December 3, 2020

Thinking of investing in property? 6 things to consider first

US President Roosevelt once pointed out that, “real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world”. It turns out that Canadians agree. According to PwC’s Emerging Trends in 2021 report, Canadians are confident that a mortgage is a ‘good debt,’ and real estate is a solid long-term investment.

Investors are moving slowly when it comes to investing in property. This is in a large part due to the fact that buyers and sellers are trying to determine the value of a property which has been difficult to do because of the volatility of the market. Many investors are lining up capital while they search for assets they may not have considered pre-pandemic, as well as assets they think will quickly increase in value. According to the PwC report, investors are holding onto their money while looking for riskier, higher yield opportunities. There is also considerable optimism that 2021 and 2022 will bring in more such investment opportunities. Many investors are waiting for the new year before investing. The CIBC report by economists Benjamin Tal and Katherine Judge lends credibility to the report. According to their report, Canadians have saved up to $170 billion this year and much of this money will be used in consumer spending and investments in spring and summer 2021.

The Lay of the Land

Despite a short decline in sales, the real estate industry has remained robust this year. July 2020 saw record sales across Canada. In Ontario, October 2020 saw residential sales activity grow by 26.5% compared to last year. Inventory also increased by 21.8%, thus amounting to approximately 33,563 new listings.

Across Canada, house prices rose by 1.3% in October. In Ontario, the rise in prices was the most pronounced in the Ottawa-Gatineau and Hamilton regions at 2.7% and 2.1%. As people are leaving the cities in search for larger homes and access to more green space, prices for properties outside Toronto have gone up more than properties in the city. Despite the rise in prices, Moody’s Analytics forecasts that house prices will decline by 7% across the country in 2021.

Indoor office
People are searching for larger homes with green spaces and bigger home offices.

In addition to residential real estate, commercial real estate has also stayed strong. However, with businesses being forced to close and increased working from home, increasing numbers of office and retail spaces have become vacant, according to the Canadian Economic Outlook and Market Fundamentals Report by Morguard Corporation. With yet another lockdown announced in Ontario in late November, it is likely that the number of vacancies in the province will increase.

Investment Properties: 6 Things to consider

Whether you’re a business owner, self-employed or in a salaried job, if you are thinking about investing in real estate, there are 6 things to consider:

  1. Affordability: Get pre-qualified so you have an idea of what you can afford before you spend time looking at properties. When you’re pre-qualified, you’ll have a good estimate of how much you are looking to pay per month for the mortgage.
  2. Goals: Start by laying out your goals for your investment property. For example, this could be that you want to recover your costs in 5 years, or that you want a certain monthly income. Once you have an idea of what you want to do, speak to a mortgage broker about the options available to you.
  3. Financing options: Bank loans are not the only loans available and what’s more, they are not always the best option. Consider monoline lenders, alternative lenders and private lenders as well, and speak to a broker who has business acumen and experience in helping clients like you secure loans best suited to their needs.
  4. Location: If you’re planning on renting out the property, you’ll want the rent to cover your costs, which include
    1. mortgage payments
    2. maintenance costs
    3. utilities not paid by tenant
    4. property taxes
  5. Vacancies: Factor in periods when the property will be vacant and not generating any income. This will differ based on the type of property it is (multi-unit, condo, house, commercial space), as well as the location.
  6. Renovation: If you’re not planning on leasing out your property and want to renovate and sell instead, create a budget for the renovations. Also think about what the value of the property might be after the renovations are finished. You may want to consult a professional and get an appraisal based on your renovation plans for this.

Therefore, if you’re thinking about investing in a property, get pre-qualified, so you know where you stand. At GreenFlow Financial, we take the time to discuss each client’s goals and situation, so our clients get options that best suit them. We keep our clients updated throughout the process and go above and beyond to ensure the experience is smooth and satisfactory.

Getting started is as easy as booking a consultation and completing an application form.

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GreenFlow Financial is an award-winning mortgage brokerage firm based in Toronto and Ottawa.

Brokerage Lic. #: 12402

1200 Bay Street, Suite 202
25 Sheppard Ave W, Suite 300

1 (800) 712-8520 X 100

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