Buying your first home is the best investment decision you will ever make.
You will build equity and reduce your tax bills while enjoying the benefits of being a home owner. Today’s low mortgage financing and modest house prices offer a golden opportunity to home buyers who are willing to put in the time and effort to find good value.
Your first home is always the best investment decision you will ever make in that all other investments are taxable.
Your principle residence is not taxable up to $ 500,000.00 in capital gains for you and your spouse. $250,000.00 if you live alone. In Canada there is no limit to the capital gains exemption on your principle residence. Most British commonwealth countries follow this system however check with your local tax department for current capital gains exemptions as new tax laws are written into the tax code every year.
Thus if you were to buy a home for $200,000 say at age 25. And this home was used as your sole principle residence. A general rule of thumb is that house prices double every ten years on average. This has been the case since the 1920’s. It can be that house prices fluctuates more or less than this in any ten year period depending on economic circumstances but in general over a long period of time this can be said to be true.
At age 35 you home would be worth $400,000. At 45 it would be $800,000 and at age 55 a value of more than $ 1,500,000.00. This may seem incredulous to many but it is only represents an annual house appreciation value of 7.2 percent per year compounded.
Even using more conservative estimates of house appreciation in these economic times in a low interest rate environment. If house prices were to double every 15 years or appreciate at 6.66 percent annually you could see that the home would be worth more than a million dollars before you reach retirement.
House price appreciation 6.66 percent annually
Age 25 home purchased for $200,000
Age 40 home expected worth $400,000
Age 55 home expected worth $800,000
Age 65 home expected worth $1,525,454
Incredible it may seem but factual. Don’t forget this would be 45 years later in 2058. With your mortgage long paid off the value of the home would belong 100 percent to you.
Your principle residence alone would make you a millionaire.
The second reason why your principle residence is a sound investment decision is your mortgage interest payments are tax deductible. Which means you will receive a tax refund equal to your tax rate on interest payments made to your bank. In Canada mortgage interest payments are not tax deductible. MostEuropean countries havesome form of tax refund on mortgage interest payments. Check with your local tax department as changes to the tax code are ongoing. However if you were to buy your first home under current tax codes and the tax rules were to change in later years. The new tax rules are generally applied to new mortgages and the existing mortgage holder exempt to changes. Again check with your local tax department for clarity before making your decision.
Consider Real Estate
Real estate has the potential for huge investment gain. Investing in a second home, cottage or rental property can be profitable investments when done wisely. A rental property can bring you a steady stream of income as well as capital appreciation over time.
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Make a plan and identify your goal
Stop wasteful spending
Acquire a good education
Find quality employment
Savings and investments
Buy your first home
Buy adequate insurance