Home Ownership - Not Just Your Home But An Investment - The Pros and Cons

Home ownership has always been part of the dream for most, if not all of us; maybe it’s because we have accepted owning a home as our right, or even obligatory. However, it should not be taken lightly and all benefits and risks should be weighed. If you are contemplating on buying a home, you should know the pros and cons before signing. Here are some things you should consider.

1. Attractive Long-Term Investment

Purchasing a home is one of the best long-term investments you can make. Appreciation represents the increase in the property value over time and despite some dips in the market, residential real estate tends to rise in value. However, you should not expect the property's value to increase drastically in the short-term; but if you stay in your home long enough, there is a very good likelihood you will be able to sell your home for a profit. Although the actual house structure depreciates over time, the land on which the home sits appreciates.

2. Building Equity

Home equity represents the difference between how much you still owe on your mortgage and the value of your home. Your equity grows as you pay down your mortgage. You will really start to see a decrease in your mortgage balance once a larger portion of your payment is going toward lowering the principal amount and less towards the interest. Building equity does take some time and it is rewarding if you hold onto the property for the long run.

3. Location, Location, Location

While paying down your mortgage is the same structure no matter where you are, the market-value growth rate will vary over locations. According to The Canadian Real Estate Association (CREA), real estate prices rose by an average of 19.7% from September 2019-2020, Woodstock-Ingersoll area rose by 23.1% and the Greater Toronto Area rose by 11.6%. Location, Location, Location

4. High Upfront Costs

The cost of investing in a home can be high—there is more to it than just down payment and mortgage cost. You should be aware of closing costs and expect to pay anywhere from 1% to 3% of the purchase price, depending on the location of the property. Some of the most common costs that are included in the closing cost are; lawyer cost, land transfer tax, Title insurance, title search.

5. Potential Depreciation

As mentioned above, properties grow in value at a different rate depending on location; some very rural locations, your mortgage balance can be higher than the value of the property. This is on the extreme side of things, but for example regional or local economic conditions can result in home values that do not keep up with inflation. The long run to stay in the property is the key to seeing profitable results.

6. Pride and Financial Responsibilities

One very common benefit of owning a home is the pride that comes with being able to say that you own a little piece of the world. You can remodel, paint, and decorate without the need to get permission from a landlord. However, home ownership comes with responsibilities. Maintenance and upkeep are your responsibility and should be done if you want to reap the rewards down the road.

The Bottom Line

A home is an investment that comes with many benefits and risks. Weighing the investment pros and cons is important. A rational comparison can and should help you decide if home ownership is right for you.