Calling all investors or wannabe investors. You’ve likely heard about the Bank of Canada’s interest rate hikes. You know, the thing that’s causing housing prices to go down and the media to run around like a chicken with its head cut off?
Is it stressing you out? Are you wondering if now actually is a good time to be a real estate investor?
Well, spoiler alert, yes. It is. And I’m going to tell you why.
Before I dive in, are you subscribed to my YouTube channel? I’m releasing new videos each month about everything you need to know about Toronto real estate. Subscribe here!
Is the Bubble About to Burst?
Let’s get real here for a second. Despite what the media want you to believe, there actually is no market bubble that is going to burst. Yes, home prices are down and interest rates are up. But we need to remember that the numbers are sliding back from astronomical, and unprecedented highs from the first quarter of 2022.
Sellers who saw their neighbour’s homes sell for super high prices are either taking their homes off the market now or simply not listing them because mentally, they are stuck in the past, living in February 2022 and attached to prices that just aren’t realistic anymore. It’s time to move on!
We’re actually moving toward a balanced market and we won’t see a surplus in inventory that would trigger a real estate bubble. Also, real estate should be a long-term investment. We have a saying in the industry, “don’t wait to buy real estate, buy real estate and wait.” That holds true in almost any type of market.
Looking for more Toronto real estate tea? Read these blogs to get the full picture:
- A Look at Toronto’s Real Estate Market Today
- To Buy First or Sell First–THAT is the Question
- Buying a Home in Toronto in 2022: Mission Impossible?
Canada’s Mortgage Industry is Built Like a Rock
Canada also has one of the most regulated mortgage industries in the world. And even though people are freaking out about interest rate hikes, it’s important to note that the rates are still historically low. In the mid-90s, rates were sitting around 8-9% and in the mid-00s, when I got my start, they were about 7%.
What’s going to happen now with these increases is that homeowners will qualify at a higher rate and just have slightly less disposable income. Not the end of the world right?
How will rising interest rates affect you? Let me tell you…read my blog about the Bank of Canada’s interest rate hikes right here!
So, What’s the Deal with the Rental Market Right Now?
Now let’s get into the nitty-gritty. The truth is that when interest rates go up, the rental market almost always responds positively for landlords. Here’s why:
- Rents go up. We saw rental prices drop during the pandemic, but in the past several months, we’ve seen the rental market correct and even exceed prices. To give you an idea, right now, rental prices are about 15% higher year-over-year. That’s a lot!
- There are more renters. The fact is that higher interest rates will make it harder for first-time buyers to qualify for a mortgage. And as a result, it will push some out of the market. There will be more people looking to rent now.
- Less competition. Remember a few months ago when every listing had like 25 buyers and it was a multiple offer fiasco with every offer you made? That market is cooled down and there’s less competition and fewer buyers out there. That means you can shop around more and find a good deal where the numbers will work for you.
What Makes a Good Rental?
Before you jump headfirst into the rental market, you need to know exactly what makes a good rental. Back in the day, investors were just trying to snap up as many investment properties as possible, without really thinking about the outcome. Here are a few things to consider so you can avoid that kind of situation:
There are two main ways to make money on a rental:
- Monthly cash flow (A.K.A. rental income)
- Equity buildup (basically, the longer you own a property, the more equity you have in it)
It’s absolutely important to crunch some numbers before buying a rental property. You want to make sure that you know exactly what you can charge and what your carrying costs will be. You want to be cash flow neutral or the ideal, cash flow positive. A lot of landlords think they can just buy a property and rake in the cash, but then get a reality check when it doesn’t work out that way.
Worried about finding a tenant for your rental property? Check out my blog about finding the right tenant all on your own right here.
But Wait, There’s More!
If we’re talking about reasons to buy a rental property, we can’t forget to mention all the other benefits. Yes, there’s the cash flow and the equity, but there’s also a lot more.
- Tax write-offs – That’s a write-off! But for real, as a landlord, you can write off things like your mortgage interest, property taxes, repairs, and professional services. And if you have a negative cash flow, you can write that off against any other taxable income you have. Write it off baby!
- Someone else is paying your mortgage – All you need to do is supply the down payment and the rest is taken care of by your tenants.
Buying, selling, or investing in real estate in the GTA is a big deal. It’s normal to feel slightly overwhelmed. Check out some of the FAQs we get asked to prepare yourself:
We Don’t Have a Crystal Ball, But We Can Take a Pretty Good Guess
Looking at the past market, it was really hard for investors to buy. But those investors who hunkered down and overcame the challenges, are in such a good position right now. We can’t tell for sure what will happen in the future, but looking at all the angles, now is a great time to buy an investment property.
This current market softening we are seeing might be exactly the opportunity that investors are looking for.
Are you thinking about buying an investment property? Did you know we also offer property management services? We have you covered! You can text or call me anytime at 647-973-8392 to chat real estate investing. I’m always down!