Some Financial Planners are suggesting to their clients, when it comes to Buying their principal residence (the place they call home) they should Buy the most expensive home they can afford.

            Now, a sceptic might think, if a Realtor made this statement, it would be a lot like asking the Jeweller how much should you pay for an engagement ring. But since it wasn’t, it begs the question, why?

            I am not a Financial Planner and certainly do not propose to know all the pros and cons of someone’s individual investment decisions. I also understand that each home buyer has his or her personal circumstances that need to be considered before any major purchase. A buyer also has to consider what stage of life they are in and how many remaining years they see themselves as home owners? A first time buyer will certainly have a varying view from a current “empty nester” home owner who plans to retire in the next 5-10 years. The first time home buyer may have 20-50 years of home ownership ahead of them and may be less affected by any down turns in market conditions. Where as the “empty nester” who may have a shorter window of time to work with, may be less inclined to purchase a more expensive home at this stage in life and may even be considering cashing in some equity and downsizing to a less expensive home, in order to enjoy an early retirement, travel etc.

            So we can see, that with almost any advice we get, it’s not always best for everyone. But for those who may benefit from this advice, like first time buyers or current home owners looking to trade up from their present home, it might be worthwhile understanding if buying the most expensive home you can afford is right for you.

            According to Financial Planners, the main reason for doing this, is because currently in Canada your principal residence is considered one of, if not the best “tax shelter” investment we can have. Today, if you sell your principal residence (the home you live in – not to be confused with an investment property) the sale price including any profit or “capital gains” you may have earned since initially buying the home, is yours, essentially tax free.

            So if you are looking to build your investment portfolio and are not happy with the uncertainty of the stock market, or the low investment rates offered by GIC’s and the like, combine this with today's low Mortgage rates, you might consider investing in the most expensive home you can afford. Enjoy the benefits of living in your dream home now and protecting your investment from the tax man in the future.

            Although there are some tremendous advantages to this advice, as with many investments, including Real Estate, there are no guarantees. So talk to someone you trust about your finances and personal circumstances and see if this advice is right for you.

Michael J. Wilson