Weekend Reading: Dividends, Rents, and the Illusion of “Income”
The dividends-versus-total-return debate has (mercifully) cooled. Most investors now accept there’s nothing magical about dividends – it’s just cash carved out of total return. The real “magic” is reinvesting, i.e., putting the slice back into the cake so it keeps baking. And yes, ex-dividend, a stock’s price typically drops by roughly the dividend amount – so if you ever needed “income,” you could sell a few shares and create your own dividend without changing your total pie.
Oddly, real estate investors often miss the parallel and treat rental income as the holy grail. But rent is simply one component of a property’s total return, alongside principal paydown and price appreciation – no different than dividends, capital gains, and interest in a portfolio.
Most of the “income” from a rental early on isn’t spendable; it’s absorbed by the mortgage, taxes, insurance, repairs, and vacancies (assuming you’re even cash-flow positive to begin with). You’re mostly converting tenant cheques into equity – great! – but that’s reinvestment, not free cash flow.
Here’s the uncomfortable part: once you’re retired, clinging to “rent cheques” can be a head fake. The relevant question isn’t “How big is the rent?” It’s “What net, after-tax cash can I use to fund my retirement lifestyle?”
This matters in the retirement “tax window” before OAS starts (and before RRIF minimums kick in). It’s often the most efficient time to realize capital gains on a rental: employment income has dropped, you may still have RRSP room to offset some or all of the taxable gain, and you avoid triggering an OAS clawback.
Related: Your Ultimate Guide to RRIFs – Strategies, Pitfalls, and the Secret Sauce to Retirement Income
A fully paid-off rental may throw off 2-4% net after realistic expenses and reserves. Selling during that tax-friendly window between retirement and the uptake of your government benefits can convert a lumpy, labour-intensive asset into flexible capital for the “go-go” years: travel, hobbies, vehicle upgrades, generosity to adult children, experiences that actually move the needle.
Not to mention fewer 2 a.m. tenant texts.
Rental income is fine when it’s truly positive after all costs and reserves. But the supposed nirvana of a mortgage-free rental property typically arrives just as the building turns 20–30 years older and starts asking for a new roof, furnace, flooring, and kitchen cabinets.
If your plan is to maximize lifestyle, not become a part-time property manager, selling in that pre-OAS window can be elegant tax planning that unlocks the full value of your wealth.
Why this works
- Tax window: Retired income is low; realize the gain before OAS/RRIF minimums. RRSP room (if any) can offset capital gains and any CCA recapture from past claims.
- Lifestyle leverage: Liquid capital funds big, time-sensitive goals (multi-year travel, home refresh, helping kids) that rents can rarely cover without stress.
- Risk swap: Exchange tenant, legal, and concentration risk for diversified, liquid assets.
- Reality check on “free cash flow”: Proper reserves for roofs, HVAC, and vacancies shrink spendable rent more than most admit.
Quick example
- Couple retires at 62 with one workplace pension, plus decently funded RRSPs, TFSAs. They also own a $800k rental netting ~$24k/yr before setting aside realistic maintenance reserves and vacancy.
- They sell the rental in the pre-OAS window and net ~$720k after costs and tax.
- Plan: spend an extra $60k/yr for 5 “go-go” years (trips, new vehicle, family gifts), then glide that extra down to $30k/yr for 5 “slow-go” years, then $0 thereafter – while core spending continues from pensions + RRSP/TFSA. Any remaining funds act as a margin of safety for future lump-sum expenses.
- Result: a decade that feels abundant, with lower lifetime tax drag and fewer headaches.
I don’t like to deal in absolutes as a financial planner, but in my experience you will never, I mean ever, derive more spendable and flexible income from your property through rent alone than you would by selling it and adding the net proceeds back into your personal savings pool.
Once you factor in maintenance, vacancies, property taxes, insurance, and the occasional big-ticket repair, the net rent a mortgage-free property produces almost always pales in comparison to the lifestyle flexibility and tax-planning opportunities you gain from unlocking that equity.
This Week’s Recap:
I wrote about the credit card combo you’ve been sleeping on, the Marriott Bonvoy American Express cards that gift cardholders an annual free night that more than offsets the annual fee(s).
I’ve also updated my post on exactly how I invest my own money (updated to reflect current account balances and that we moved our kids RESP to Wealthsimple).
Promo of the Week:
Sigh … speaking of Wealthsimple … perhaps one day I’ll be able to take advantage of one of their generous transfer bonuses. For now, our corporate investing account ($525k) remains at Questrade until Wealthsimple finally offers self-directed corporate accounts for business owners with multiple owners / directors.
Until then, I’ll continue to spread the word about using Wealthsimple’s excellent no-fee platform. If you’re the type of investor who buys and holds one or two Canadian listed ETFs, and can ignore speculative traps like options trading, crypto, private equity and credit, then you’d be well suited to use Wealthsimple.
Right now they are offering a 1% match on eligible account types (everything except for group accounts).
New and existing Wealthsimple clients can qualify for the Summer Match offer.
- Just open a Wealthsimple account (here, use my referral link and get an extra $25: http://wealthsimple.com/invite/FWWPDW)
Once you’ve opened an account, or if you already have an existing account, you’ll want to register for the new Summer Match offer:
Plus, for the leveraged investors out there you can transfer an existing margin account and get a 2% match.
