Here in Prince Edward Island we tend to think of PEI real estate and a PEI home purchase as being the best of investments and we conversely tend to think of renting as throwing our money away. It is certainly true that rent, once paid, is gone and other than a place to live for a month, brings no other benefit. On the other hand investing in our PEI real estate market and buying a PEI home increases your net worth by increasing equity, or the portion of the value of the PEI real estate that you could lay claim to, if you sold your PEI home.
Generally it is thought that the amount that you pay in rent is a key factor to determining, when compared with the cost of purchasing, the value of investing in the PEI real estate market and buying a PEI home versus renting. A factor of 0.6% is considered the break-even point in determining the value of owning PEI real estate and being on the hook for a monthly mortgage payment. If you can rent a PEI home for less than 0.6% per month of the purchase price of a similar PEI home then it will be cheaper to rent. In regards to PEI real estate that means that since the lowest priced PEI homes in Summerside’s west end would cost $70,000, that if you can rent a similar PEI home for $420 per month then there would be little or no difference between renting and buying a PEI home in Summerside and PEI real estate market. It is unlikely that you would rent this type of PEI home for such a low amount. Therefore we see that PEI real estate investment provides quite a good return to its landlords and as such an investment in PEI real estate is one that will create a good return on investment for you as well.
This is true with a few caveats. Here is a list of considerations to determine if PEI real estateownership is right for you and if you should be looking to buy a new PEI home:
As alluded to above, as an investment, PEI home ownership works best if you can stay in a home for 5 years or more and/or hold your PEI real estate investment for that time. Generally, the longer you own your PEI real estate investment the better, as you have had a chance to develop equity. When you first start making mortgage payments you are paying predominately interest on your PEI home purchase. However, as you continue to pay each month this begins to shift and you pay more and more principle. This adds equity to your PEI real estate investment and your general economic prosperity, equity being the amount of money that you could recover after mortgage repayment if you sold your PEI real estate investment today. Of course if you are renting, your rent will increase at the rate of inflation and you will have developed no equity in the PEI property. This means that PEI home ownership is an investment in something you need anyway – a roof and shelter – while renting is simple a cost necessitated by the same need.
We have talked about buying vs. renting a PEI home from a strictly financial point of view. There are other emotional and practical issues as well. By purchasing our PEI home and investing in our future through PEI real estate we remove ourselves from any capricious behaviour on the part of landlords. While there are protections for tenants built into most provincial Residential Tenancy Acts, ultimately, the landlord owns where you live and can have you removed. Additionally before making ANY changes, improvements or using a PEI property for any additional purposes you MUST get approval from the landlord. Although municipalities and cities do have bylaws governing use of any PEI real estate this is by no means as stringent as the rights a landlord has to impose either changes of his making or preventing you from making changes that would be desirable to you. So if you want to control your own environment, have a measure of control over your PEI home, make money and have the pride of ownership while you do it, then buying PEI real estate may be right for you!
Contact Nicole Morrison today for more information on mortgage services and how she can help you buy your own PEI property!