Let's face it: many of us don’t have a lot of money left over to save and invest at the end of each month by the time we’ve paid the bills and other necessities and had a bit of fun. But if you’re like me, you’d like what’s left over to at least be working for you and earning you some additional income if at all possible. The problem is that, for the average person, there just aren’t a lot of great options out there for getting any significant return on investing your extra hard-earned cash. Maybe you’re able to sock some money away in a savings account where it earns a truly pathetic little bit of interest, or in a longer term GIC (Guaranteed Investment Certificate) where it will earn a little bit more (but at the cost of locking it up for any number of years). There is, however, one significant exception that you probably don’t normally think of as an investment: a home.
Of course, I can’t speak for all areas of Ontario, but I can speak for the area in which I practice real estate: Kitchener-Waterloo and the surrounding region. This area is experiencing a thriving housing market due to the number of people moving here to study in one of several well-known universities or colleges, work in the high-tech industry, or find affordable housing close to Toronto. In fact, demand is currently outstripping supply, making it a seller’s market.
As a result, homes in Kitchener-Waterloo have increased in value nearly 10% over the past year! That’s a significantly better return on investment than most of us will ever get from anything else we’re putting our money into! Single detached homes have increased an average of 9.2% in value since March 2015, and townhomes have increased an average of 9.7% in value from this time last year. Not bad, eh? Especially for those of us fortunate enough to own a home here!
But what if you live in the area and don’t own a home here? Maybe you’re living with family or renting somewhere. Well, this is where the opportunity for a great investment comes in! With this kind of return on investment and with interest rates on mortgages continuing to be at an all-time low, if you’re even thinking of buying your own home now or in the near future, this is certainly the time to do it! This is especially true if you’re currently renting. By investing in your own home, your monthly mortgage payments are likely to be less than what you’re presently paying for rent each month, and the money you’re paying would be going into something that belongs to you and that’s increasing in value rather than simply disappearing from your hands and life forever as is the case with the money you pay for rent.
Buying a home requires a minimum down payment of 5% (which works out to only $12,500 for a $250,000 property). Considering the return on investment that buying a house now brings, does it make sense to wait for a couple of years and save for a larger down payment of 10% or even 15%? Only if you can set aside a significant amount of money over those next few years because while you’re trying to save up, the price of any house you want to buy will continue to go up, further increasing the amount you’ll need for a down payment. In other words, you’ll have to run faster just to stay in the same place, never mind build up some savings for a bigger down payment! Furthermore, even a 10% or 15% down payment will not result in significantly lower monthly mortgage payments (less than $100 between a 5% and a 10% down payment). In the meantime, you’re sacrificing an almost 10% return you’d get on your money if you were investing that money in a house via mortgage payments for the 0.05% interest or less that you’d get in a typical savings account at one of the big banks.
Of course, there are other factors to be taken into consideration in such a decision, including whether or not you qualify for a mortgage, what interest rate you can get on it, whether you actually have or can get a sufficient amount of money in hand for a down payment and other costs associated with a real estate transaction, and if you’ll be able to pay the monthly utility bills, annual property taxes, and occasional maintenance costs associated with home ownership. But in light of all the other options out there for folks like you and me, home ownership in the Kitchener-Waterloo area right now is hard to beat for getting a great return on the investment of your hard-earned money!
Got questions? Interested in knowing more? Want to know if you qualify for a mortgage? Then get in touch with me by posting a comment, sending me an email, or firing me off a text message.
I’m here to help :)