One Little Known Secret To A Wealthier Retirement

See video followed by written blog

Many people planning retirement, sell their family homes and downsize to a less expensive condominium or a small house. They plan to be wealthier by keeping the remaining monies after paying for their new home to help support their later living costs. However, if you are moving from an area where your house did not sell for a large price like northern BC or you had to pay out a remaining mortgage and you plan to move to Victoria, a more expensive area for your retirement, you might find you just won’t have enough money left to enjoy the comforts you are hoping to have during your retirement. Instead you want to retire rich (don’t we all!)

Do you want to know “One Little Know Secret To A Wealthier Retirement”? Then watch the following video or read the blog below.

(Please Like, Subscribe, Share, and click on the Notification Bell of the video to get our weekly videos and content)

If you want to chat to find out more about buying or selling in Victoria, finding out the value of your home, or any other real estate topic then simply book a Phone or Zoom call at this link: https://calendly.com/rosemaryandgary

Enjoy!

Rosemary and Gary

“We love people and we love homes!”

Read the Full Written Blog Here

What are you supposed to do? I am going to tell you about one little known secret for your consideration which just might make you wealthy enough to enjoy your retirement. It is not for everyone, but it can work for many and maybe you.

So, you have just sold your house in Regina and have $500,000 left from the sale. You arrive in Victoria and you start looking for that nice 2 bedroom condo and you realize that the $500,000 is just not going to do it. So, what do you do? Buy a smaller condo? Can you live in a one-bedroom condo with your spouse, can you stand being that close day in and day out? Do you have to give up having a nice garden and backyard?

When you purchased your previous home, it was more than likely a freehold purchase. Freehold means you owned your home and the land under it outright. You were solely responsible for the maintenance and upkeep of your property and the taxes associated with it. And you could pass this land and house onto your family and future generations.

Well, there is another type of ownership called Leasehold. Leasehold means that your home is owned for a fixed period of time, but you never own the property your home is built on. The lease runs for a long time, typically up to 99 years when first created, although you might buy a lease for say, 50 years. This leasehold period may be a lot longer than you will need to own the land. You have certain rights to use the property and land in exchange for a specified monthly payment made to the owner or landlord.

Leaseholds for equivalent properties are usually cheaper to purchase! For example, a 2 Bedroom freehold condo where I live in Victoria can go from $500,000 up and much higher. A similar leasehold property can often be found for under $350,000 with some 1 bedroom for under $250,000 (At date of this blog March 2023).

The question is then why does not everyone who wants the best deal simply buy leasehold properties?

For some people it really is the best option and for many others it may not be, so let’s have a look at the differences to see who this works best for.

Here are some of the differences between freehold and leasehold ownership.

With Freehold:
1. You own the complete building and property (except in freehold strata) and have full responsibility for the property. You are liable for any work required for the property.

2. Once you have paid off the purchase of the home you do own the land and property basically forever and can pass it on to your future relatives or sell it.

3. You do not pay a fee for owning the land once purchased (except property taxes and services etc.).

4. The purchase price of freehold for similar properties tend to be more expensive than for leasehold.

5. The value of the property may increase more than the leasehold properties due because of the mentioned reason.

With Leaseholds:
1. You have the right of occupation for a fixed period of time but may be restricted in what you do to the property like structural changes.

2. You will pay a monthly lease fee to the leaseholder even though you have purchased the leasehold.

3. You have the right to occupy the property for a limited lease period (typical new leases are 99 years). It is often not clear what happens at end of lease in many cases. Lease may be renewed or may not be renewed.

4. Lease property values will tend to decrease as the lease gets near end of term of the leasehold period.

5. Purchase price for leasehold for similar properties tend to be less expensive than for freehold.

6. Purchasing a leasehold can be more complicated than a freehold sale due to having to negotiate the lease.

Who Can Take Advantage of This?

So, who can take advantage of leaseholds and how does that help you in your retirement?

Suppose, as I mentioned at the beginning of this blog that you have $500,000 for your last home sale and come looking for a new home in Victoria to retire to. If you buy a leasehold 2 bedroom condo for $300,000 to $350,000 instead of paying your total $500,000 for a freehold property then this means you may have 150,000 to 200,000 dollars cash remaining to help fund your retirement. If you have a pension and some savings this might make quite a big difference in your final retirement years.

There are a few things to think about. Eventually the lease will run out and essentially the leasehold may have little or no value. However, if you are in your seventies and you have a 50 year lease that may be of no concern to you. You can just let your executor sort out any remaining value once you are gone. If you have a family or dependents that you wish to leave some of your wealth to then this might not be a good idea as the value will eventually decline. It really depends on how long the remaining leasehold period is when you buy the property. Your leasehold home may increase in value for a while but as the lease term nears the end and the value starts declining to zero there may not be very much left for your heirs.

However, if you have no heirs or no plans to pass on wealth then this may allow you to extract more cash for your retirement than paying for the higher costing freehold property.

Rosemary had this exact situation a couple of years ago with a retiring couple who came to Victoria with about $250,000 to buy a retirement property. They had children but very limited ability to pass on much of their wealth to their children. They had no plans to ever move again. It was important to them that they have a yard and garden and not be in a strata condo property. They purchased a 3 bedroom leasehold home which was located on leasehold property for $250,000 and had to pay a $600 per month fee. With their other savings and pensions they were able to fund their retirement and were not concerned if their property value went up or not. Similar properties then were running well over $500,000 which they just could not afford having sold their home in Winnipeg. They were very happy on the result and looked forward to a long and wealthier retirement having a paid off house with a small monthly fee.

So what do you think? Is this a good option for you? Will it work to provide some extra retirement cash?

Leasehold and Rentals

A final note is leasehold purchases can also work well for rentals. Since the purchase price is lower, the rate of return is higher as they will typically rent for the same amount as equivalent more costly freehold properties.

If you want to know more about this or anything about the Greater Victoria real estate market then give us a call. Book a zoom or phone call at this link https://calendly.com/rosemaryandgary

If you would like to know more about getting ready for retirement then watch this video called “What No Realtor Will Tell You About Downsizing“.

Thank you for reading this blog and I will see you next time!

Gary