Owning your primary residence can be a great financial deal. Mortgage payments amount to forced savings, a home is an inflation hedge, and capital gains are tax-free.
However, you can easily fritter away your Canadian real estate investing gains by excessive upgrading, or frequent moving. Here are 4 reasons why:
- Neighbourhoods limit home prices: Suppose nearby homes sell for $350,000 to $400,000. You spend $60,000 on your $375,000 home. Your new deck, furnace, etc. only raise your home?s value by $25,000, to the area?s top price of $400,000. As well, your renovations may not appeal to all buyers. For example, they may be more interested in room and lot size, the home?s layout or other factors.
- Additions have limited appeal: A new second floor or extra room may suit your needs, but will likely raise your home?s value by only half the cost of the extra room or floor. Additions are more costly and less functional than original construction, and buyers may have different needs than you.
- Swimming pools can actually hurt your property value. That?s because buyers who don?t want the expense or work of a swimming pool may cut their offer to reflect the cost of filling it in.
- Frequent moving has many hidden costs: For example, you?ll have to pay real-estate commissions, plus lawyer?s fees and related costs, as well as moving and possibly redecorating expenses. You may also face costly repairs to your new home if the seller skimped on maintenance.
Our Canadian real estate investing advice: When buying a home, try to choose one that will suit you and your family for as long as possible. That way, you limit your need to renovate or move. If you own a home, treat home-improvement or moving expenses as consumer items, not investments. They may provide enjoyment, but not profits.
Canadian real estate investing: View recreational properties in the same way as renovations and additions
From an investment standpoint, we continue to believe the family home provides all the real-estate exposure that most investors need. If you?re planning on buying property for recreational purposes, such as a cottage or a ski chalet, you should do so mainly for enjoyment.
That?s because these properties generally appreciate at a much slower rate than, say, a home in a major urban centre. Moreover, unlike your primary residence, you must still pay tax on gains on the sale of a recreational property.
If you?d like me to personally apply my time-tested investment approach to your portfolio, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.
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