I'm considering real estate investing but I have some concerns.
In my area of the Greater Toronto Area, the market is pretty ridiculous and my options are to invest in condos for $600,000 and up (roughly $1300 per sq ft) for one-bedroom/one bath. In order for me to purchase this, I would need to refinance my home and rent the condo to cover the mortgage. By crunching the numbers, with a rent of $2,600, I would cover the costs but there would not be any cash flow. I just want to know if this is worth pursuing or is it too much of a gamble.
The longer I hold out, I fear the prices will continue to get more insane and miss an opportunity to build a real estate portfolio.
Your concerns are definitely valid! Getting cashflow in the GTA is very difficult, especially on something like a condo where prices are, as you pointed out, getting really high. If you were to do this strategy, it would definitely be more of an appreciation play. As for if it is a too much of a gamble, that is for you to decide.
If you've listened to the podcast recently, David Greene talks a lot about how cashflow from day 1 is not always better than an appreciation play and how buying higher priced real estate can make more sense in the long run. He says that he is ok to buy a property that is in a higher priced area and potentially lose money on it for the first couple of years as long as it is in a good area where the value of the property and the rent should go up. So that in year 3, 4, 5 he's actually made a lot more than he would if he was looking for just pure cashflow from day 1. Now of course, he is in a situation where he has a ton of income from his other businesses so he can take that loss in the first couple of years and it wouldn't bother him.
With that being said, if you're in a financial position where you can afford to break even or take a loss for a couple of years with the expectations that the area you buy in SHOULD appreciate over the years and the rents SHOULD go up, then it is less of a gamble. If you are really looking to cashflow from day 1, then I would suggest looking into other markets and potentially other strategies.
Your fears about prices increasing are also valid. I think prices are going to keep going up, however at a more slower pace as 2022 goes on. If you have the capability to buy real estate, I would say go for it because over the long term, you will be glad you did. But don't let FOMO push you into making bad decisions! Make sure the investment you choose to make is something you are financially and mentally comfortable with. Hope that helps!