There’s a natural progression into adulthood. We finish school, get a job, find a partner and generally check all the same boxes as our peers (give or take). One big step on that journey usually involves buying a house. It’s a big financial decision that no one should take lightly.
Table of Contents - What Should You Buy First: A Home or an Investment Property?
But these days, not everyone is following the same roadmap. Fewer Millennials are having kids, just like fewer Gen-Z adults are choosing traditional jobs. And, across all groups, not everyone is choosing to buy a home to live in. Many more enterprising adults are buying homes not for themselves, but as real estate investments!
There are always going to be people who take the traditional path to homeownership, but there’s also a growing number choosing to get a jumpstart on investing.
Which is right for you?
The case for becoming a homeowner
There’s a reason many people can’t wait to buy their first home: It’s freeing! Being able to claim a homestead as your means not having to answer to a landlord or follow the rules of a rental agreement. You’ll have a free run of your domain. Beyond freedom, being a homeowner means choosing security. You own the place where you live, meaning you can’t be evicted and your rent isn’t subject to being raised (unless you have your home reappraised).
There’s a sense of stability and foundation when you own your home. Don’t forget about privacy, either! You’re not sharing paper-thin walls with noisy neighbours or flocking to a communal mailbox in the lobby.
On the financial side of things, there’s good reason to become a homeowner: Equity. You may sink tens of thousands into a down payment on your home, but you’re buying equity in the house and the land. In this way, your first home is a real estate investment—just not one you’re earning passive income from yet. Someday if you choose to move, you can rent out this house to tap into its investment value.
Finally, if you’re buying your first home and planning on living in it, there are several tax advantages and incentives that’ll help make it worth your while. You can even tap into your Registered Retirement Savings Plan (RRSP) for up to $25,000, so long as it goes towards the purchase of your home.
The case for buying an investment property
Forgoing your own home and buying an investment property might not seem as fulfilling in the short term, but it’s a wise move for the long-term. Someone else might be living in your house, but they’re also paying the mortgage and a premium to live there, which means the money in your pocket and equity in your name.
The prospect of owning a rental property first gets even brighter when you’re in a good lifestyle position. For example, maybe your rent is very affordable right now or you like where you live.
Or, you might have the opportunity to buy a property you don’t necessarily want, but that might make a great rental. These things lend themselves to investing, rather than owning.
Keep in mind, just because you’re not buying a home to live in right now doesn’t mean you won’t want one in the future. And, a rental is a great gateway for this. For example, you might use the passive income from your rental to save for another down payment. Or, several years down the line, you might flip your rental and use the profits to purchase a new home.
For people with their eyes on the horizon and their mind thinking long-term, buying an investment property first is a great opportunity.
Something in between
Ever hear of “house hacking?” The concept is pretty simple. You purchase a multi-unit investment property, turning one unit into your living space and renting the remainder of the units out to tenants. It’s kind of an “in-between” option that allows you to own your own living space, while still getting the passive income benefits of owning a rental property.
The downside to this approach is that it can sometimes be difficult to make a reality. Unless you’re buying a duplex or side-by-side, the cost of a 4+ unit building will require a much larger down payment than most people can come up with. And, because you’re not a proven investor or homeowner, you won’t have anything large enough to secure a private loan with.
If you can make house hacking work, it’s the best of both worlds. Just be prepared to share your quarters with tenants!
It’s a choice only you can make!
Owning property is one of the smartest life decisions you can make. Whether you live in your home or rent it to someone else is up to you! There’s no wrong answer. It comes down to your personal preference, financial outlook, lifestyle and long-term plans.
Which one are you leaning towards?
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