As we enter the Civic holiday weekend in August, I feel like no one needs a break more than real estate investors, (except maybe nurses and doctors, lol!). We are entering a period of uncertainty within the real estate climate in Canada, and it’s about time we took some time to enjoy the summer festivals and celebrations.
Here in Port Colborne, Canal days is in full swing, and we spent the morning on a tall ship called the Empire Sandy, cruising through the Canal out into Lake Erie. It was great to get out on the lake in style with our son, have a few cold drinks and enjoy the weather. Bouncy castles followed, funnel cakes and all the fun festival food.
He was exhausted by the afternoon, and we couldn’t stay out until the firework show, but that’s ok. Maybe when he gets a bit older!
Just like everyone else, real estate needed a pause. We were on an unsustainable trajectory here in southern Ontario. We were seeing double digit price appreciation YOY for several years in a row. Had that trend continued, the housing crisis would have been much, much worse. We all want future generations to be able to afford basic housing.
Does this mean that investment real estate is a dead industry? Absolutely not!
Real estate is taking a pause because the lending environment is changing, not because something fundamentally changed within the industry. Real estate is cyclical and the lending environment is as well. I think we all know that, but when you’re used to nothing but straight up for multiple years in a row, it is concerning when you hear about rising rates, price compression and deals falling through.
What’s more concerning is when your variable rate mortgages and HELOC payments have begun to get larger and larger, potentially putting you in a negative cash flow environment. For context, let’s look at some YOY numbers over the last 10 years.
Has real estate been a good investment over the last 10 years? I would think so. Yes, there has been a drop over the last 6 months, however the YOY numbers are great and the 5 year numbers are even better. However, past performance doesn’t equal future results. Will we continue to see appreciation like this?
If I had to guess, the next couple years may be tough on the real estate sector. If you look to the long term however, I think that the current trends will be continue to play out. Population data, immigration, demographics, infrastructure development and the net migration of people all bodes well for investment real estate in the Niagara Region.
So what can we do to get us through the tough times like this?
It’s time to button down the operation of your portfolio. Look at your expenses and your income, line by line. How can you reduce your overhead and increase your revenue? Can you add parking, storage or laundry for an increase in rent? Can you reduce mortgage payments by reverting to original amortization or make interest only payments? Can you pass on some of the utility cost to the tenants, or turn over some of your units to get market rent again? Can you take over management of some of your properties for a little while to help reduce the cost of operations? Now is the time to rely on your team of real estate experts such as realtors and mortgage brokers to help you make the best decisions.
Or maybe it’s time to sell some of your worst performing properties and pay down debt to get yourself in a better financial position so you can weather the storm over the next few years.
I feel like the next few years will weed out the speculators in the market and cut some excess off the top of some of the more over heated markets in the area, leaving the market healthier overall. Your success and mine depends not on what the market does, but how you react to it.
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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