This is a common question I get from both seasoned and new investors.
Let me ask you a question…
Would you rather buy a car and pay full price, or would you rather wait until it goes on sale?
The decision to invest in real estate now is like asking that question. So why are some investors unsure? Let me lay it out for you.
Let’s revisit 3-4 years ago.
Interest rates were historically low. When rates are low, people can afford to pay more because it’s cheaper to borrow money.
It was easy to make money on investments.
Because everyone was making money, and money was easy to borrow, demand was super high because everyone had “the fear of missing out.”
Many people used the variable loan, many people thought interest rates would never go up.
Now let’s look at what’s currently happening.
Many new investors did not execute on their business plan, and they were not able to value add/force appreciate their investments.
Then the Bank of Canada did the unthinkable. They raised interest rates at historically fast speeds.
Because many were on variable rates or had to refinance. The result caused their payments to go up.
This was bad news for many investors and homeowners.
Unfortunately, rents couldn’t go up fast enough to cover the new higher payments.
Now that interest rates are higher, sellers can’t refinance their loans without paying them down to the point where the interest payments are affordable for the property.
So, sellers are forced to sell their properties to solve their debt problem. The problem is, interest rates (and cap rates) are higher right now than they were 3-4 years ago. As a result, absent significant new cash flow, the property is worth less today than when they bought it.
If they had just managed their debt a little more carefully, most would have been able to hold their properties until rates normalized (which is starting to happen). Most of these properties are well occupied and would be just fine except for the debt problem. Debt is the problem. Not the properties. Property fundamentals are holding up just fine (like they usually do).
This market situation is creating incredible buying opportunities for those of us who are well capitalized and have experience.
The Opportunity
Investors who bought in the last cycle have made tremendous amounts of money. We see a similar situation playing out now.
Debt is harder to get.
Lenders have tightened up.
Sellers are forced to sell to solve their debt problem.
The number of qualified buyers in the current market is less than 3-4 years ago.
Interest rates are starting to go back down. Two times so far since June, three more announcements this year.
All this adds up to why we believe it’s a tremendous buying opportunity.
Here’s how we are approaching the market right now.
We will maintain our discipline, like we always do. We will invest only in cash flowing properties. We will keep our leverage low. In 3-4 years, when interest rates settle down (which has started to happen) we will likely have a much more valuable property to either sell or refinance and return our capital.
If interest rates don’t go down as expected, that’s still fine, because we will own cash flowing assets and can wait until we are able to refinance or sell.
We will protect the downside risks and let the upside take care of itself.
I encourage you to look seriously at this opportunity. We can help you determine if adding real estate to your portfolio is a good fit for you. If you are interested in learning more about how you can create significant wealth through multifamily real estate, click here to schedule a call with our investor relations team.
