I was told by my financial adviser that buying a house compared to investing the money, investing wins hands down. If you buy it as a HOME and not an investment then it's now in a different category.
I think someone else mentioned speaking to a financial planner is probable the best thing you could do as they can see the BIG PICTURE
Well I have two financial planning designations, so that makes me a financial planner. But that said well people tell me which is a better option between buying real estate or investing in the market, my standard answer is I can't tell you where either market will be 10 years from now so I don't have a clue. And personally I'd run, not walk, from anyone who says that they do.
What we do know is that house prices are historically high in the lower mainland relative to rents. We also know that when people bought houses they didn't make money just on the fact the houses went up, they made most of their money by leveraging.
So for the most part buying a house is a leveraged investment that isn't liquid, and a combination of investments in bonds, stocks, REIT's etc. is a diversified approach and is more liquid. Tax wise a house you live in if it's your principal residence doesn't get taxed upon the sale. But if you're near the top tax bracket and you're an employee with T4 income, you almost can't afford not to put money in an RRSP because it's one of the few tax deferral strategies available.
And if you can do both, buy a home and put money into an RRSP, then one of the best strategies out there is to max your RRSP and put the tax refund against the mortgage. (assuming you never took out a loan to buy the RRSP)
One also has to factor into it your opportunity cost. What's the cost of renting verses, mortgage interest, property taxes, repairs etc. If you can rent cheaper than the operating costs of living in the same house and you feel we're at the top of the market, then renting would seem to make more sense. If you plan on travelling, that too could tip the equation in favour of renting.
For the most part I view buying a house that you want to live in, to be partly a life style decision, not just an investment. For example, my wife pretty much said we're not having kids until we've bought a place, so for woman it can sometimes be that nesting urge that's the main determining factor.
But honestly a financial advisor, planner or whatever one wants to call themselves has no control over the markets, (any of them, including real estate) so the best they can do is put together a plan most appropriate for your objectives, and if it requires investments that they be diversified and whenever possible use low cost products such as exchange traded funds, bonds etc. rather than mutual funds.
That's a bit of a generalization but most studies show that costs are a huge factor over the long run when it comes to returns.
And any plan should also take into account any tax issues, so bonds should mostly be in RRSP's, dividends mostly in non registered accounts and equities, depending on the risk, either in a non registered account or a TFSA. (unless you're an American citizen, then TFSA's are a hassle)
There'a another option which are annuities which can also have a place within your investment options. I recently read an excellent article on this by Moshe Milevsky, PHD, who makes a very compelling case for investing a % of your portfolio in various types of annuities. And for those a little worried about what they are, essentially if you have a defined benefit plan, you have an annuity.
