A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step.
1. You may find it hard to get your money out. Some investments can lock in your money for a while, but you can usually pay a penalty and get your money out if you really need it (for example, a five-year Guaranteed Interest Certificate (GIC)). If you buy a home, you may find it will tie up most of your savings. Turning your house into cash means selling it or renting it out, and that can take a lot of time and effort. That’s why a home is not considered a very liquid investment.
2. You will pay very different kinds of costs. Most investments have costs like service charges, fees, or commissions. The costs to maintain a home investment are different, and many are hard to plan for. There are taxes and utility costs, for starters. Then there’s maintenance. On top of that, if you have a mortgage, you will pay interest – and interest rates can go up, making your home investment more costly to own.
3. Many factors affect what you will make. Some investments, such as GICs or bonds, give you a fixed rate of return, so there’s no guesswork. You can estimate the return on other investments, such as stocks or mutual funds, based on past results and other factors, but there is no guarantee what you will make. To predict how much money you’ll make when you sell a home, you have to look at factors such as:
* The average increase in housing prices over time, which runs between 2% and 4% a year in most locations
* The location of your home
* Your home’s size, age, and condition
4. You get the unique advantage of living in your investment. Most investments bring you a return in the future. A home can do that too, but with a home, you also get to enjoy your investment by living in it.
5. You are not just investing, you are also borrowing. A few lucky people have enough money to pay cash for their homes, but most people make a down payment and borrow the rest by taking out a mortgage. When you buy investments like stocks and bonds, you don’t usually borrow the money you invest – or at least, not as much.
6. You use different sources of information to research your home investment. Your real estate agent is your best source of information when buying a home. Find one you feel comfortable with, who seems to understand your needs and your budget. Make sure they are familiar with the area you are interested in. Of course, don’t overlook other sources of information. For example, people in the neighbourhood are often willing to share information that can help you make your final decision. Newspapers, books and the Internet also provide useful information. You can also talk to your banker or financial adviser.
Remember: Location matters when you’re buying a home
The return on investment for homes in some places is higher than it is in others. Whether you live in a small town or a big city, you get the same interest on a GIC. If you buy a house in a small town, you probably will not pay as much for it as you will for a similar house in the centre of a large Canadian city, close to public transit, shopping, schools, and entertainment.
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Contact the Jeffrey Team for more information - 416-388-1960
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