As real estate prices surge, you may feel discouraged about getting into the market if you’re a potential first time buyer or you may feel scared attempting to expand your real estate portfolio because the market seems volatile and the future uncertain.
There is no doubt that real estate in Canada's major cities has increased by almost 300 percent since the 1990s, when the last market crash occurred. In the 90's, a few of my friends bought their homes when distressed mortgage holders left their keys on the front porch because they could no longer afford their mortgages. Their properties now have tons of equity, which they used to buy additional rental properties. Needless to say, they are multi millionaires and their retirements are secure! Owning real estate, however, is not for everyone. Despite the fact that their properties are rented out, some people are not comfortable managing rental properties or being responsible for various mortgages in case of market crashes like the 90s. That’s completely understandable. Just like any other investment, real estate can present risks and so it’s important to balance out those risks and rewards. For your own knowledge, a lot has changed in the banking world since the 90s. There are way more safety mechanisms in place to avoid crashes that happened in the 90s and in 2008, for example. During my career, I considered renting versus owning. Both sides had their arguments. Renting, for example, does not require you to pay property expenses or maintenance costs. The rent will only increase by about 2 percent per year if you stay in the same place, for instance, and there won't be a need to remortgage every five years. But realistically, with renting, you would have to be able to save enough money each year to beat or match the gains you are making in real estate. On average, real estate increases about 3-5% per year (even with corrections along the way). So, if you purchase a house for let’s say, $800,000, you can expect your value to increase by up to $40,000 per year. If you manage to save $10,000 a year in personal savings, you will only earn approximately $500. Of course, you can always put your money into riskier investments, but not everyone feels comfortable doing that, and nothing is as stable as a physical, hard asset like real estate. Additionally, with renting, you cannot force savings and your rent doesn’t gain you any equity. When you have a mortgage, you’re paying down principal and interest which frees up your equity that you can potentially use in the future. To put it in perspective, the property owner who purchased a home for $800,000 will have earned approximately $200,000 in five years, and the person renting and putting money away will have only earned $2,500-$5,000. This is exactly why 75% of Canadians have their wealth in real estate, and why many renters complain they can’t get ahead. Now, I know what you are thinking. The market has decreased in value! Well, you are right and wrong at the same time. During the last three years, the real estate market experienced exponential gains because of record-low interest rates. These low rates brought everyone and their mother out of risk-aversion and propelled them to buy real estate. A million dollar mortgage for five years only cost about $3,400 per month and was outperforming rent! It made sense to buy, and as a result, we had huge demand! Some properties increased by 50 percent! The correction we are seeing now is merely the scaling back of the pandemic gains, but property value in cities like Toronto and Vancouver are still up 14-20 percent, and it’s unlikely that this will change anytime soon. Just consider immigration. Our government has plans to bring in 100 million people by the year 2100. That’s 500,000 immigrants a year. Toronto’s population is going to go from 3.3 Million people to 33 Million people. And during this time, people will need shelter, which will put more demand on the housing sector, pushing up property value. Ontario only builds about 70,000 houses a year, so the math on supply/demand isn’t hard! Not to mention that it is getting harder and harder to qualify for mortgage financing! In addition to being stress tested, the government now wants to crack down on alternative loans and make sure even those who need unconventional financing pass certain tests and meet stricter qualifying criteria. This is simply going to create a larger divide between property owners and renters, but make no mistake, there will be many more renters, and this is why investment companies are purchasing neighborhoods at a time. These companies understand the future landscape of our countries and cities, and they are capitalizing on the prices now. So, the point of this post is to really think about your equity you have now or even getting into the market while you can, and of course, working with a knowledgeable mortgage professional;) I have been in the real estate and mortgage industry for over 20 years! I am very experienced in mortgage loans, and have been rated the best by “threebestrated.com” which actually checks my reviews on the web. It is my job to not just complete a mortgage for you, but also help you understand the process and become your personal mortgage guide. I recognize that sometimes, people need more than just a person behind a desk. They need someone to confide in and trust and look out for their best interests. I will do just that! If you would like to set up a consultation, please feel free to call 647-773-4849 or email me at scolucci@sherwoodmortgagegroup.com. You can also visit my website at www.coluccimortgages.com
8 Comments
4/5/2023 18:48:52
You are so right. There many avenues to take to create wealth through real estate. Best of all, you can start small and scale up until you have built significant wealth. It's not easy and certainly not without risk. Thanks for the article.
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1/3/2024 08:59:32
When buying a house, it's important to negotiate the purchase price to ensure you're getting a fair deal. Additionally, you can negotiate other terms such as the inclusion of certain appliances or furniture, closing costs, repairs or credits for any identified issues during the inspection, and even the timeline for the transaction to align with your needs and preferences.
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1/7/2024 07:25:15
Like any big project, a successful homebuying experience is all about getting the details right from start to finish.
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1/7/2024 08:45:52
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1/10/2024 09:14:54
This is very interesting content! I have thoroughly enjoyed reading your points and have come to the conclusion that you are right about many of them. You are great.
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1/12/2024 08:24:17
Housing affordability is a critical issue that affects people around the world. Your blog highlights the ongoing challenges many individuals and families face when trying to secure a stable and affordable place to call home.
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3/12/2024 11:17:03
Much appreciated such a great amount for this data. I need to tell you I agree on a few of the focuses you make here and others might require some further survey, however I can see your perspective.
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3/20/2024 11:08:34
As real estate prices continue to climb, many potential first-time buyers may find themselves feeling discouraged about entering the market. Likewise, existing investors might feel apprehensive about expanding their real estate portfolios due to perceived volatility and uncertainty about the future.
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By: Sarah ColucciSenior Mortgage Agent, Lic. M14000929 Categories |