For most people, buying a property is one of the essential milestones in their lives. Throughout, have a family and build a great career. Some buy property as investment vehicles and others buy to enhance their lifestyle. However, there are other benefits that most consumers never consider.
Investing in residential property has proven to be more beneficial and profitable than investing in the stock market or other forms of savings. The Canadian real estate market has been exceptionally strong for the last 3 years and has done very well during the ongoing recession that began in late 2008. In Toronto alone, home prices have steadily increased by up to 5% year over year. In most cases it has been even more. Condo sales have never been higher and new buildings are transforming the city’s skyline. Old, inoperable properties are giving way to state-of-the-art housing complexes.
When you buy a home, you give yourself the opportunity to add to your life savings with every mortgage payment you make. By doubling your payments every few months, you can put yourself in a much better position. The amount of equity in your home will increase exponentially excluding any gains in value your home experiences during that time.
Owning a home or condo can also give you the impetus to purchase additional property fairly soon. A second property can be a great source of rental income. By focusing your financial resources on lowering your mortgage, you can be on your way to buying a second home pretty soon.
By surrounding yourself with experienced and knowledgeable professionals, you take the guesswork out of choosing the right investment property, increasing your own chances of maximizing property value. A good real estate agent can show you which areas of the city tend to appreciate the most in real estate value and future social trends there. And on the other hand, an experienced mortgage broker can find an affordable mortgage for you in the term and rate that suits your budget needs.
A good low-rate home equity line of credit can also be used to pay for your children’s college years. Contrary to most popular beliefs, continuing to pay for your house is more beneficial than opening a PRAE during your children’s younger years. The reason for this is threefold. By continuing to invest in your property, you will likely build up a large amount of equity beforehand that can later be used to finance your children’s college years. Second, the return on your property is likely to be greater year-over-year than any mutual funds or other holdings you are likely to own in RESP. Third, by their very nature, PRAEs are inflexible. In the event of an emergency, getting the equity out of your home without incurring penalties is much easier than breaking a RESP.
Peace of mind is an often overlooked benefit as well. Stocks, mutual funds, and other investment vehicles are tied to the stock market. Unlike real estate value gains, which are constant, returns from stocks and derivatives are volatile and their future value is difficult to predict. Due to their inherent risks, returns from them are not guaranteed and tend to fluctuate wildly. Time spent evaluating rates of return can be used elsewhere.
And finally, every time you invest in property, you’re not just investing in yourself and your family. Your assessed property taxes are used to improve local schools, community centers, municipal roads and libraries.