I know you come to this blog for hard truths and straightforward answers. Therefore, I tell you with conviction that you should maybe buy an investment property right now. It depends on how much cash you have. But this is a question I’m getting a lot right now, so let’s get into it.
Looking to buy an investment property in Toronto? Check out our list of the city’s best neighbourhoods for investing here.
A Balancing Act
The rental market and the resale housing market have a relationship like a teeter-totter. When interest rates are low, the rental market goes down. When interest rates are high, the rental market goes bananas. Unlike homeowners who live in their houses (end users, as we say in the biz), investors who own rental properties are fickle. If rents are going down, many landlords will sell their multiplexes. During COVID, the rental market took a huge hit. This was for two reasons. First, when interest rates were low, many renters decided it was time to take the plunge and buy a house. Even with higher house prices, lower interest rates mean more affordable monthly payments. Plus, lower interest rates encouraged many first-time buyers’ parents to pull equity out of their property and give it to their children as a down payment. The second reason the rental market went down during COVID was that many tenants moved back home with their parents. Therefore, during the early days of COVID, many landlords saw the booming housing market and declining rents and decided to cash out on their investments. There were tons of multiplexes on the market and very few buyers.
Looking for more insights about Toronto’s post-COVID housing market? Explore these helpful blog posts.
- Stop Feeling Sorry For People Who Bought in February
- Is The Real Estate Market Crashing? 2022 Edition
- Is Toronto Real Estate Now a Buyer’s Market?
Today’s Outlook
Now, interest rates have gone up, so the monthly affordability of buying a house is less feasible. Parents are also less likely to remortgage their homes to assist with a purchase. The job market is also strong again, which means that the renters are back in droves making the rental market hot hot hot. While in the resale market, we’re negotiating and taking our time buying houses; you have to be quick and expect some steep competition in the rental market. Fewer multiplexes are available on the market, and those that come out sell reasonably quickly.
It Comes Down to Finances
If you have a large down payment, you should buy an investment property now. Rents are high, and prices are down, so it makes good financial sense. However, suppose you are refinancing your primary residence to buy an investment property, which is how many investors do it. In that case, you will get caught with escalating interest rates, making it harder for you to break even, even with higher rents. If you want to buy an investment property, make sure your plan is to hold on to it for at least five to ten years. That way, you will be relatively immune to the current market fluctuations.
Considering adding an investment property to your portfolio? Work with a local agent who specializes in supporting investors. Learn more about my approach to buying here.
— Robyn Vander Vennen, The Kim Kehoe Team.
