That means the net cost in year one of owning the property is 7.5% (or $37,500) minus 3% (or $15,000), totalling 4.5% (or $22,500). So, we will assume the value of our notional $500,000 property grows at 3% per year in the first year, that would be $15,000. Given the Bank of Canada’s 2% inflation target, despite a recent spike in the cost of living, I would argue a more reasonable long-term growth rate for real estate is 2% to 4%. real estate has increased by just 0.4% per year over the rate of inflation. Over the long run, in the U.S., real estate prices have risen just slightly more than inflation. Prices have also cooled off significantly in 2022. Some cities have seen much higher growth rates, and others much lower. Over the past 30 years, the increase is about 5.8%. What about the financial return from owning the property? Canadian real estate prices have risen by about 8.2% per year for the 10 years ending Dec. I'm buying a home I'm renewing/refinancing You will be leaving MoneySense. So far, our costs are up to 7.5% per year on a $500,000 property, which works out to $37,500 per year for our notional vacation property. Those costs could be even higher for an older cottage or for a property with amenities and high fees, but we will assume 3% per year for discussion purposes. Property taxes, utilities, insurance, condo fees, and maintenance could easily add another 2% to 4% per year in costs. So, to keep it simple, we will assume an opportunity or financing cost of 4.5%. If you borrow money, there may be an interest cost of 4.5%. If you purchase with cash that you could otherwise invest for a 4.5% return (to use a conservative assumption), there is an opportunity cost of not investing that money or leaving it invested. Whether you use cash, a mortgage/home equity line of credit, or a combination of the two, there are other costs to consider. Say a property’s purchase price is $500,000. I like to evaluate a property purchase from a financial point of view-and here is how. Sometimes, emotions are the motivation for buying a vacation property.
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