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An Appreciation for Home Ownership

Let's put things in perspective: homeownership is a great achievement and a terrific investment. But make sure you can afford it before you take the plunge. Once you determine you have the ability to cover all your housing costs then it's time to go for it.

In most markets, homes appreciate at about 4 percent a year. Let's say you buy a home for $200,000 and put 10 percent down. That's a $20,000 outlay. If your house appreciates 4 percent, that's a gain of $8,000. So you just made $8,000 on a cash outlay of $20,000; that's a terrific 40 percent return on your investment. I don't think there's a better investment out there, and we haven't even factored in the priceless emotional gain you get from owning your own home.

When you leap Into home ownership make sure you will land with your feet on the ground.

A long time ago I learned a great piece of wisdom: The hardest thing to do in life is to jump a chasm in two leaps. My message to you is that before you take the leap from being a renter to an owner, please make sure your financial house is in order. Once you determine you can truly afford to be an owner, then you are ready to go and take the leap into home ownership. You've done your homework, which means it is highly unlikely you will ever regret making this big financial move.

February 17, 2008 in Buying Toronto Real Estate | Permalink


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It's not just 6% on 180k. It's 6% on 180k plus the opportunity cost of your 20k at say, xyz% market returns on your investment.

Even after you pay off our mortgage, you have a huge cost - interest is the killer at the beginning of your mortgage, opportunity cost is the killer at the end of your mortgage.

Posted by: Rimsky | Feb 18, 2008 11:21:22 PM

I agree it's very misleading. You need to factor in the following:

Closing costs, utilities, maintenance, property taxes, and the interest payments will eat away at any appreciation you get in the first few years.

Good rule of thumb is under "normal" (not over-heated conditions) it takes 7-10 years to start 'breaking-even'

The interest cost is a killer at the beginning of your mortgage

Posted by: GM | Feb 18, 2008 4:49:06 PM

Not to mention the agent's fee upon sale which can easily eat up 3 years of appreciation.

Posted by: Re: money | Feb 17, 2008 3:52:47 PM

That's a misleading article! $8,000 appreciation, yes. However, you borrowed $180,000. @ 6% interest rate, you pay $10,800 interest. So you are negative 2,800. You also need to consider other costs like utilities and taxes. Compared this against rent, before making any judgement whether it is a good investment.

Posted by: jjs6w | Feb 17, 2008 11:06:07 AM

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