# Sell house, live off proceeds



## IdleInvestor (Aug 21, 2012)

I am considering selling my house and trying to (mostly) live off the proceeds. I have considered the additional costs (eg: rent) and savings (eg: property taxes). Boiling it down to this - how should I invest $500K to generate a "safe" cash flow of 4-5% per year (before taxes, and inflation adjusted) and while minimizing taxes? I am willing to slowly draw down the capital while doing so. I have heard of investment vehicles such as Mackenzie's Sentinel Canadian Short-Term Yield Class, which allows one to draw monthly income and defer taxes. I do also have Capital Losses from previous years so this could offset some Capital gains. Your thoughts please and thanks!


----------



## Young&Ambitious (Aug 11, 2010)

What's your age, do you have dependants or a significant other to support, assets/liabilities, required monthly income from assets/budgeted monthly costs, and do you have other income coming in monthly? CMFers will need more info before responding appropriately


----------



## MoneyGal (Apr 24, 2009)

How long you figure the money needs to last, what do you think inflation rates are going to do over that period, how much money do you want to withdraw each year, how confident are you in the answers you are providing, and how much money management experience do you have?


----------



## ddkay (Nov 20, 2010)

Is this another one-hit wonder? nthego:


----------



## crazyjackcsa (Aug 8, 2010)

You know it! I was going to respond with my standard one-hit wonder reply, but I decided against it.


----------



## blin10 (Jun 27, 2011)

500k is not enough unless you want to gamble and buy some high risk stocks which yield 10%+... at 5% you'll get 2083$ a month, it's actually doable if you want to rent out shitty apartment, not have a car and no going out


----------



## Young&Ambitious (Aug 11, 2010)

Or one can become a hermit and move to the mountains and live off the land. Squirrel anyone?


----------



## Causalien (Apr 4, 2009)

In the spirit of discussion. How much do you need per month to survive? Assuming $5000 per month, hence $60000 per year
60000/500000 = 0.12 = 12%

Assuming average premium of 3%/month for writing options. You need 4 months of correctly writing options to survive, that's 4/12 months per year i.e. 33% of the months
Assuming also that you are good at assessing risk, options expires worthless 80% of the time. Therefore what are the chances of you being able to survive on 500 000 every year?
1 - (20% * 33%) = 93.4% chance


Assuming that you are age ~35. (for a 500 000 net profit you must've held from at least year 2003 till now. Which means that you must've been working at year 2003 when one of the bubble cities have on sale houses for ~250K and is now 750k. From here on to retirement you have 25 years.

Compound potential of survival is 93.4% ^ 25 = 18% probability that you can live till retirement with $500 000. Hope this answers your question.


----------



## IdleInvestor (Aug 21, 2012)

Causalien said:


> In the spirit of discussion. How much do you need per month to survive? Assuming $5000 per month, hence $60000 per year
> 60000/500000 = 0.12 = 12%
> 
> Assuming average premium of 3%/month for writing options. You need 4 months of correctly writing options to survive, that's 4/12 months per year i.e. 33% of the months
> ...


$$$$$$$$$$$$$$$$
Thank you all for your replies, questions, and advice!!
I am actually asking about something with a very specific focus. My current assets are just over 1M CAD$ consisting mainly of house (~500k), RRSP (350K), GICs (165k, joint with mother), cash ($30k), plus other assets from parent's inheritance (88yrs old). So I don't sense that I will have an issue with full or partial retirement at this point (I'm 56 yrs old). I want to preserve and grow the RRSP for as long as possible, and because the GICs are joint don't plan to liquidate or reinvest those yet. So my question is essentially how to invest just the $500k from the house to generate "predictable" monthly cashflow and minimize taxes and commissions. Yes I fully realize that @4-5% ROC it will not cover my living expenses, including rent (~1200/mo), just offset it somewhat preserving as much of the capital as possible. Perhaps a diversified portfolio of REIT(s), ETFs, govt bonds.
???
So I think my question boils down to, what would you do to make $500K outside RRSP work as hard and safely as possible these days?
PS: I also plan to apply for CPP at 60, so that will help a bit also.

