When asked about their best investment, many retail investors will respond with the same answer. Buying a house has been their best financial move.
Especially in markets like Toronto and Vancouver, real estate has been in a bull market that’s lasted the better part of two decades. Relatively small investments in each market 10 or 20 years ago are now worth much more, with values continuing to go up every day.
But many folks are guilty of only viewing the difference between the price paid and the value of the property today. It doesn’t include many important variables.
To crystalize that gain, homeowners would have to sell their property. This usually involves using a real estate agent at a cost of 5% of the home’s value. And then the owner would have to find another place to live.
There were also many incremental costs of owning over the years. Mortgage interest is a big one. So are taxes, insurance, repairs, maintenance, upgrades, and the cost of empty space.
These should all be deducted off the value of a property.
There are also opportunity costs. Home equity could easily be invested in stocks with the potential for higher returns going forward.
It’s still a good idea to buy a house. Pride of ownership is a nice thing to have, and dealing with landlords is a pain. But just remember to consider the costs of owning when looking at returns.