- The deadline to register is September 5th, 2025.
- Minimum total transfer $25,000.
- Initiate your transfer(s) within 30 days of registration to qualify.
What’s the catch? I combed through the terms and conditions for you:
- Make account transfers totalling $25,000 or more into your Self-directed Investing, Managed Investing, or Crypto account(s) within 30 days of registration.
- Cash Deposits are not eligible.
- If you qualify, you’ll receive a 2% match on margin accounts, and 1% on all other eligible account types.
- Cash deposits into RRSPs or other accounts do not count as eligible funding.
- Internal Transfers between Wealthsimple accounts are not eligible.
- The cash bonuses will be calculated based on the cumulative account transfer amounts into a Wealthsimple Self-directed Investing or Managed Investing Account, up to a maximum of $2,000,000.
Remember, be sure to register before completing these actions to receive a reward.
In order to receive the Match Bonus, the Client must have a Wealthsimple Chequing account. The Match Bonus will be applied as twelve (12) equal monthly payments to the Client’s Wealthsimple account within sixty (60) days after the full Net Funding Amount has settled in the Client’s Wealthsimple account.
Weekend Reading:
No workplace pension? Here’s how to DIY your retirement income.
Regulators are warning consumers to be careful about taking financial advice from online influencers or so-called “finfluencers.” But there may be a more balanced perspective on social media financial advice that can help consumers.
Steadyhand’s Tom Bradley says that many investors are running hot and it may be time for a cold shower:
“Are you far off the plan you (and your adviser) laid out a few years ago? Are you taking more risk today than ever and using more leverage? Are you no longer well diversified? And if you’re wrong about a strategy or theme, will it wipe out years of returns?”
Here’s Aaron Hector and David Chilton on optimizing your finances and estate planning:
Many Canadians with disabilities are missing out on tax savings and benefits.
“Nobody is building new condos in Toronto.” Why Toronto is in the middle of a condo apocalypse.
Meanwhile in cottage country: Short-term renters have taken over, locals are mad as hell and town councils from Muskoka to Tiny Township are making everything worse.
Finally, Preet Banerjee says forget back to the office, let’s focus on back to the restaurant (and avoid using food delivery apps).
Have a great weekend, everyone!
You recommend Wealthsimple but if they have no fees where do they get their money from? Is there a monthly fee?
Hi Karen, Wealthsimple makes money from their robo-advisor (managed) platform where they charge a management fee of 0.40-0.50% of your portfolio. There are no management fees on the self-directed side of the platform.
They also make money from foreign exchange (buying US listed stocks and ETFs with Canadian dollars, and vice-versa), from more speculative options trading, margin accounts, crypto, private equity, and private credit.
Basically, most investors should avoid any of the activities that make Wealthsimple money, and stick to holding sensible Canadian listed ETFs, where you’ll pay no management fees or trading commissions.
Thanks for a succinct, and rational, argument for us to get moving on this aspect of organizing our financials. Great example in the article! Thanks
Hi Bob, thanks for the kind words – glad the article resonated with you.
Hi Robb,
I’m quite tempted by the Wealthsimple offer, but I am inclined to wait until retirement (1.5 – 2 years – hopefully there will be an incentive when the time comes. One question though about the incentive: Is it taxable? Will recipients of the incentive receive a tax slip?
Thanks,
Hi James, they’re quite clear that they won’t be issuing tax slips for these bonuses. I’ve heard the argument that the bonus is considered a “rebate of future fees paid” – sort of along the lines of a credit card welcome bonus (i.e. not taxable).
Re waiting with this until retirement: One thing to consider from the small print – there is a clawback on the cash bonus payouts if one withdraws over 10% (for this promotion) of the net deposited amount. From my experience, this is much harder to manage in retirement when I need to make regular withdrawals from Wealthsimple accounts for income.
Pets, thanks so much for pointing that out.
And thanks to Robb for clarifying the tax treatment.
This is a great read!
Thanks Cory, appreciate the kind words!
While still 20 years from retirement-ish, helpful to think about when to sell.
We chose an investment property in the mountains over owning our own property and it should be cash flowing relatively quickly, but not as much as you’d think, and the real gain as you say Robb comes at the end of the rainbow when we sell it.
Which to be fair is longggggg way away.
Lets see how this all plays out – thanks for the read!
Great article Robb. Yet again . We’ve got a few rental properties we’ll be selling over the next few years. Your reasoning as to the why and when one could/should do it make complete sense. You have a real knack for making the complex, well, less so! Clear, intelligible arguments – and with a superb example to boot. Super helpful as always. Cheers!
Hi Innes, thanks! I really appreciate the kind feedback – it means a lot!
Hi Robb,
I’ve been reading your articles for years now. And am with WealthSimple – very good experience with them and I love the cash bonus they are giving me! I retired last year at age 57. I am now trying to get a Canada Green homes loan from the Federal government. (Interest free loan paid back over 10 years). They are resisting my application because “The income must be sustained with consistent deposits like salary, self-business, pension, or monthly investment deposits.
Dividends and sell assets are not sufficient for this program.”
Very sad!