If you’ve done any sort of financial planning, regardless of what stage you’re at now, the plan probably looked something like this:
- Pay off debts
- Save up an emergency fund
- Start investing for retirement
- Save for a down payment on a house
Buy a house
Why is it that buying a home is an almost automatic part of “responsible” financial planning?
Most of us grew up hearing about the “dream” of home ownership. We also hear that a home is an incredible asset. House values ALWAYS go up over time, and not buying one is throwing money away.
Let’s take a look at both sides and see what’s really going on.
A House As An Asset
An asset is something that makes you money rather than costing you money (that would be a liability). With real estate, it’s generally true that with a long enough time-frame, your house WILL go up in value.
If you buy a home for $300,000, live in it for 10 years, and then sell it for $450,000, it certainly looks like that was a good investment.
You have to live SOMEWHERE, and living in this home not only saved you a decade’s worth of rent, but also left you with more than you started with.
A House As A Liability
If you’ve never owned a home, it’s hard to imagine just how much money you can sink into them. First, you’re paying interest on your mortgage, and while, when it comes to Mortgage Rates Canada has incredibly low rates at the moment, that interest compounds over the years, greatly adding to the price.
On top of that there’s all of your regular expenses like property taxes, insurance, utilities, etc.
Then there’s repairs and other maintenance, which only serve to bring your home back to the value it should have been but rarely raise it.
Then comes the fun part – renovations! From DIY hardware stores, renovation TV shows, magazines, and other examples, it seems half the world is constantly convincing us that we should want to change every part of our home.
Quick weekend projects like installing that new toto toilet can cost thousands of dollars, and that new kitchen faucet you want can easily turn into a $20,000 kitchen overhaul.
While all this is happening, it’s important to remember that your house is NOT producing any income for you, and is only sucking money down a hole.
Make Your Money When You Buy
The time of purchase is when you make the real money on your home. Negotiate hard for a good price, and use resources like MortgageRates.ca to negotiate the lowest rates on your mortgage.
Being smart at the time of purchase is your best chance of profiting from the sale of your home, but always pay attention to your spending and never just assume your house is a good investment.