In the short-term, real estate can appreciate, but it can also depreciate. It’s important to look at your purchase as a long-term investment. If you buy it with a sound mind, and hold it for a reasonable time, chances are you will come out wealthier. But, sometimes we’re not ready to buy a home just yet, and for a variety of reasons.
One of the top reasons people choose to rent is timing and lifestyle. There are a lot of upfront costs when buying a home, and a lot of fees to resell it. If you’re going to live in the home for the next 5-10 years, these fees don’t matter much. But if you plan on moving in a couple years, renting is the cheaper choice. Renting could also get you into a neighbourhood that you cannot afford.
Renting wins in the short-term
The monthly cost to rent compared to the cost of ownership are relatively equal, however, in the suburbs it’s often cheaper to rent a home than purchase it. There is an equilibrium effect in our market, that effectively balances the cost to rent and the cost to own. That’s because investors saturate the market with more units when market rents are higher than ownership costs. When there is more supply, tenants have more options and prices adjust downwards until the rent and ownership costs equalize again.
A home is an investment, but it takes a few years to actualize. While you own a home, you are paying off your mortgage and hedging your bets with the market appreciating. But there are significant purchase and resale costs that take around 2+ years until they offset the initial purchase and resale costs. This is why patient investors purchase real estate, and why most families choose homeownership as a long-term investment goal. With that being said, you need to purchase wisely. Pick a home in a good neighborhood that you can easily afford during the interim between jobs, or the economy slowing down.
a mortgage is good debt
A mortgage is not like a student loan. A technical person would say a mortgage is a loan that is repayable in monthly payments of principle and interest, amortized over 25 years, and renegotiable every 5 years. We say: A mortgage allows you to purchase a home you otherwise couldn’t afford. The bank loans you money at a low-interest rate, and you get to live in your investment, save rent, and benefit from any home appreciation. Mortgages are also very versatile loans, and can help secure your financial well-being. A mortgage is insured against the collateral of your home, so the bank is willing to offer you loans which you otherwise wouldn’t have access. A home equity line of credit is a line of credit insured against your home, where you’re only liable to pay the interest. This is a fantastic option if you run into financial trouble and need a break from loan payments.
when you do buy, it's time in the market that counts
Every real estate market ebbs and flows. Our government works to stabilize home prices, and ensure our peaks and drops aren’t too severe, but they can’t eliminate them. In a time when real estate needs a boost, the Bank Of Canada drops interest rates and increases first-time buyer rebates etc. When our market is too heated, they increase taxes for investors, they reduce incentives, and they increase interest rates. They cannot prevent or predict bubbles and booms, but they can do their best to protect our housing market. With that in mind, we say real estate is not a short-term investment. The last few years have proven great years in our market, but it cannot support itself indefinitely. We say buy something with the forethought that you will own it for a few years.
In most cases, average market price could drop 20% after you purchase your home and after 5 years you will still come out on top because of your payments into the mortgage.
It's more than bricks and mortar
A home isn’t just four walls and a roof. There is a non-monetary value to owning your own home. You can settle down knowing that you can’t be evicted. You can paint, replace the kitchen, or renovate the bathroom to your own taste. Buying a home opens more doors to the neighborhoods you want to live in, and the type of home you want to own. Seldom do you find nice condos, or homes with entertainer’s backyards up for rent. Usually, investors focus on buying maintenance free homes, and they look for homes with few breakable upgrades.
When it comes to buying a home. Follow your gut. If you want to enter the real estate market, but aren’t sure about where you want to live in the next few years, an option would be to purchase something easily rented out. Alternatively, if you have a clear plan for your future, buy something to your taste. We’re always happy to help you decide if you’re ready to buy, check out our guide to buying a home.
