Buying a House…Is it still the “Best Investment a Young Couple can make”?
In 2012, the billionaire investor, Warren Buffet, was asked whether he would advise a young investor to put his money in stocks, or use their savings to buy a first home. He replied that buying a home with a 30 year mortgage, with a low interest rate, was as an attractive investment as anyone can make.
This makes intuitive sense for us Trinidadians as most of us would agree, buying a home is better than putting your money into stocks and shares. In fact, the housing stock in Trinidad is worth considerably more than the value of the TT Stock Exchange.
When you own a house you’re building equity and lessening your tax burden. Not only that, but you can also live in your house and keep your things safe. If you are enterprising, you can also rent out part of your home and earn an income which can be paid towards your mortgage.
In Trinidad and Tobago, the rate of appreciation of a home in a decent neighbourhood is far greater than the average increase in value of the stocks on our stock exchange. Also, stocks usually are a lot more volatile than real estate. Additionally, by taking out a mortgage to purchase real estate, one only has to make a 10% down payment to secure a loan for the full cost of their investment. So a savings of $50,000.00 can allow you to purchase a property of $500,000.00. While, if you invest the $50,000.00 in the stock market, you end up with $50,000.00 in stocks.
So residential real estate is a great place to put your savings. The returns are better than stocks. The risks are lower, you get tax breaks, and you also have a roof over your head.
So if buying a home is such a great investment, why do many young couples chose to rent? Well for one thing, they can’t afford to buy a house in a neighbourhood in which they would like to live. Very often they desire to live in an urban or suburban neighbourhood close to where they work. And, since in most cases this is Port-of-Spain, San Fernando or Chaguanas, we are talking about a radius of about 10 miles from these city centres. At present, the prices of properties range from $1.5 million plus, within these circles, and most young couples don’t qualify for such mortgages.
So what is a young couple to do? We suggest taking advantage of the mortgage facilities that they may qualify for and purchasing a property as an investment. Become an investor and landlord. This way, the net gain they can make from rent, in excess of the mortgage, can then go to subsidize their living rent in a more suitable neighbourhood.
Take for instance, a couple purchases a small single family dwelling in Arima with a mortgage and then proceeds to rent the property out to a family with $750.00 monthly net gain over their mortgage payment. This net gain of $750.00 subsidizes their rent of an apartment in Valsayn, which is much closer to their place of work, in Port-of-Spain.
There are many benefits to this. First, they are making a dwelling available to a family in Arima, with ‘good landlords’. Second, they are able to subsidize their rent in Valsayn. Third, their property in Arima will appreciate over time and can then be used as equity to purchase a home in a more suitable location in the future. Fourth, they are now on the road to becoming investors and landlords, which may grow into a long term endeavour, that will yield financial benefits for the rest of their lives.