According to a Canada Mortgage and Housing Corporation study, resale house prices rose faster than inflation in 23 of 27 major Canadian cities between 1971 and 1996-even in years when inflation ran rampant throughout Canada.
The principal residence tax exemption makes the capital gains from that increase in prices tax-free too.
And the power of leverage magnifies that return even more, since you’ve earned those gains on your down payment, not on the purchase price.
If you buy a $150,000 house and five years later it’s up 5%, you’ve made 1% a year; but that assumes you paid all cash for your house. With a 25% down payment, you’ve really earned 4% a year tax-free on the money you invested. And if you buy a house with only 10% down, over five years your annual tax-free return is 10%.
Of course, if you can avoid it, never buy a house with the smallest possible down payment, as mortgage interest is not tax deductible. But when tax-free capital gains are added to the power of leverage, real estate remains a good investment.
