As the Canadian real estate market continues to rise, some investors want to put their RRSP money to work in a real estate investment. While there are limitations, there are also several options available to investors.

As the Canadian real estate market continues to rise, some investors want to put their RRSP money to work in a real estate investment. While there are limitations, there are also several options available to investors.

REITs invest in the equity component of a real estate property. Their debt investment counterparts are known as mortgage investment corporations or MICs and enable investors to purchase a pool of mortgages paying interest income. Rather than investing in a single mortgage with a modest amount of money, MICs enable investors to be diversified among different mortgages, terms, geographies and sectors.

Much like REITs, MICs are available on public and private markets and can be held in an RRSP. There are about a dozen MICs listed on the Toronto Stock Exchange and many more available on global stock markets and through mutual funds and private mortgage investment corporations.

It is also possible to hold your own mortgage in your RRSP, effectively making you your own lender. Fees may be a couple thousand dollars on set-up and then a couple hundred dollars a year thereafter.

For conservative investors, it can be an enticing option because the mortgage rate used is the posted rate, which guarantees you a much higher fixed return than you could otherwise earn on a GIC or high-quality bond. That said, it means you are borrowing at a higher rate – albeit from yourself – than you could otherwise borrow from a bank.

One concern with holding your mortgage in your RRSP is that if you could otherwise borrow at a lower rate of interest and possibly invest at a higher rate of return in a balanced investment portfolio, you might be missing out twice. This is especially true at today’s low interest rates, in particular when you take into account the up-front and ongoing costs.

Anyone considering a real estate investment given the long run-up in Canadian real estate prices should consider their existing exposure to real estate, not only through their stocks and mutual funds, but also their primary residence.

Many Canadians have a high allocation to real estate already in their net worth without targeting real estate specifically in their RRSPs, so use proper asset allocation as the primary test to determine if you should be investing further in real estate in the first place.

How to Use Your RRSP to Invest in Real Estate by Jason Heath | Financial Post