Why Spending More Doesn’t Guarantee Success
Written by: Remington Joseph
When you’re new to investing, it can be easy to find yourself wanting to go as big as possible as quickly as you can. We all want to own the nicest house on the block, but for an investor, this usually isn’t as beneficial as you might think. When you’re looking to get the most out of your investment, paying top dollar for your home can actually work against you. Here are a few reasons why you shouldn’t buy the nicest house on the block.
A Slower Rise of Appreciation
One of the biggest advantages of home ownership is that overtime, your home builds appreciation. Whether you have any interest in investing or not, the value of your home increasing is only going to help if you do eventually decide to sell or pass it along to a loved one. If you have the nicest home on the block, there’s a good chance that you paid a premium price up front for it, which means that you’ll gain less appreciation over time. We've seen this in the condo market in Toronto, as demand for homes less than $1M are increasing in value faster than homes over that mark. Ultimately, when you are ready to sell, you won’t make as much profit as you’d probably want.
Room To Grow
A lot of homeowners and investors know this feeling. You buy a home that’s a bit of a fixer-upper, and go on to make a number of improvements and additions to add value to the property. Finally, after some time, you sell the home for much more than it was originally worth. When you’ve bought the nicest home in the area, adding value to the property becomes much more challenging. Unlike other properties, small renovations aren’t going to make for any real improvements to a top notch property. This means that if you’re really looking to change things up, you can expect to put out much larger amounts of money, generally defeating the purpose.
Subject To Speculation
With any investment, you’re taking somewhat of a risk. When investing into real estate, one hope is that the neighbourhood of your property will turnover. We can always speculate whether or not this will happen, but it could take decades before this becomes a reality. That’s a long time to be stuck with the most expensive home on the unevolving block. What’s worse, if the turnover doesn’t happen, that day of finally making any substantial profit may never come.
When it comes to real estate, especially when it comes to investing, it can be really risky to shoot straight for the top. The market is always shifting, and if you find yourself committed to something too far out of the area’s average, it’ll be that much harder to make a profit off of it. We recommend starting small, and building slowly over time. Get a feel for the market while building appreciation. There’s never a need to rush with real estate.