With stocks and bonds and security-based investments, you have no control over their day-to-day management. Even when you invest in “blue chip” companies, the money you invest can go down the flue because some CEO makes a poor decision.

For generations GM, Chrysler, Lehman Brothers, and Merrill Lynch were considered ultra-safe investments. But over a two-year period all of these companies filed for bankruptcy. Why? Poor management. Imagine sustaining these investment losses when it wasn’t you who screwed up! When your invested capital is in your home, you are always in control.

Here’s how the numbers crunch when you make a down-payment of 20% on a home and take out a mortgage to fund the balance of the purchase price. 

Assuming the home’s value increases in lockstep with an inflation rate of 3% over a 6 year period, you will generate a 15% ROI on your down payment … and more than double the equity in your home investment. Not too shabby!

How does this compare with other investment opportunities? Well, the average return on mutual fund investments ranges from 8%-10%.

Taxation is probably the single most important point to consider when deciding where to invest your hard-earned money.

In the US, you can deduct the interest – up to $1 million in mortgage costs – on your primary residence. And, you can sell your primary home and make tax-free profits. If you’re married, you can claim a capital gain of $500,000 after living in a home for two years. For singles, the capital gains exemption cap is $250,000.

In Canada, you pay no capital gains when selling your principal residence. This is a completely tax free profit.

Let’s look at a real-life example over a 30-year period. In 1987, the average cost to buy a home in Toronto was about $200,000. Today, that same home would sell for $750,000. In other words, if a couple had invested in a home when in their mid-twenties and sold it when they retired 30 years later, they’d have a tax-free profit of $550,000 to fund their retirement years.

When you buy shares in Apple or Google, you don’t automatically get the latest version of the iPhone or a new laptop. When you invest in Ford, you don’t automatically get a fully-accessorized Ford vehicle.

But when investing your money in a new rec room or bedroom, two things happen simultaneously: the value of your investment goes up, and your lifestyle improves. 

To learn how home improvements generate a meaningful return on investment for home owners, just hit reply and I'd be happy to help you out!

Stock markets and real estate markets both go through phases of volatility, sometimes severe. As a savvy investor, you have to accept this reality. (The good news: over the long-run, both stock and real estate markets go up steadily.)

As a homeowner, however, you have more options available to deal with ups and downs than when you are invested in securities. Should you lose your job during an economic turndown, you can always cut back on your everyday living expenses, or rent out space in your home to cover the mortgage payments. Eventually, your home investment will recover its original value … and probably grow.

When you’ve borrowed money to invest in security-based investments, the options available to deal with a market meltdown are limited. When you get a margin call from your investment dealer because markets are in free-fall, you’ve got to come up with cash almost immediately or your securities will be sold off to cover the money you’ve borrowed. And you can’t “rent out” your securities while waiting for the markets to rebound! You’ll be forced to sell your stocks at the lowest point in the business cycle. Disaster!

Mark Twain was right on the mark when he said, “Buy land – they aren’t making any more of it”. Think about it: of all the investment opportunities in the world, real estate is the only one based on a permanent asset that will exist as long as the world exists. And it will become increasingly valuable because the population goes up while the supply of real estate is fixed.

Before taking out a mortgage, take a close look at your current financial situation as well as your future plans and lifestyle. It’s important to determine how much debt you can comfortably handle.

What happens if your job falls through? Will you be able to continue making your mortgage payments? Consider how the payments will affect your spending and your ability to deal with sudden or unexpected financial needs!

Savvy home owners will have a Plan B they can turn to, if they run into unexpected financial difficulties.