Real Estate - Home

Where We Live

Previous blogs identified real assets as a primary means of diversifying beyond stock and bond markets, providing more security as history rhymes over the next decade.

In my view, real estate is a key real asset and can be divided into three subgroups:

·         Where we live

·         Investments

·         Farmland

The plan is to provide a blog on each of the subgroups, intending to generate food for thought as you and your families make financial decisions in the coming months and years.  This blog will focus on where we live.  Our own home.

Purchasing a home to live in has been a Canadian norm for two thirds of our population for generations.  In most cases, our parents, ourselves and our children are/will be homeowners.

By circumstances of economic cycles and decades of government influence, our home has become more than just the place we live.  They have become wealth creators for their owners and inequality creators for non-owners.

Food for thought:

1.      ‘Excess’ home equity is that portion of total home equity which will be available for spending and investment after you downsize.  The remaining portion is consumed by acquiring the smaller home or the rent plus fees if that is your downsize plan.  It is wrong to consider your entire home price as available for future non-shelter living expenses.

2.      Accessing excess home equity for non-shelter living expenses while continuing to live in your home is an option to avoid downsizing.  However, it can be a relatively expensive option due to the fees and higher interest rates for lines of credit or a reverse mortgage.  Buyer beware.

3.      History tells us that that inequality will regress back to its norm – one where the younger generation can afford to buy a home with a decent income.  If you accept this history and further consider the regression will probably occur in the next decade, then consider if you think home prices will flatline or drop until regression is achieved.

4.      Cottages, cabins, second homes in Arizona and elsewhere - these belong somewhere between the categories ‘where we live’ and ‘investment’.  They are an extension of where we live, likely chosen for lifestyle ahead of investment.  But they are reasonably considered a capital gains type investment in the Canadian tax system.  Have a tax plan for this.

Your financial plan, whether do it yourself or with your financial planner, needs to include all these factors.  Otherwise, your plan is missing key facts.  Check your plan and Be Prepared.