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Real Estate and Your Net Worth

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Meet Natalie Jamison of RBC Dominion Securities Every month she writes a newsletter for women on various investment topics. By clicking the link, you will find lots of useful information for your family, or to pass on to freinds. 

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Real Estate and Your Net Worth

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Real estate is an important component of your net worth. It may even be the
largest asset you currently own. There are many reasons for owning real estate and one of them is to help grow your wealth.

How to determine your wealth

The best way to test if your wealth is growing or shrinking is by calculating your
Net Worth. To do this, add up all your Assets, then minus your liabilities.

Assets are comprised of both Liquid and Fixed investments:

Liquid: Cash, Checking, Savings, Money Market, Stocks, Bonds, Mutual Funds, Income Trusts, GICs, Limited Partnerships, Vested Employee Stock Options, Cash Surrender Values of Life Insurance Policies, RRSPs, RRIFs, LIRAs, DPSPs, Defined Contribution Plans, Defined Benefit Plans (Commuted Value), TFSAs, RESPs, Foreign Pension Plans like an IRA or 401(k) plan, etc.

Fixed: Home, Cottage, Time Share, Rental Property, Business Ownership, Other Property (such as autos, boats, collectables, jewellery, art, antiques, etc.)

Liabilities: Credit Cards, Mortgage, Line of Credit, Margin, Auto Loan, Personal Loan, Investment Loan, Family Loan, Other Debt.

One of the keys to financial success

Real estate ownership is an important component of building wealth and increasing your net worth. I don't
know of a single wealthy family or company that doesn't own real estate. Even the Canada Pension Plan (CPP) allocates 10.6% of their investment portfolio to real estate.

Why you should own real estate Real Estate has always been a good investment.

Here are some reasons why you should own it:

 Part of a diversified portfolio

 Provides inflation protection - to keep your purchasing power from declining

 Ability to earn Tax-Free capital gains (on your principal residence only)

 Allows you to leverage your money. Mortgage = Good Debt.

 Part of your Long-Term Care plan

 Potential income producer  A path to financial independence

 A lifestyle asset (such as a family cottage)

 Often considered to be an appreciating asset - unlike a car that is always depreciating

 A cushion against business cycle volatility

Why calculate your Net Worth?

If your Net Worth is climbing, then your wealth is growing. Investments may not always go up, but other
contributors to your net worth (such as real estate) may be compensating for the lack in performance in your RRSP.
Not all asset classes perform well at all times. This is why the true measure of progress should be a calculation of your net worth. Get into the habit of calculating this at least once or twice per year. Once you have a base figure, you can track how your wealth is growing.

Final thoughts

Don't get discouraged by minor setbacks. Wealth was never created overnight.It takes time and patience to grow your net worth.

Real estate professionals will tell you that LOCATION, LOCATION, LOCATION is the most important consideration when choosing a property. So hopefully you will all choose to live in my neighbourhood. Where? At the corner of Happiness Success, of course.

Stay wealthy, Natalie.