Buying or renting a home is one of life’s biggest decisions – and one of its biggest financial responsibilities. We have seen record price-rise in Vancouver region in recent years. Regardless of this recent price rise, demand for houses is going up. Every time we sit with a home buyer they ask questions like, “Should I buy now or wait?” Or “How much my house would be worth in a year from now?” I strongly believe that A home owner’s net worth is 30 X GREATER Than that of a renter. By buying a house you are putting your housing cost at work for you. Simply put, homeownership is a form of ‘forced savings’. Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth. The Housing Pulse Survey from NAR reveals that 80% of consumers believe that purchasing a home is a good financial decision.
“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”
1 Enjoy the fact it’s all yours. It’s a cultural thing with Canadians to want to buy a home about 70 per cent of us do. Pride of ownership, the ability to decorate how you like (even if your favourite wall colour is purple), and the stability of knowing no landlord can force you to move are big motivators. People want peaceful life and are fed up of complaints of landlord about ‘wrongly parked car’ or ‘only two loads of laundry allowed’.
2 Put your money to work. Typically the biggest motivator is dollars and cents. Renting means every penny of your monthly payment is spent gone for good period. On the other hand, a portion of each month’s mortgage payment goes to reducing your principal it’s like putting cash into your own savings account rather than someone else’s.
And with time your home’s value will probably go up. Historically, housing values continue to rise steadily over time, thus creating a solid investment in your future. As they say in real estate, it’s not timing the market, it’s time spent in the market.
Then there’s the leverage factor. Let’s consider a hypothetical $500,000 house. A 20% down payment would mean an actual investment of $100,000. As your property value increases, however, you reap the benefit on the entire $500,000 so an annual increase of just 2.5% in property value translates to $12,500 or a whopping 12.5% return on your initial investment. Of course, you could always settle for something closer to the current return of 3% or less on a term note.
Most insiders agree that today’s historic low mortgage rates show no sign of bumping up any time soon. And while a 25-year amortization on a mortgage may sound like a long time, it goes by fast and suddenly you’re mortgage free with only property tax and maintenance to pay. Rent, on the other hand, never ends it only increases.
3 Make tax-free profits. Final thought to ponder. Although an RRSP should be part of every retirement plan, you will always need a roof over your head. You’re also forced to convert an RRSP at age 71 and begin withdrawing funds and paying tax on them. But only you choose when to sell your home. Best of all, when you do sell, that profit is tax free on your primary residence and after all, who doesn’t like to get a tax-free windfall?
4 Benefit from competition for your dollar. In today’s competitive market, developers are offering increasingly innovative incentives for buyers considering a brand-new home. No strata fees for a year or more, legal expenses, exotic vacations, upgrade packages, custom vintage wines, even cars have made appearances as no cost buyer incentives. Bottom line is that if you are interested in finding out if you could put your housing cost to work for you through homeownership, meet with a real estate professional in your area who can guide you through the process.