Is now the right time to step into investment property?
As a Realtor and a landlord for the last 26 years I have certainly seen my share of ups and downs in both the real estate and rental markets. What I have become aware of over the years is that the rental market often reflects the condition of the housing market. When the economy is strong and the housing market is tight, we not only see pressure on the prices of properties for sale but also see increases in the rental rates of investment property. Today represents a different market. Residential property sales are weak, supply is plentiful and prices are under pressure. The rental market is mirroring the housing market and forcing landlords to reduce rents to avoid vacancies. We are resetting the capital costs of these types of properties to reflect the lower rental rates achievable.
So, where does that leave those who are considering purchasing rental properties for a future income stream?
In Calgary we live in a city with a population of 1,235,171 of which just under 70% of households are owner occupied. That leaves 30% of the population now living in rental accommodations according to the 2106 City of Calgary census. There is a market of approximately 150,000 rental units in Calgary in which you can compete for potential renters. This is a huge market to find acceptable tenants and allows potential investors the opportunity to find their niche market.
With a weaker market comes the opportunity to purchase properties at a lower capital cost. Yes, the rental rates have also corrected. However, you now have the opportunity to enter the market at a reduced cost structure and with lower interest expenses and the potential of higher rents when the market returns.
We have seen properties where prices have corrected substantially.
A recent interesting development is the change that the federal government has made to the way home buyers qualify for a new home. Buyers are now forced to qualify for mortgages at a rate almost double the current interest rates. This should have the effect of forcing as many as 20% of potential new home buyers to remain in the rental market as home ownership will have to be delayed. Over time this could have a very positive effect on the rental market.
If you are interested in creating wealth through real estate or have been considering diversifying your investments, please feel free to contact me. I have extensive experience and knowledge in this type of investment and I am eager to support you should you want to explore the benefits of investment property on building wealth over time.