Thanks again! 
$$$$$$$$$$$$$$$$


----------



## Potato (Apr 3, 2009)

Edit: sorry, I missed the "and inflation adjusted" -- all of the below is to try to hit 4-5% nominal.

Well, how predictable does the cashflow have to be? If that is a big criteria, then focusing on investments that pay out a regular yield is probably the way to go: so some mix of dividend stocks, REITs, preferred shares, and bonds. I'll assume for now that you don't want to build an active portfolio with individual names, and instead are looking for ETFs.

For dividend stocks: CDZ yields 4%.
REITs: ZRE yields 5%.
Preferred shares: CPD yields 5%.
Bonds: XSB yields 1.6% to maturity.

You can tinker with this basic set of funds of course, and there are many offerings that are more-or-less similar, but this is a decent sampling of what your options are in Canada. Exclusively looking here would leave you under-diversified globally, but for tax efficiency focusing on Canada may be the way to go.

So, you don't say what your RRSP is in, but let's assume it's 50% in fixed income, so combined with your $195k in cash and GICs, that's about $370k of your $1045k of assets. If overall you want to be roughly 40% in fixed income, then about $50k of your $500k should be in bonds (and depending on the flexibility of your definition, some preferreds). Then it's just a matter of deciding how to split the remaining amount. An equal split is simple, and I don't think a terrible way to go. So that would give you a portfolio of:

CDZ: $150k, throwing off $6k/yr in mostly eligible dividends.
ZRE: $150k, throwing off $7.5k/yr in a mix of return of capital, dividends, and other income.
CPD: $150k, throwing off $7.5k/yr mostly in eligible dividends.
XSB: $50k, throwing off $1.25k in interest and $0.45k in capital losses.

That's an average pre-tax pre-inflation return of about 4.3%, which should be fairly sustainable. CDZ may give a small capital gain, but that would be about it for expected returns. In going with this kind of strategy over a more traditional passive portfolio of broad indexes, IMHO, you're getting a more stable monthly/quarterly stream of income with a lower chance of long-term capital appreciation, and increasing your home country bias (there are US dividend ETFs, but come with currency exchange issues and may not be as tax efficient as a Canadian eligible dividend).


----------



## fatcat (Nov 11, 2009)

the key words are "safe" and "5%" (and won't be eaten by inflation)
when you hit on that combination let me know because going forward, that is going to look pretty good if all the predictions i read are correct


----------



## kcowan (Jul 1, 2010)

I have a friend in PV who lives off of $250,000 and has been doing it for 10 years. The secret is a strict budget and creative ways to save money.

He and his wife even joined us in France last year for a month. We rented the apartment in Paris and he rented the one in Nice. We split the cost of a rental car in Nice.


----------



## blin10 (Jun 27, 2011)

wonder how is that possible, you need to be yielding high %



kcowan said:


> I have a friend in PV who lives off of $250,000 and has been doing it for 10 years. The secret is a strict budget and creative ways to save money.
> 
> He and his wife even joined us in France last year for a month. We rented the apartment in Paris and he rented the one in Nice. We split the cost of a rental car in Nice.


----------



## Canuck (Mar 13, 2012)

I was in the same position as you a few years ago, I had two apartments (renting one and living in the other). I did the math and saw that selling them and investing would be better for me financially. I was able to rent back one of my apartment that I sold for $395,000 for $1500 a month (an out of town investor bought it from me).

Selling the 2 apartments gave me $750,000 to invest, I also had about $80,000 in savings.
In my gambling ways I invested the entire $830 into dividend paying stocks, I started about 18 months ago and invested it all by about Nov of last year. I yield approx $54,000 in dividends, a bit of ROC, and some partially taxed income from income trusts.

On Friday I was at my all time high, I just cracked a million, had to take a snap shot of my TD account. not sure how long it will stay above that, but it was fun saying (to myself) that I was a millionaire. 

the daily fluctuations can be a bit scary (to say the least), but It's felt sooooo much safer lately, not fluctuating nearly as much as last year.

