Searching for a home can be an exciting time but it can also be a stressful endeavour. Sometimes, when you’re in the house hunting phase, it can be difficult to see the forest for the trees; we’d like to offer some insight on how greater clarity might be achieved. Please note that in this article we are addressing buying a home rather than an investment property, where the decision criteria can be very different.
TIP #1 BUY FOR THE RIGHT REASONS
When choosing a home, buy for the location, the house plan, the neighbourhood, the school catchment…any and all of these are great and valid reasons. Try to remember that the primary purpose of buying a home should be for providing shelter. With that in mind, we suggest viewing your potential new home with the lens of ‘Where do I see my family flourishing?’ rather than ‘How much will this property appreciate over the next few years?’
TIP #2 BUY WITHIN YOUR MEANS
This may be a simple concept and yet seemingly impossible given current market valuations. But for your own sake, we advise to not take on debt you cannot service. If you’re in a situation where you’re having difficulties finding your dream home and feeling tempted to go beyond your budget, consider making some sacrifices from your wish list. If that seems painful, think of the alternative: having to work longer instead of enjoying your retirement years or even worse, defaulting on your mortgage and having your home re-possessed (this can and does happen unfortunately.)
TIP #3 DON’T RELY SOLELY ON YOUR HOME AS YOUR RETIREMENT NEST EGG
The chances that your home will appreciate over the next twenty years may be high, but don’t bank on that alone. After all, you could get caught in a market correction, severely crippling your retirement plans should you choose to put all your eggs in one basket. Your home should be a place of dwelling and any appreciation or gains eventually made should be considered a supplement to a hopefully already healthy asset base. If this seems highly idealistic, go back to Tip #2: buy within your means such that there is still some cash flow available to save through other vehicles such as RRSPs.
TIP #4 DON’T BE AFRAID TO WAIT
Too often, home ownership is viewed as a panacea but renting has a time and a place as well. With renting comes the advantages of no property taxes, no strata fees, no maintenance/upkeep costs, etc. It may be tempting to presuppose that real estate will always go higher over the longer term but with increased borrowing costs on their way combined with already lofty real estate prices, buying into an expensive market hoping prices will trend higher still, especially over a shorter time frame, can be very risky. Sometimes, in a rising market, the best course of action you can take is to wait.
As we conclude our home-buying tips, you may be wondering why an investment firm is offering real estate advice. This stems from our desire to see clients well diversified and while being house rich and cash poor may be inevitable for a period of time, we hope to see our readers striving for a well-balanced portfolio containing stocks, bonds, and alternatives in addition to real estate.