4 reasons to buy your principal residence first, and investment property later
When you’re buying your first condo, there is no shortage of decisions to make. Much of the decision-making attention may go towards factors such as location, finishes and price point. But there is another important consideration, one not all homebuyers—even the most experienced among them—agree on. Do you buy a principal residence or an investment property to rent out?
In a vast majority of cases, I recommend purchasing a principal residence and adding pure investment properties to your portfolio later. There are, of course, exceptions, like if you’re living with your parents rent free, for example. But here are four reasons I generally say you should be the one living in the first home you can get your hands on.
The tax benefits
Your primary residence provides a rare opportunity in Canada as it is an elusive tax-exempt investment vehicle. Whether your home appreciates a little or a lot, you don’t have to shell out anything on taxes when you sell. That’s not the case with a home you don’t live in primarily. Beyond the obvious benefit of keeping more profit in your pocket, I’d suggest that in the coming years (and decades), tax rates will continue to increase and the government will continue to crack down on tax loopholes. Think about the long game and take hold of the biggest tax advantage in Canada as soon as you can. This is the foundation that will set you up for life.
The experience that comes with property ownership
Living in the first home you buy will also give you a unique ownership experience that will ultimately make you a better landlord and investor when you do eventually grow your portfolio. You’ll see first-hand the kinds of problems that can arise in a property and how to solve them. You’ll discover up close and personal the kind of wear-and-tear that can be inflicted on a property, too—all without the pressure of already having tenants to take care of.
You can always rent it out later
Choosing a principal residence before all else provides flexibility as well. After all, you can rent out the unit at a later date when you’re able to afford another home, hopefully a bigger and better one as you move up the property ladder. Try to hang on to your first property for as long as you can.
On the other hand, it’s not as easy to turn a rental property into your primary residence because of tenants rights which are always increasing in Ontario. As per recently implemented Ontario government rule changes, you now need to cough up a month of rent to your tenant if you’re evicting them so you can move in yourself—with Toronto rents what they are these days, this could cost thousands. And you’ll be moving into a space that was rented out which usually means the place was not as well cared for as someone’s home that they own.
The pride of ownership
It’s no wonder roughly 70 per cent of the Canadian population is made up of homeowners. Owning a home is part of the Canadian dream. There is a sense of pride—not to mention stability—that comes with ownership. Clearly for many, renting just doesn’t compare, whether they own a post-war bungalow in the suburbs or a super luxurious penthouse in Yorkville.
Quality of life when you own is just better (for most people). Try it and you’ll see!
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