912 upvotes
Here 'n There
Gee wrote: Mortgage rates are really low

I think you're better off investing in your RRSP. It will or should give you a higher return and it will help you reduce your income tax
It's not necessarily going to give you a higher return as it is dependent on what it is invested in. Also, with an RRSP you are holding the government's portion, ie the tax credit you get as a result of making the contribution, in trust for the government until it is paid out and are banking on the fact that your tax rate when your RRSP is paid out will be lower than when paid in. This is not assured in any case, not to mention you are forced to withdraw a certain % per year. In that manner great returns in your RRSP work against you partially as they increase the required amount that you must withdraw per year once it is tuned into a RRIF.

I always say pay off your debt first but you haven't really provided much information for anyone to answer your question unequivocally, ie what is the interest rate on your debt, what is your RRSP invested in, do you have unused depreciation on your rental properties (you can't use depreciation to take a loss), are you depreciating your rental properties and many other questions. Also any answer requires making some predictions about the future, ie what will happen with interest rates, what your RRSP returns could be, etc etc.

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