This is a question that I’ve seen quite a bit in my research about the self-awareness of new homeowners.
In the first few years of owning a home I would often hear the phrase “buyer beware” thrown around. I never really understood why, as I was more of a ‘buyer beware’ kind of person. If I wanted something I didn’t really care what it was, I just wanted it. I just wanted it, with no thought about what it meant for my future with this place.
In the beginning of the home buying process you typically start out with a mortgage and buy a house. After the mortgage is paid off, you could then decide to buy a house. Or maybe you can choose to buy a rental. In either case, the point of these two scenarios is that you will be buying a house, and that you have a mortgage to pay. These two options aren’t the same, and they will have different values.
I remember my parents buying a house, and the thought of buying a house back wasnt exactly what I expected to learn from school. I was not expecting to learn that the house my parents bought was almost exactly the same as the one I currently live in. I was not expecting to learn that the house they bought is also my current house, and that my house is currently worth less than the house my parents bought it for.
So the value of a house is its “preference shares,” which are the difference between the value of a house and the property taxes it incurs. The reason that this is important is because real estate taxes are essentially the government’s “tax on income”; the taxes that the government collects when you buy a house are the tax the government pays as part of the profit from the sale you made.
The difference between preference shares and debentures is that preference shares are issued by homeowners who have their house sold and paid off and their preference shares are the equity in these houses and the difference between the two is in the value of the preference shares they have in the house. A property with preference shares can be worth as much as a house with a mortgage. It’s a bit like investing your house, but with less equity.
Preference shares are for sale. Debentures are for sale. Preference shares are held by a company that sells them to homeowners and those homeowners can only sell them back to the preference company. Debentures are held by the preference company itself. So in theory, preference shares are a way for the homeowner to own the equity in their home and receive a dividend for it. In practice, the homeowner gets the dividends from the preference shares instead of the house as dividends.
Now that I’ve broken down how preference shares and debentures work, I want to make sure you know what they are, and you’re not just going to get confused.
Preference shares are a type of investment that lets you own the equity in your home and receive a regular dividend that grows in value over time. Unlike debentures, preference shares are not limited to home owners. In fact, they let anyone own a home, with the exception of the owner of a home. One of the best features of preference shares is that they are tax-deductible.
