As expected, the Bank of Canada held rates at 5% again last week. Despite maintaining a hawkish tone in their announcement, many economists are calling the peak here, with expected cuts next year. For those of us on variable mortgages or with renewals coming up next year, this is obviously welcome news.
When cuts will start and how low they go will depend a lot on the data coming in the next few months. We are not in a technical recession yet; however, on a per capita basis, GDP growth is negative and has been for a while.
This is one reason why flips may start to look attractive again over the next few months. As rates come down, the buyers who have been on the sidelines may be able to jump back into the market, resulting in a more balanced resale market. This bodes well for a 3 - 6 month project. However, as always, you need to make money on the buy and ensure that there is enough room in the budget for unexpected expenses. If you need appreciation to make an opportunity work, it is best to move on. It is also prudent to have multiple exit strategies available to you if the spring market doesn't shape up well. Before you purchase, does the property work as a long-term rental? Could you sever land or build a garden suite? It never hurts to have options.
The financialization of real estate has been a hot topic lately. Many people are calling for housing to be a place to live, not a financial instrument. In fact, our own Prime Minister echoed these sentiments a few months ago in a speech. Investors can also get a bad rap in the media for "house hoarding" and driving up the cost of real estate. It's a question of incentives, really. We need more housing, apartments, and new construction. With immigration demand and new household formations on the rise, it makes financial sense to create value in the market to meet this demand. If the incentives change through regulation and increased taxes, this will only drive more investors out of the market and exacerbate the supply problem. Flips and value-add investing are one of the answers to this problem.
Looking at the long term, Bitcoin could become an asset you can borrow against as price stabilization occurs. With large Bitcoin ETFs on the way, the possibility is not zero that this could happen. If this should happen, along with the ability to earn a yield on Bitcoin holdings, this could suck up some capital destined for real estate. Now more than ever, the biggest risk you can take is rigidity. Keep learning, growing, and stay liquid, friends!
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Real Estate Investor and Entrepreneur
Jonathan Beam is a real estate investor in the Niagara region who is passionate about helping you achieve financial freedom through real estate. He works with new and experienced investors to formulate a plan that fits your specific situation and provides market guidance and consultation on the best places and strategies to pursue within the Niagara Region. Book a free, half hour no obligation consultation to see how he can help you to achieve your goals. His travels are available at www.realestateandrepeat.com
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