Dear David,

We are first time buyers. We’ve been shopping for a while, and have made offers on three homes so far. We’ve been approved for a $500,000 purchase, but my partner wants to spend $400,000 tops and keeps insisting that we bid under asking price, even when there are multiple offers. Is he being unreasonable, or am I?  – FRUSTRATED

DEAR FRUSTRATED: It’s great that your partner is careful with money, but there are a few things you’ll want to consider as you move through the buying process:

Many homes are priced to bring multiple offers. Listing a home at a competitive price is a sure-fire way to attract more buyers. When multiple buyers are competing for a property, it’s not uncommon for at least one of them to rise above the pack by offering more money and fewer conditions, or no conditions at all. This is how deals are won. You can bet the Realtor has a target price in mind, and a pretty good idea of what to expect from the winning offer, based on what the market is doing. In this situation, a lowball offer would have no chance of succeeding, though ironically, it may fan the flames of competition and drive the selling price even higher.

A home is more than a mortgage payment. Many first-time buyers and renters think of a place to live in terms of the monthly expense, and haven’t yet grown to appreciate it as an investment. I recently read a statistic that compared the net worth of homeowners to that of lifelong renters. Over a lifetime, a homeowner’s net worth was estimated to be over forty times greater than that of a renter. With that in mind, you need to consider whether sticking to an arbitrary budget is causing you to miss important opportunities that might otherwise be well within your reach. To drive this point home, I often tell my clients to look at almost any item they own. Whether it’s a name-brand handbag or dad’s fancy car, it’s probably worth less today than it was on the day they purchased it. Meanwhile, a home you buy today will likely increase in value by the time you have a chance to move in.

A homeowner builds equity with each mortgage payment. If you buy a home and the mortgage payment is $1500 per month, over half of that amount goes directly to principle. Conversely, if you were to rent the house next door for $1500 per month, the full payment would go directly to your landlord and you would never see it again. This is why I urge first-time buyers to get a foothold in the market as soon as they possibly can.

Things get even better for homeowners over time. As you pay off more of your mortgage, a greater portion of your payment supports the principle. On top of that, your equity increases (tax-free) as property values grow. If you’re thinking of buying now, or your mortgage is up for renewal, mortgage rates in Canada are at an all-time low.

PRO TIP: I suggest you try to find a sweet spot between frugality and opulence. It doesn’t make sense to shortchange your largest investment, then spend your extra cash on disposable things. Investing in your home is like topping up your RRSP; if your home were to increase in value by 20 percent over the next five years, would you rather make 20 percent on $400,000 or 20 percent on $500,000? #AskDavid #Advice