Buy the Location, Not the Home
Karen and Stephen are newlyweds who have found themselves working the most stressful second jobs of their young lives — searching the Greater Toronto Area for an affordable home. They set aside as much as ten hours a week to research mortgage rates and unit availability; another four towards budgeting and financial planning; and at least three, when eye-catching open houses are being hosted. The detached two-story home is more than just a place to settle down and have a family, for Karen and Stephen; it is an incomparable investment whose value only increases with age. And why should they think otherwise?
The often-repeated story of homeownership in the GTA is apocryphal, but widespread. It always begins with a couple very much like theirs, who — in the distant, simpler times of the 1980s — bought a home for a quarter-million dollars, and sold it three decades later at four times the price. Like any good story, the details are rarely important. What matters more is the sentiment.
But Karen and Stephen really ought to consider that piece of apocrypha more carefully, because it is deeply misleading. As counterintuitive as it may seem, what grew in value for that lucky couple in the 1980s was not the house in which they lived but the land on which it rested. Furthermore, while the land on which they lived prospered, the house itself declined. There is a term for this process — depreciation — and when most people are introduced to it, they choose not believe it. The idea flies in the face of common notions of stately homes and estates whose histories and antiquated styles connote priceless value; but no amount of resisting this makes it any less true. To put it simply, nothing gold can stay.
That newly built condominium tower will age, its windows will need replacing, its concrete fillings refilling. Canadian winters are hard. They wear at the foundations of even the most immaculate buildings; and, with time, these damages show. Bathrooms and kitchens are always the earliest to go, for they are the hardest used in any home. The water they run is a stopwatch on maintenance. A roof will leak; the drainage will plug. Doors that opened smoothly once will come right off at inopportune moments. The guests, in time, will notice this, too. They will take note of how dinner parties used to end in the kitchen (as all good parties do), but now finish off in the foyer. Karen and Stephen, once comfortable with having their guests go right to fridge to grab a drink, will find themselves the unpaid wait-staff of their own event — anything to keep close friends from seeing the present state of their once-enviable tile backsplash.
Renters are remitted from the pain of upkeep: what they sacrifice in future equity, they reap today in blissful dissociation. If the tiles go, they call the landlord; if the roof leaks, they call the landlord; the doors fall off, you get the idea. Owners have no such luck, though, for they are their own landlords. It is at their expense that these problems are solved. Like cars, like clothes, like all things material, houses are depreciating assets. Whatever their emotional value, they nonetheless inhabit the real, physical world, and therefore age; and when material things age, except in extraordinary circumstances, they lose monetary value. For those who do not wish to rent, understand depreciation.
It is the basis of business for all the world’s landscapers. The land is at least as valuable as the house; and, while the wood beams that uphold the structure wither away, the intelligently-chosen location will continue to grow in value. The house depreciates, while the property appreciates. Home hunters everywhere will do well to remember this lesson. It will ease their anxieties, especially if they are concerned about potential resale value, by helping them think less about the immediate conditions of their living — whether their house has one garage or two — and more about their communities. Is their city growing or shrinking? How close is it to critical industries? How are its schools, and what opportunities are there for employment? Do people in this community share common values, or is there widespread disagreement? Sometimes, there is a clear price tag on each of these civic conditions; other times, not. Those seeking homes for future resale value should accept this, however, as it is on these same imperfect grounds that later buyers will be making their decision, too.
For Karen and Stephen, the dream is a leafy, two-storey, three-bedroom Edwardian house in the Greater Toronto Area. The reality is a termite problem and baseboards that sound like jumbo jets in takeoff. The house declines, but the property thrives. When you sit down to write your homestory, remember these words. Buy the location, not the house. Nothing gold can stay.