By Jam Michael McDonald, Zoocasa
Special to the Financial Independence Hub
Buying a home takes a lot of planning and can be an expensive endeavour. You have to think about your down payment, your mortgage and mortgage payments, your expectations on your space, your timeframe, your closing costs—the list is endless.
So if you’re spending a bunch of money, how can buying a home make you more financially independent?
First, change your perspective
Some investments are a lot clearer: put your money into this GIC and you’ll receive this return in this many days. It’s easy to see, easy to calculate, and easy to do.
Investing in real estate is an entirely different game, so you have to think of it differently. You’ll have initial costs, you’ll be forking out money, and you’ll feel kind of broke. And that’s okay. These “expenses” when buying a home should be looked at as part of the overall investment. There are some that are pure cost—home inspection, lawyer fees, other closing costs—but they all allow the transaction to occur, and they’re not extravagant compared to the cost of the home.
Think of a real estate investment as long-term, not short-term; complex, not simple; hands-on, not passive.
You can make real decisions about your home to save you money
As a renter, have you ever received your hydro bill and become really agitated? It’s a common experience: you can’t control your heat (or you only can to a certain extent), so why should you pay for something you can’t control?
As a homeowner, you can make changes that could save you money, with some even boosting the value of your home. You can put in energy-efficient appliances, or replace the windows, saving you on your heating bill while improving the look and value of your house.
The flexibility to cut costs that you possess as a homeowner is far greater than as a renter.
With the right home, you can rent to tenants
If you have a house that has a separate apartment, you’re able to make back a chunk of your ongoing monthly expenses.
It’s common for homeowners to furnish their basements with a small kitchen, laundry, and other features, then rent that area to a tenant. That significantly increases your financial independence, and allows you to pay off your mortgage a lot faster.
You’ll be much better off in the long run
Early on, while you’re paying mortgage payments and property taxes, you may think buying is not providing you any independence. The costs are comparable, or even greater while owning a home.
As a reminder, (assuming everything goes to plan), paying those mortgage payments is temporary. Once you’ve paid off your mortgage, your living expenses drop considerably. The greatest financial independence buying a home gives you occurs when your mortgage is out of the picture. Think of the decision to buy a home as one your future self will really appreciate.
If you’re skeptical, consider this
Some people are wary of buying homes. They look to Toronto real estate and the strong market in Vancouver and think it could crash. They worry about putting their savings into a down payment—all their eggs in one basket.
However, investing in real estate is and has always been one of the safest long-term investment strategies. Stocks can fluctuate, markets can change, but people will always need homes; as long as you’re not destroying your house, you’ll be able to sell. Even if the real estate market corrects itself, you can weather the storm, wait it out, or sell while it’s low and upgrade while it’s low.
Investing in real estate offers that flexibility which, in turn, perpetuates your financial independence.
Jam Michael McDonald is the managing editor of Zoocasa.com, a real estate brokerage based in Toronto. Jam writes about everything from raccoons to real estate. You can follow him on Twitter @mcjamdonald.