For those wanting a steady return on their money, houses can be a sure bet. When the baby boomers started madly buying houses in the 1980s, suddenly real estate seemed like the path to instant wealth.
The eighty-three Toronto and Richmond Hill real estate markets fluctuate constantly. There have been times when house prices have gone down. However if you look at the overall price of homes in the GTA and the Mill Pond area over the last 10 years, prices have risen.
Where is the Toronto housing market headed? Nobody can accurately predict. But even if house prices don't rise phenomenally, a home has two strong things going for it as an investment.
First, any capital gains on your principal residence are tax-free. If your house appreciates by 6 per cent, you get to keep every cent of your gains. Now 6 per cent may not sound like much, but in terms of how much you end up with, you'd have to earn as much as 12 per cent on a fixed-income investment such as a GIC to match that return, after tax.
Second, you don't have to come up with the full purchase price, meaning you're able to harness leverage. The conventional mortgages require a down payment of 25 per cent of a house's appraised value. Where as the High Ratio Mortgage, requires only 5% down payment.
For example, if you buy a $700,000 home in Richmond Hill's Heritage Estates, you need to come up with around $175,000 for a conventional mortgage. If the home's value rises to $770,000, that's an increase of 10 per cent. But what's really happened is you've put up $175,000, and made $70,000. Your real gross return on your invested funds is around 40 per cent. But notice the word “gross”. Don't forget that your real return would be somewhat less when you factor in any maintenance and selling costs.
Foe the vast majority of people, buying a home and having a mortgage is a tremendously powerful forced savings program.
In fact, a home is likely your safest and possibly your most rewarding family investment.
Be sure to contact Jim Reid to discuss your specific property investment options.