It is well known that owning a home is a great way to build your wealth. Whether you’re buying a home in cash or financing it from a mortgage, the price of a house increases over time, in general. This means that your capital will grow, and since there is no capital gains tax on principal residences in Canada, you will see your wealth grow while being tax free.
More and more Canadians are seeing their homes as not only a refuge, but also a financial investment. According to Remax, house prices in Canada have increased by an average of 6.8% over the last 10 years. Interest rates are even lower than they have ever been and today is the best time to buy, despite the fact that the federal government has responded to rising real estate prices by creating regulations more severe mortgages.
Rent vs. Buy
Tenant or owner: the question of always. What is the best? What is the most lucrative? The answer is not so simple.
After one year of rent, the tenant gets nothing except a shelter. If that person had bought a house instead, a portion of his payments would have repaid a portion of the principal of the mortgage and would have increased the net worth of the individual. If you spread this analysis over 10, 20 or even 30 years, it is easy to see how a homeowner is much more affluent than the tenant: the owner builds his value by paying a monthly amount similar to that of a tenant.
However, if you move around a lot, renting might seem like the most logical solution. The same applies if you are retired and do not want to settle in a specific place. However, if you know that you will be staying in the same city for the long term, then buying is definitely the best option. The US Federal Reserve has shown that a homeowner’s net worth is 31 to 46 times greater than that of a tenant. What does this tell you? The other benefit of such an investment is leverage: in which other investment will you be allowed to run a fund of 5% of the first payment for equity to 95% of the debt? The opportunity to grow your wealth by owning a home is safe and unique.
Saving for the Retreat
The Financial Post reports that ~ 50% of Canadians have not contributed to their RRSP this year. Now that 70% of Canadian households own their homes, it’s easy to see why. The money you contribute to your RRSP is fully taxable when withdrawn, while your wealth that is developed through home equity increases without any tax burden.