I am going to first say, I am not an economist, nor an Investment analyst. I am a realist! I am going to write about wealth. What is wealth and how can we create it using real estate investment principals. The last thing I want people to look at this and say, wow, its another Tommy Vu commercial. So I will start off by saying that the economy we live in is very “fragile.” Regardless of the TSX, or the Canadian Dollar, or even the price of oil, we should be able to build wealth.
The focus of a fragile economy is beyond what I can summarise in a few paragraphs. However, I can first say the reasoning behind my rant because of what I see on a daily basis. I see the average person struggling to get in the market, putting a foothold in the wild west real estate market of the GTA. In order for the average person to get in they have to submit 5-10% down payment, a novel of paperwork, and a sample of DNA. For the ones that are currently in the market, it’s a great feeling, give yourself a pat on the back.
So now, how does this relate to wealth creation. The first idea behind my grandiose method is the principal residence tax free exemption. This is one of the major keys behind wealth creation, people have been accumulating wealth by living in their house. Its that simple, and also complicated. I am not going to get in the details of the actual CRA exemptions or legalities, but I will say that the gain created from living in your principal residence can be tax free. The average individual takes years to save a few bucks, but, by utilizing this exemption you can see that gain immediately.
Another method that has been proven is by using real estate as an investment. Rental income, can be generated from many sources of real estate such as commercial, industrial and most ideally the average home or condo. Many individuals I know have personally moved their market investments into real estate due to the fact they now want to see and feel what they have invested in. Long term investment into real estate can start small, there are options available where you can invest 5% in a new condo and the rent is guaranteed.
General appreciation of the property is one of the most common ways of building real estate wealth. Within the GTA we have seen over a 30 + year average of 5% appreciation of wealth. These numbers fluctuate annually and over the last few years have been in the 10% range. The latest figure of the average detached homeowner in the 416 is getting $8500 richer every month.
If you have the means, get yourself wet. This is not a sales pitch nor something that needs to be sold, I am only writing this because of amount of potential wealth being lost. I will continue with the other three methods that I live by in the next blog post.
For now, be smart.