Not your average, why you should buy now,because I'm in sales post. A real world example of buying real estate for retirement wealth.
For example, we shall use a first time home buyer that buys a home for $300,000. Are there some properties in that price range? You bet there are.
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At 5% down, you will need $15,000 for a minimum down payment. Chances are the mortgage rate you can get is 3%. Possibly even lower. That's why you should talk to a Mortgage Specialist like this guy: http://scottbourke.ca/
The strategy I am suggesting is buy now, and don't sell for at least 10 years. With that in mind, if I were to take the same amount ($15,000) and invest in the stock market I would need an annual return of 25 to 26% every year for the next 10 years to grow that $15,000 to $150,000. Do you know a stock or a fund that can do that?. (see chart below).
|Lump Sum Investment||$15,000|
How about real estate?
I take my down payment, and buy a $300,000 house. My principal mortgage will be $285,000. (**not including CMHC Fees**). According to our friendly mortgage guy http://scottbourke.ca/ our options for rates may look like this:
Note the above estimate includes CMHC Fees.
Whoa... Hold it, you said $15,000. A mortgage has monthly fees!! Well do you have to live somewhere? If you're not paying a mortgage then I would presume you are paying rent. Stick with me on the monthly payment...
Now, buying a house for $300,000, getting a $285,000 Mortgage + CMHC fees= mortgage amount of $295,000 +/- as noted above. If you make ALL the monthly payments your principal will be paid down so that balance owing the bank is $209,211.
$300,000 - $209,211 = $90,789. $90,000 of home equity is not to shabby, but we're not at $150,000 yet are we. Where does the other $60,000 come from?
Well, it may be hard to imaging real estate prices growing in the current short term, but over the long haul would you be comfortable with Cost of Living increases in value of roughly 2% every year? Slow, modest growth. I know, you'd like more, but 2% is realistic in my humble opinion. Back to our Purchase...
Our $300,000 house, it may go up, it may go down, but over the long haul (10 years) let's pretend we agree that your house will increase by 2% every year. What would that look like, and what would be the value when you plan on selling?
|Lump Sum Investment||$300,000|
Looks like we might expect $65,000 in capital growth, combined with Principle decline a.k.a Equity Growth of $90,000. By living in the same house, for 10 years, you've turned that $15,000 into..... $155,000.
That is the power of leverage, and why you should buy real estate NOW.
"Yeah, but what if I invested that same monthly payment into my mutual fund?"
Sure, perhaps you're already mortgage free, or live in mom & dad's basement... That same monthly $1528 every month, added to our $15,000 lump sump initial investment? What would that look like? Well it might just look like this:
|Lump Sum Investment||$15,000||Annual Payment|
Can you get a 10% return every year, year after year in a stock portfolio? Possibly. That's what you would need to turn $15,000 into $150,000 while making $18,336 annual payments. Perhaps buying a home is much easier.
Your Friend in Real Estate,