Should Canadian Retirees Invest in Real Estate?

Real estate can be a valuable part of an investment plan, and certain Canadian markets have produced strong returns over the past generation. Still, as you approach retirement it’s worth re-evaluating whether property should be a central part of your strategy.

Which has better returns? Real estate versus stocks

Many Canadian investors favour real estate over stocks because it feels more tangible or reliable. I don’t believe one is categorically better than the other—they simply behave differently and suit different goals, time horizons and risk tolerances.

Stock performance

This year has seen volatility in equity markets, which can make investing feel risky. Through May 9, the S&P/TSX Composite Index returned 3.53% year-to-date including dividends, and 16.75% over the past year. The U.S. S&P 500, when measured in Canadian dollars, declined about 6.40% year-to-date (partly because the U.S. dollar weakened) but still posted an 11.91% return over the previous 12 months.

Viewed from a slightly longer horizon, a North America–focused stock investor might be down modestly in 2025 so far, yet still enjoyed double-digit returns over the prior year. Stretching the view to a decade, annualized total returns were about 8.53% for the Canadian index and 13.89% for the U.S. index. Of course, many individual investors earn less than index returns after fees and by holding bonds alongside equities, but the decade did offer solid, high single-digit to low double-digit yearly returns for those invested in the market.

Real estate performance

Residential real estate also performed well over the past decade. The MLS Home Price Index aggregate composite rose about 5.52% annually over the last 10 years. A typical rental property owner may have earned an additional 2%–3% from net rental income (rental receipts minus operating expenses, excluding mortgage interest). Leverage amplified returns: the five-year variable mortgage rate averaged roughly 2.79% during that period, so borrowing at that cost and earning an all-in return near 8% would have produced a positive spread.

Put together, a residential investor using a mortgage over the last decade likely realized high single-digit total returns, often comparable to a stock-heavy portfolio. Both equity markets and Canadian housing saw relatively strong gains while interest rates were unusually low, contributing to those results.

Looking ahead, with interest rates at more moderate levels and inflation stabilizing, a well-diversified mix of stocks and bonds could deliver returns similar to rental real estate over the long term. Another important consideration is tax efficiency: if you prioritize buying property at the expense of contributing to tax-advantaged accounts such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs), you may reduce your after-tax wealth accumulation. For many investors, rental properties make most sense only after RRSPs and TFSAs are reasonably maxed out and a solid allocation to stocks and bonds is already in place to preserve diversification.

Real estate shines in retirement for its predictable cash flow—rent tends to be stable and can rise with inflation, resembling an indexed pension. That predictability appeals to retirees who dislike daily market swings in equities. Still, retirees who hold stocks should avoid liquidating large positions at once; a sustainable withdrawal strategy—typically a low to mid-single-digit percentage annually—helps ensure longevity of a portfolio while allowing dividends and interest to contribute to income.

Real estate liquidity and transaction costs

There are two practical reasons to be cautious about buying property you might need to sell early in retirement.

First, real estate is not always liquid. Selling can take longer than expected in a soft market, and you can’t sell a portion of a house—real estate sales are typically all-or-nothing transactions. Second, the costs of buying and selling property are substantial. Most provinces and municipalities levy land transfer taxes; for example, a buyer in Toronto might face roughly 3% in combined municipal and provincial land transfer taxes. Selling can also incur commissions—often 5% or more in some regions—along with legal fees and other closing costs.

When you add purchase and sale expenses together, total transaction costs can approach 10% of the property value. If those buy and sell events are spaced 10 or 20 years apart, their impact on long-term returns is less dramatic. But if you buy and then need to sell within five years—particularly when prices stagnate—transaction costs can erode a large portion of the gain and significantly reduce the effective return on your investment.

For that reason, avoid acquiring rental property if you expect you may need to liquidate it early in retirement, and don’t delay selling for too long if your more liquid assets are running low.

Real estate as an inheritance

Many baby boomers benefited from large increases in home values and have watched younger generations struggle to enter the housing market. That prompts some parents to prioritize leaving real estate to their children—either by holding a family home, a cottage, or rental properties.

However, clinging to property for the sake of an inheritance can have downsides. Drawing down RRSPs or a registered retirement income fund (RRIF) more aggressively to retain real estate can increase tax liabilities early in retirement and might reduce eligibility for means-tested benefits such as Old Age Security (OAS). Concentrating wealth in property also reduces diversification, exposing a senior’s net worth to housing-market risk.

If your goal is to help your children financially, it’s usually better to focus on maximizing the overall value of your estate rather than trying to preserve specific assets you assume they will want. Children may prefer cash or assistance buying a home now over inheriting a property later—or they may not want the particular property you plan to leave. Helping with a down payment while you’re alive can sometimes deliver more practical, immediate benefit than passing on real estate at death.

Consider your whole portfolio

Is real estate the best investment for a retiree? The answer depends on your entire financial picture—your existing assets, risk tolerance, liquidity needs and estate goals. If you’ve already maximized RRSP and TFSA room, can hold a rental property long term, and ensure it won’t dominate your net worth, real estate can be a sensible part of a diversified plan and may produce returns comparable to a low-cost balanced portfolio over time.

Many investors appreciate real estate’s relative stability and its intuitive appeal compared with the day-to-day uncertainty of stock markets. Still, whether it’s the best choice in retirement varies by individual circumstances, and the trade-offs—liquidity constraints, transaction costs, tax implications and concentration risk—should be weighed carefully before committing a large portion of retirement capital to property.

Read more about retirement:

• Can you make RRSP contributions after age 71?
• Should I draw down my RRIF to avoid estate taxes?
• Who pays tax on cash gifts in Canada?
• How RRIF withdrawals work when you have multiple registered accounts