Is Your Home an Investment?

Posted on October 30, 2007 at 4:37 pm
Filed Under Financial Planning, Mortgage Planning, Real Estate

An article was published today in the Financial Post making the statement that “Your Home is Not an Investment”.

We agree with this statement for two specific reasons. The first is that an investment will generally have a “tangible value that can be exchanged for cash”. Although it can be argued that this is true for your principal residence, the only way you can “access” that cash is to sell your home and then buy a less expensive home and thus bank the difference. The second reason is that most investments are “held with the purposes of generating a gain, creating cash flow or both”. Despite the growth that most homes will generate, that cash is rarely accessible until or unless the next purchase is smaller then the value of your current home, thus creating a surplus.

Your Take-Away: In our opinion, your principal residence is the place you call home and where you create lasting memories with your family. Relying on your home as your primary investment is not a wise decision as your liquidity factor is minimal if not entirely non-existent. If you want to pay your mortgage off early for the purpose of becoming debt free to create additional cash flow which can then be redirected towards your investment portfolio, great. Just consider the benefit of making your annual lump sum deposit towards your mortgage into your RRSP first, and then using your tax refund towards your annual mortgage pre-payment privilege.

Again, each situation is very unique and this is not a “one size fits all” strategy. Talk to a Professional before deciding if this makes sense, but definitely take a serious look at whether the above points make enough logical sense to consider viewing your home as an investment in a different light.

Until next time, have a great day!

Chris

Bookmark to: