How many purchases are you making when you are buying a home?

It is commonly said and heard that a house is the biggest asset that the majority of us will ever buy. But while most of us delude ourselves into thinking that we actually know something about real estate, the truth is that very few have a handle on the complete real estate picture.  Just because you are reading this article or can search something about real estate on the Internet doesn’t make you an expert. If it could happen, then I would never need to consult with a doctor or a lawyer.

It's for this reason that you solicit or are offered the advice by real estate professionals to help you navigate the process of both buying and selling your properties. Now that we have established that, what follows in this article, is the answer to the question: how many purchases are you making when you are buying a home?

The question tempts you to think beyond convention, doesn’t it? If you answered one or two, you would be wrong. The correct answer is … well read on.

Number 1: You are buying the home, of course.  As you have to live somewhere, enjoy the joys of owning your own space and sharing it with your loved ones.

Number 2: You are buying an investment. Picture this: you buy a house and in 20 years pay off the mortgage. But the market value of the house remains exactly or close to what you had bought it for. Will you be happy with that kind of a return on your single biggest financial asset? Probably not. On the flip side, if the market value of your house doubled in 5 years, even though you didn’t make as many mortgage payments, you will be ecstatic.

Number 3: You are buying the money to buy the home. A mortgage is not an incidental expense. In reality, it is also a significant piece of the transaction. For every 1% rise in interest rates, home prices must fall by 10% in order for you to maintain the same monthly mortgage payment, because at the end of the day what matters is the monthly payment. So take advantage of low rates and add much more buying power to your purchase. You may also get a lower rate than what is being offered by simply adjusting your closing date or knowing when to apply for the mortgage.

Number 4:  You are buying a development opportunity. All other things being equal, you will be better off choosing the property that has the potential to improve upon it for financial gain. This could be as simple as finishing the basement or as complex as adding another floor on top of what is already there. Let’s face it, a development opportunity is “here and now” money. Unlike a mortgage or price appreciation, you don’t have to wait years to see the return. You can buy a property today, develop it and sell it in a few months to make a profit.

So there you have it, the total number of purchases you actually make when you buy your next property. Now that you know this, do you know the best practices to get the best of each of the 4 items mentioned above?

Formally educated as an Architect, Jagdeep Singh is Toronto REALTOR™ consulting on both resale real estate and new developments. Powerful Local Focus on Real Estate with a Global Perspective™.  This post is for information purposes only. Though effort has been made to ensure the accuracy of the contents, the reader is advised to verify the information independently. This post may contain contain information that is privileged, confidential and exempt from disclosure under applicable law. The reader is not allowed to reproduce it in any medium without the author’s prior written permission. Jagdeep Singh is a broker with Century 21 Heritage Group Ltd., brokerage (416) 798-7133 which is independently owned and operated. This message is not intended to solicit parties currently under contract.

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