Should you buy the most Expensive Principal Home you can afford?

Sutton Quantum

I would like to state for the record that I am not a fan of burgeoning consumer debt. Having said that, I ponder if buying a more expensive principal property makes senne for more people in this perfect storm of historically low interest rates, few capital gains exemptions and a steady clip of increasing property values. An investor might want to consider increasing their investment in their principal home to realize a leveraged growth return.

For example, invest $200,000 and realize a leveraged return on $800,000. This could be a significant positive growth return in most real estate sectors. In addition, the effective rate of return is further enhanced by a capital gain free exemption. This effective rate of return would arguably outperform most investments. .

There is always risk and your exposure would be around a decline in the real estate market or rising rates. The argument could also be made that if the real estate market declines, all market sectors will likely have some challenges. Many would also warn that relying too much in a principal home investment violates the safer practice of diversification.

Having the ability to carry the financing on the leveraged payments is critical of course. If the rates go up, there is an increase in carrying costs. You will want to consider your variable verses fixed interest options to mitigate this.

Not everyone will have an appetite for this strategy but it may be a consideration for some in certain markets with strong growth potential. The GTA is currently considered one of the best cities in the world to live, it has a greenbelt effect and finite inventory and may be a good place to consider.

Talk to your accountant and your real estate professional and assess your options. This strategy isn't right for everyone but it is probably worth a discussion with your wealth advisors to see if you are "under invested" in your principal home.

Tina Gardin is the broker/owner of Sutton Group Quantum Realty Inc., Past President of the Mississauga Real Estate Board and the creator of The New Age of Real Estate Program TM