If you’ve been listening to the recent buzz about a condo correction in Toronto, you may be thinking it’s time to take a break from the property investment game. Contrary to conventional wisdom, however, there are factors in play that seem to indicate that this may be the best possible time for investment.
Vacancy rates – A recent report from the CMHC points to a trend of declining condo vacancy rates across most of the urban areas in Canada. Some areas are already as low as 1-2%, and recent changes in mortgage rules are likely to increase the pool of renters looking for condos.
Mortgage rates – Because Canadian bond yields are languishing in historic lows, it is common for investors to secure condo financing rates as low as 3-4%. Analysts predict a steady increase in interest rates for the next 18 months – there may never be a better time to secure financing.
The “Spread” – The spread is a term used by investment professionals to describe the difference between your cap rate and mortgage rate, and determines the strength of your cash flow. Even through the market cap is being compressed in places like Toronto and Vancouver, smaller cities still offer cap rate opportunities in the 7-8% range.
Home equity – While the Canadian real estate has been booming home owners have been enjoying year after year increases in their home equity. This equity can be leveraged through a HELOC (Homeowner’s Line of Credit) or a traditional mortgage refinance.
Time – there is an old adage in real estate investing about time being an investor’s best friend. Time makes it all happen – from appreciation and cash flow, to the all important mortgage pay down.
CHMC insurance – looking to reduce your mortgage rate on your multi unit property? Consider purchasing CMHC insurance – it can reduce your mortgage rate between 1/2% to 1% over the life of your mortgage. But don’t wait – CMHC is reaching it’s government imposed limit and there is no guarantee that the government will raise it. Buy now and take advantage of CMHC while you still can.
Investment alternatives – because interest rates are so low, saving bonds, bank accounts, and other financial vehicles offer little return on your investment. The volatile stock market is no better, offering only small returns over the past decade. While REITs can offer more respectable earnings, investing directly in a condo property remains the best option for real estate investors.
Alternatives – With interest rates at historic lows, bank accounts, savings bonds and any other interest bearing investment vehicle offer little return on your capital. The stock market has shown incredible volatility with negligible returns over the past decade and shows little signs of improving any time soon. REITs offer a respectable return on your investment, but investing directly into the asset itself (income property) offers an even greater return on your investment.