For Torontonians looking for a steady and continual return on their investment, buying a real estate property is a safe bet. During the frenetic days of the 80’s, baby boomers started buying houses in a frenzy, driving the Toronto real estate market and markets around the world to new heights. This housing boom created almost instant wealth for home owners and investors alike. While real estate is a relatively safe investment, it does fluctuate constantly. There are times when the real estate market has declined. However, if you consider the average price of homes in Toronto and the surrounding areas in the past ten years, you’ll find that real estate prices have risen significantly.
One cannot accurately predict the price scope of property market. Although one might not witness a sharp rise in the house prices, investment in property has two key aspects going in its favor. Firstly, you need not pay any tax on the capital gain amount of your principal residence. For instance, if the price of your house appreciates by 6 per cent, you have full rights on the gain amount. While 6 per cent may not sound alluring, but when compared the same with the fixed-income investment, it is considerably more profitable. In a fixed-income investment, you would need to earn up to 12 per cent (after paying tax) to match the 6 per cent return on a real estate investment.
Secondly, real estate investment does not require 100 per cent down payment. In the case of conventional mortgages, 25 per cent of a property’s appraised amount is required for a down payment or as the initial deposit amount, whereas 5 per cent down payment is required in the case of a High Ratio Mortgage. For instance, consider a house worth $400,000. For a conventional mortgage, the buyer has to pay $100,000 as down payment. . In the course of time, suppose the value of the house is appraised to have increased in value by 10 per cent; that is, the value of the house becomes $440,000. In that case, you have invested $100,000 and earned 40 per cent as real “gross” return. However, since this is your gross return, the real return might be less.
So, investment in real estate is considered to be a powerful and profitable savings plan.