Fluctuating real estate prices and an uncertain market are enough to give anyone pause. When conditions take an unpredictable turn, investors are among the first to take a step back and see what happens.
Since they’re making a business decision rather than moving for lifestyle reasons, those buying and selling rental properties can often afford to be selective about when or if they will act.
That said, a softer market can actually boast plenty of opportunity for the right investor with experience and expert advice to guide each move. Today, we’ll talk about the merits of investing in an income property during uncertain times.
Do you have a specific home buying or investment challenge? The best way to overcome it is with personalized guidance. Booking your complimentary Buyer’s Consultation is an excellent first step.
The Timing Balances Itself Out
“Why would I buy an investment property now while rent prices are going down?” That’s a common question a client will ask, and they do have a point. The purpose of owning a rental unit is to generate income, not just equity.
Carrying a property at a loss or just breaking even can seem counterintuitive. However, consider the flip side of this equation. When rent costs are down, real estate prices also tend to be lower, making it easier to purchase your first investment property or add to your portfolio.
Do you have specific questions about how to invest in Etobicoke real estate? You’ll find answers in the posts below:
- What to Look for in an Investment Neighbourhood
- Is Now a Good Time to Become a Real Estate Investor?
A Moment Without Competition
In a busy seller’s market, competition for any property can be fierce. The better the deal seems, the more offers a listing can generate, which ultimately puts upward pressure on prices.
When conditions are slow and other investors pull back, that could be your moment of opportunity. You’ll still need to run your numbers carefully; however, high inventory with little competition can mean finding a property with excellent potential for a reasonable price.
Success in Being Selective
All successful real estate investors realize that a great find isn’t just about timing or a low price, but a myriad of factors that come together to create solid, long-term potential.
It is more about investing in the RIGHT property than it is timing the market. In this way, it’s similar to buying stocks. A well-researched pick in a healthy company can pay dividends for many years. However, the wrong choice can lead to financial loss.
The same goes for income properties. Ideally, your unit generates positive cash flow. This means that when you take your revenue and subtract all your expenses (mortgage, utilities and taxes), you are generating income rather than carrying a loss or just breaking even.
The monthly income is your cash flow. If you’re in the positive each month, you can afford to hold your property for many years, which also gives you a chance to build your financial nest egg.
Mitigate Your Risks Through Careful Consideration
With every investment, there is the chance for a reward, but unfortunately, it will always come with some level of risk. The key to success as a real estate investor is to take stock of the worst-case scenarios, then measure them up against your available resources. For example:
A house could lose value after your purchase. Your equity will take a temporary hit if this happens; however, you can almost always recoup those losses if you hold on long enough.
It might take longer than you realize to find the right tenant. Every month the house sits vacant, you must cover all of its associated costs with no income coming in. You can alleviate this risk by over-estimating how long it might take and ensuring you have enough cash reserves to manage expenses in the meantime.
In spite of your best efforts, you might end up with a tenant who is the wrong fit. This is the worst fear of many investors. While there are no guarantees, a good real estate team and management company can help you narrow your options down to the best possible candidates.
Understand Your Numbers From Every Angle
Before placing an offer on any property, the math must make sense. A simple cash flow calculation is your gross rent, minus your mortgage, insurance, maintenance, and other costs. Always allow for an element of the unexpected, such as increases in property taxes or last-minute repairs.
As an investor, emotions should not play into your decisions at any time. A house might appear stunningly beautiful, inside and out, and be in the best neighbourhood in the city. However, if the purchase price makes recouping your costs unfeasible, it’s best to move on to a different option.
In addition, be sure that you are working with accurate numbers based on real, up-to-date statistics. The seller can enthusiastically promise you $4,000 in rent each month. However, you always want to double-check these numbers against the actual averages for the neighbourhood.
Looking for more ideas on how to get the best value for your next property? The posts below can help:
- What Fees Are Associated With Buying a House?
- 10 Questions to Ask Before Buying a Condo
- How Not To Overpay For Your New Home
Keep Your Eyes and Ears to the Ground
In any market, good or bad, there will be opportunities for investors who are alert and actively searching for ideal properties. At the time of this writing, Toronto has a surplus of condos available. Now could be an excellent time to negotiate, whether with a current resident or the builder themselves.
When demand is low and supply is high, you can often secure a unit for below fair market value. Lower purchase prices are not your only advantage as an investor.
Your down payment will also be less, as will your closing costs and land transfer taxes. A lower barrier to entry creates more long-term profit potential as the market continues to evolve. For the best results, partner with a real estate agent in your area with extensive experience in working with investors.
Are you thinking about expanding your portfolio this year? Our Etobicoke real estate agents can help through every step, from finding the right fit to negotiating the best terms. Reach out today at 647-282-7653 or email contact@sileckythompson.com with any questions or to get started.
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