I'm 46 so i feel like I can gamble a bit, and I watch everything like a hawk! I also own a lot of stocks so I can't get hurt too badly if one of them cuts their dividend or suspends it all together. I make sure to trim holdings when they get too large. Last week i trimmed Enbridge, Trap, Brookfield Renewable and inter pipeline, and reallocated to some beaten down energy plays. Obviously what I'm doing takes more time and energy but I really enjoy the market, so I don't mind, and of course I'll change my strategy a bit when it looks like interest rates are going to start rising.

I'm no expert, and I would NEVER recommend anybody do what I'm doing, but i have a feeling that the equity markets are going to do well over the next few years, so if you're asking for non-expert advice my recommendation is to go a bit heavier in equities.


----------



## OhGreatGuru (May 24, 2009)

I don't think that "safe" and "4-5% + inflation" are compatible in today's environment. But if you are willing to settle for "reasonably safe", 5-6% average (not inflation adjusted); and "reasonably tax efficient" RBC Monthly Income Fund is still highly rated. It's ~50% Fixed Income, 50% conservative CDN equity. Low-than-average volatility. Monthly distributions can be atomatically paid out to your account, instead of re-invested. Distribution of earnings between interest, dividends, & capital gains will vary from year to year, but have some tax efficiency. The benchmark for distributions is the 5-yr. GIC index, and you can make capital withdrawals at any time. 

The fund has never yet had to suspend distributions, although the prospectus will warn you that is a possibility. If you have other income sources to tide you over in a bad year when distributions are low, you should consider a fund like this.

TD monthly Income is also highly rated for its class, but slightly more volatile than RBC, due to higher equity allocation.


----------



## Square Root (Jan 30, 2010)

i don't understand why people are so willing to give 2.5% of their income away to fund companies. I don't think diversification is worth this cost when the Canadian market for solid dividemd payors is so small and well understood. If tne yield is 4-5% you are giving more than half of it away hoping to make this up in capital growth. Seems like a bad stategy to me.


----------



## blin10 (Jun 27, 2011)

any updates on what you did ?


----------



## Rusty O'Toole (Feb 1, 2012)

Have you considered convertible bonds? They offer a guaranteed return somewhat higher than regular corporate bonds with the possibility of stock like appreciation .


----------



## IdleInvestor (Aug 21, 2012)

blin10 said:


> any updates on what you did ?


Hi everyone. I'm not planning to do anything until next summer, and hopefully house prices have held close to current values.
The first thing I will do is open up and max out a TFSA, then possibly add some more to daughter's RESP (using the 20% govt grant) then open brokerage account and put remainder into cash. What I do next is still under consideration. I am reading everything possibly on various strategies but will likely deploy some diversified ETF portfolio. I am tracking the Couchpotatoe and another low-MER version of that as virtual portfolios to see how they do in the meantime. I am going to let my RRSP grow and leave that untouched but wondering if unemployed maybe I should be drawing upon that instead due to my low tax bracket and future clawback on OAS etc?


----------



## riseofamillionaire (Feb 23, 2012)

IdleInvestor said:


> will likely deploy some diversified ETF portfolio.


Probably the best idea for someone your age. If you are into stock picking, check out some small, low float, underfollowed dividend payers - there's plenty on the TSX if you look hard. It's a good way to diversify and do something totally different. It would probably fit in well with your asset mix assuming most of your other investments are mostly large cap oriented. (not sure about this tho) Best wishes


----------



## kcowan (Jul 1, 2010)

We sold our house in West Vancouver for $0.75 million in 1997 and rented a 3300 sq.ft. penthouse apartment for $2530/month. To stay ahead of our rent, we needed 5% APR or to account for income tax just under 7%. This is offset by the fact that utilities are included, including electric heat. During that period, we beat that investment target.

And we saved any maintenance expenses during that period. I would say that today it is marginal based on the current returns but it is a good way to hedge away real estate capital exposure. And, of course, the penthouse is considered even more luxurious than the house was. So we could have saved money on rent.


----------



## My Own Advisor (Sep 24, 2012)

@kcowan, seems very smart to me....nicely done!


----------



## Uranium101 (Nov 18, 2011)

There are some risks to renting being that leases are harder to negotiate from time to time.
But I am sure the market is currently full of rental properties by now, so it won't be a problem for the next decade or so.


----------

