First Home as an Investment

Your Mortgage Guide

Why You Need to Look at Your First Home as an Investment: Tip for First Time Home Buyers

Buying your first home as an investment is the best and safest way to grow your wealth.

You have an imperishable and secure asset able to give you back ever-increasing value. It pays you month after month, whether you are working or not as long as that payment is made. Your first home becomes the keystone of your wealth.

Buying a home is on the list of priorities as soon as a couple ties the knot. Many of them start looking to buy a perfect house as their first home.

This adds a layer of emotion to the decision and they may sacrifice a rational decision at the altar of perfection.

It is this quest for perfection that leads to several of the common mistakes made by first time homebuyers.

Long story short – it is imperative that you look upon your first property as an investment and not as your forever home or your sense of worth. It will bode well – both for your experience of being a home owner and the value of the property you end up buying.

Its Expensive, Yet a Worthy Investment:

Buying a house is more expensive today than it has ever been in the past.

And Its going to be more expensive tomorrow, or at some point in the future. That’s guaranteed. The low rate of mortgage and increasing demand for housing in Canada are pushing up prices everywhere in the country.

Though the housing market has come to a standstill with the COVID-19 lockdown and there may be less demand in the wake of massive job loss, this will have a temporary effect. Once the economy picks up, Canada’s real estate prices look set to surge riding on low interest rates.

Be sure – you are not going to get your dream home on your first purchase. But you have a chance to turn these odds in your favor and make the most of it. Instead of shopping for that dream home, I urge you to look for the best investment opportunity, i.e. your first home as an investment. Why?

You get on average a 50% return on investment on the principal pay down of your mortgage. Yup that is right.

The 50% of your payment is going towards the principal of your mortgage. An inflation rate of your home will be anywhere from 3% to 5% on average assures a 100% return on investment on average on the purchase of your first home.

For example, lets assume that you make a purchase of $600,000 home with a down payment of $35,000. This equates to a mortgage payment of $2,500.16. On the very first payment, $1,380 goes toward the principal of the mortgage. Over the first year $16,380 is going towards the principal balance of the mortgage. Now let’s see the inflation – at 3%, it is $18,000 and at 5%, it is $30,000.

So, the total return on your down payment, which is your investment into the home is, lets be conservative and use 3% inflation, is $34,380, which is a 98.22% ROI on your $35,000 investment.

If you can take the emotion out of the house and look at your first home as an investment, you can focus on the best deal and this makes the most sense. You do this, and your house will be the catalyst of your wealth, net worth and financial security. There is no better investment you can make at this point in your life than a house.

If you are considering buying your first home as an investment option, let us know. We can help you find out the best possible mortgage.

Incentives for First Home as An Investment:

The benefits of turning your first home into an investment surpasses advantages of any other type of investment in the long run. This is why majority of buyers view the appreciation in the price of real estate over the years as a key attraction. However, it is the plethora of incentives and benefits associated with the first home buying that encourages many to consider the first home as an investment option.

If you are a first-time home buyer in Canada, you can apply for financing a part of the mortgage through a shared equity from the government. Apart from this, you get $5,000 income tax credit and up to $750 tax relief on your first home purchase. You can also withdraw the maximum amount of $35,000 from retirement savings plans for the same purpose. Buyers also get tax rebate on GST/HST for buying, building, or renovating a home.

First, it is a good investment without requiring you to have substantial savings. Now you have tax rebates and credits with shared equity facility. No other investment vehicle is able to offer so many tax benefits as buying your first home.

To know more about incentives for first time buyers, please get in touch with us.

It’s Another Source of Income:

Whether you live in your first home or rent it out, your first property as an investment opportunity provides a good additional source of income. A recent survey by the Canadian Imperial Bank of Commerce reveals that nearly a third (31%) of homeowners prefer to rent out a part of the house they live in. The 18-34 age group has highest concentration of such homebuyers. About 54% cite additional financial benefit as the reason for renting out their homes.

The same report also discovered that 1 in every 4 Canadians have already rented their homes while 2 in every 5 prefer to buy their first home as an investment to earn if get a chance. Even 34% of them look to invest in real estate to generate income at present or after retirement.

Three-fourths of homeowners argue that investing in properties is an ideal solution for rental income, thanks to tax reliefs even if the tax flow is negative.

Tax deductions enable homeowners to claim yearly rebate on current expenses incurred on a property. You can also claim multi-year capital expenses as part of deductibles.

I will give you an example, I bought my first condo on my own when I was 25 years. 

My first actual purchase was a house with a basement which I bought with my brother. I was 19 back then.  My brother and I lived upstairs and rented out the basement.  Now, I can’t remember what the actual numbers were, but I know the rental drastically dropped the expenses of the household.  Then when I was 25 years old, I purchased a condo and rented out a bedroom to my friend.  This cut my expense down in half.  For example, if the mortgage payment was $2000 a month, I was renting out the bedroom for $1000 a month and the way I looked at it was, my friend was paying the interest cost of the mortgage. My portion of the payment was going into building equity.  In my mind I was living for free and my expenses were a mandatory savings account.

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First Home as an Investment Better Option Than Stocks:

Real estate value in Canada has gone up substantially in the last decade giving a greater return on the investment. A comparative analysis of Canadian real estate investment and the stock market over the last 20 years favors the formers. Let’s see how.

Though the stock market gave 6% average yearly return compared to 4% median rise in property values in the last two decades, it is the real estate option that gives a safer and better option leverage investment through financing. This allows a much higher return. For example, if you are buying your first home and are ready to invest $100,000… you can buy a house worth $400,000. First-time home buyers can easily get 75% financing. At 4% annualized return, it becomes $876,449 after 20 years. Even after repaying the mortgage at 3% per year, you make a gain of $476,148, which is 470% higher return. This does not include rental income and tax rebates, which can be offset against fees and other charges.

If you invest $100,000 in capital market, you get $100,000 worth of shares. At 6% annualized gain, the return stands at $320,713 or 320% after 20 years. This clearly indicates a better option when you buy your first home as an investment.

Enables Greater Financial Muscle:

Your investment in real estate gives you more financial clout. First, you have a secure investment that is certain to boost your total wealth. You can take loans against your asset and even liquidate when you need money.

Besides, the rental income gives you an additional income. Having an extra source of income is handy when you need a loan or spend more to buy the luxuries of life.

If you are going to stay there, you can save the money you’d normally spend paying rent. The purchase of your first home as an investment option is sure to give you more benefits down the line. It is assured that the value of your asset will go up with time. Real estate is the only tangible, risk-free investment where there is no scope for depreciation.

Also, as you repay the mortgage your credit score goes up. This helps get future loans easily and without any obstruction.

With mortgage rates in Canada at rock bottom, it is time for you to seriously think of buying the first home as an investment. The sooner you make a decision to invest in real estate, the greater the benefits. However, buying your first home as an investment requires you to have a sound knowledge of the market and the ability to make a perfect assessment of your needs as well as the trends.

For this, you need a lot of information and support. Your Mortgage Guide is ready to help you. We can assist you in finding the right property, the most-suitable lenders, and getting a mortgage easily – all essential to notch the highest value investments. Let’s know how we can help you.