Home Ownership in Canada is Over!!
Recently CHMC wrote that Home Ownership in Canada is over; is this fact or fiction?
The head of Canada’s housing-market watchdog says this country places too much value in the dream of homeownership.
“In places like Paris and Sydney and Hong Kong and Buenos Aires [and New York], people rent. Whereas here [in Canada] we glorify homeownership. We think it’s the only vehicle for savings,” Evan Siddall, president and CEO of the Canada Mortgage and Housing Corporation (CMHC), said in an interview with BNN Bloomberg’s Amanda Lang on Wednesday.
“This party ultimately comes to an end, and the people who are going to get hurt are young people.”
Crushing People’s Dreams for Headlines is Heart Breaking
You might have been thinking; “Rick, the only reason I am reading your blog is because of your headline; what makes you any different than the president and CEO of the Canada Mortgage and Housing Corporation (CMHC)?”
You are correct; I needed to find a way to engage you because Siddall’s thinking is flawed.
Siddall infers; we as Canadians think homeownership is the only vehicle for savings.
Does anyone not believe that the Canada Pension Plan, Old Age Security, Retirement Savings Plan, Company Pensions, Stocks, Bonds, are a vehicle for savings?
In previous blog posts, I refer to all of these savings vehicles as controlled savings, and as Canadians, we are all contributing to one or many of these savings vehicles.
I have written investment real estate is perhaps the only savings vehicle you get to control and have a say on the returns.
When it comes to other savings vehicles the government, your employer, your investment company, or others handling your money they have total control on where your money is invested and the returns you see on your savings funds.
Should you follow Siddall’s (a government employee) advice; you will be going down a road of what I call “No Control Savings Path.”
Read this additional blog post on your taking control over your savings. How do You Keep More of Your Money Over Time?
I know Siddall talked about homeownership, not investment real estate.
Homeownership, if used correctly, can create savings in two main ways and can lead to another form of savings I will reference further in the blog.
First, you have mortgage pay down; remember part of your mortgage payment goes to interest and another part of your mortgage payment goes to principal pay down; sell your home, and you have access to these funds.
Second, due to inflation and cost of living increases your property goes up in value; some places faster than others (ask anyone living in the Greater Toronto Area) In most cases over time you will see an increase in the amount you paid for your home; sell your home, and you have access to this second set of funds.
Over 5, 10, 15 or more years you have paid down a good portion of your mortgage and you have seen some value growth in your home. Principal pay down and value growth is the secret sauce to the third vehicle to savings through homeownership.
As a simple example I am going to use $100,000 (you are saying you can’t buy a home for $100,000) no problem; use the $100,000 as a base number to do your calculation or go online to your bank’s online service and do your own calculations.
Let’s use a 5-year term at 3.99% on $100,000 over a 25-year amortization. In 5 years you would have paid down the principal by over $13,000.
The value of your home at a modest increase in value each year of 1.5% would increase the value of your home over five years by approximately $7700.
Add your principal pay down $13,000 and value growth of $7,700, and you have roughly $20,700 to access.
Over our years of investment real estate investing, we have accessed these funds based on this exact method and used these funds to purchase more investment real estate.
We were also able to use the interest payments as a tax deduction. (You need to get professional accounting advice to ensure you are doing this correctly.)
Listen to Episode 22: VAULT TO REAL ESTATE SUCCESS W/ RICK HARRIS to learn more about investment real estate.
Having a fancy title shouldn’t make anyone’s advice your financial philosophy; weight out all of the facts.