The Case for Buying Your First Home Pt. 2
🌱Homes Grow Equity🌱
Remember what I was saying earlier about wealth being a matter of what you own and what you owe? The more precise term for this is equity, and you’ll want to focus on growing it throughout your life. There are many ways you can do this. For instance, a well-diversified portfolio of stocks and bonds, or of managed products (like mutual funds or ETFs), can grow your savings in line with — or better than — global market averages.
Securities like these are flexible, accessible, and well-regulated. For people seeking financial gains, but who are lacking a complex understanding of personal finances, managed products offer profitable, easy-to-use solutions and the peace of mind that comes with tailored investment strategies.
However, these securities are also prone to adverse market turns.
And herein lies the distinct advantage of home ownership. The real estate market is related to, but apart from, the overall equities market. When markets dip, people pull out their funds and invest them in tangible, physical assets, such as personal property. Meanwhile, when markets are up, people take the profits they’ve made and invest them into tangible, physical assets, such as personal property.
Do you see what I’m getting at here?
The home buying market in Canada has experienced a meteoric escalation of value precisely because the investment in question has such unique qualities.
Sometimes, people buy homes for sentimental value: they help investors feel like they’ve “made it” in their personal and professional lives. Other times, home ownership is taken on as part of a broader portfolio of investments that complements securities, cash, precious metals, and businesses. When people invest in homes, they rarely have just one reason in mind; but they always have an eye on future value.
Unlike the securities I mentioned above, the time to ownership prevents profits from being realized in the short or medium terms. The length of a mortgage stands as a serious test to anyone’s patience. But I never said that home ownership was the perfect investment.
Nor did I say that the real estate market is without risk. I would be remiss if I did not make mention of the 2008 financial crisis, and how it originated in a massive-debt driven pursuit of home ownership by millions of average investors.
However, these two points do not take away from the facts. Home ownership can net its beneficiaries enormous profits. Houses bought in the Greater Toronto Area in 1980s are now worth as much as four times what they were then. That’s an exceptional increase in value you won’t easily find elsewhere. And don’t even get me started on how much housing values have spiked within the Metro Toronto Area.
There exists no form of investment, as widely available to Canadians today, as home ownership, that has historically yielded such strong returns.
So, when you sit down to plan out your financial future, laying out your dreams of owning your own business, being your own boss, doing what you love, invariably you’ll arrive at two interrelated conclusions. First: whatever it is you’re planning, it’ll likely cost you a lot of money. Second: you’ll need to start investing in something now that can reliably generate the money you’ll need to see your plans through to completion. To put it simply, you’ll need equity.
And with everything you’ve just read, don’t you think you ought to give home ownership a good look?