"The correction is coming!" "The bubble is bursting!" "Better to rent than to own!"
These are some of the headlines in the media over the last few months. This, combined with "housing up 8% over 2012", and people start to wonder whether or not real estate is a good investment.
In light of many articles that tell people it is better to rent than have the headache of home ownership and the associated costs, I have been asked many times over coffee in the last few weeks, whether or not buying property is a good investment.
I have often wondered why people ask this when historically, many of the wealthiest people in the world have extensive land holdings.
Then it hit me. People are trying to get a clearer vision from their crystal ball, hoping to buy in the lowest market place with the expectation of realizing a profit in a couple of years when the market peaks. Our colleague wrote a good article about this aspect of buying real estate here -> “Welcome to the MISS OUT MARKET”.
Owning property (your own home vs. renting counts) is not a short-term investment. Sure there are some who speculate right and hit it big just like some pick the right lottery numbers. But most speculators lose, just like most lottery players.
My Uncle Keith gave me good advice many years ago. Some times I followed it and being young, some times I didn't. His advice was simple - when you buy a house or any other property, you need to look at the long-term. Plan to hold it for 5-10 years, pay down the mortgage and build up your equity. And you will do well.
Why does that work? Over time, something almost always happens - inflation. Only in rare instances, does the world see deflation in the marketplace. And yes, there are some corrections. Yes there are some products that go down due to technological advances that make the old models obsolete.
Over the long haul though, you will see prices go up. And not at the "3% inflation rate" posted. The City of Calgary just posted their rates for next year, for many things.
Transit up 5-14%
Recreation facilities up 2-5%
Waste and Recycling up 4-5%
Utilities up 7+%
Drainage up 4.9%
Sound like 3% to you? Me neither. Many economists will say the price of things double every 10 years. Except of course wages.
So when is it a good time to buy? The sooner the better. As long as you are looking for a long-term, 5-10 year holding. Because the magic of investment is a long-term plan, not speculating on the lottery, even if it is the real estate lottery.