Canadian Real Estate Market Interpretation Inquiry

Canadian Real Estate
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Canadian Real Estate Market Interpretation Inquiry

Connor Ferguson
Investor · Canada · Member since 2021 · 6 posts · 5 votes

Hello fellow BP users, especially those fellows investing in Canada. It's been a crazy year in the real estate market as someone looking in from the outside. Congratulations if you have enjoyed some of the national average of 30% appreciation (from March 2020 to March 2021 according to the CREA) on any of your real estate investments. How are you interpreting this market, what types of REI have you found success in? What are your predictions for the future, and where would you consider investing capital now?

Kindly,
An eager investor

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Account Closed
Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
5y

I don't know if 'enjoy' is the right word... While my properties have appreciated, access to deals with sound fundamentals has completely evaporated. In the MF realm, cap rates are being driven down (even in secondary markets). Investors continue to (IMHO) overpay for properties as they throw cheap money at properties for FOMO.  I'm considering taking advantage of this trend by selling some of my holdings to someone that has more capital than common sense.

Where to invest now????

1) Buy a business that suffered during COVID but has sound non-pandemic fundamentals

2) Buy in markets where cap rates still make sense (i.e. not Canada)

Investing for the hope of appreciation is not an investing strategy, its gambling. 

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  • Account Closed
    Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
    5y

    I don't know if 'enjoy' is the right word... While my properties have appreciated, access to deals with sound fundamentals has completely evaporated. In the MF realm, cap rates are being driven down (even in secondary markets). Investors continue to (IMHO) overpay for properties as they throw cheap money at properties for FOMO.  I'm considering taking advantage of this trend by selling some of my holdings to someone that has more capital than common sense.

    Where to invest now????

    1) Buy a business that suffered during COVID but has sound non-pandemic fundamentals

    2) Buy in markets where cap rates still make sense (i.e. not Canada)

    Investing for the hope of appreciation is not an investing strategy, its gambling. 

    3Reply
  • Andy Sung
    Member since 2021 · 10 posts · 1 vote
    5y

    @Account Closed what are the cap rates around the country now?   Recently bought in Sudbury for about 6%.  Not as high as 7% as in us but probably that’s not a realistic expectation general going forward?   Any insights in cap rate trend?  

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    I think it really depends where you are.  I just bought a house in AB.  Activity was up, but prices were about the same.  I know the story is different in many other cities.  Offers were going in fast on good places, so you just had to be prepared to move fast.  I still paid under asking.

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  • Andy Sung
    Member since 2021 · 10 posts · 1 vote
    5y

    I completely agree with the speculation part.  I have close friend that is still willing to buy preconstrution townhouses in gta for 1.3mil and it is not for personal use.  

    The completion date is in 3 years and it is a speculative play.  The builder is already pricing in 10% increase a year as a typical townhouse sells for about 1 mil.  

    It is quite reckless IMO 

    To OP as long as you have leave reasonable margin, and enough monthly positive cash flow you can still net some deals but you need to be quick.  Make sure don’t skip the finance and inspection conditions though.  

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  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    5y
    Originally posted by @Andy Sung:

    I completely agree with the speculation part.  I have close friend that is still willing to buy preconstrution townhouses in gta for 1.3mil and it is not for personal use.  

    The completion date is in 3 years and it is a speculative play.  The builder is already pricing in 10% increase a year as a typical townhouse sells for about 1 mil.  

    It is quite reckless IMO 

    To OP as long as you have leave reasonable margin, and enough monthly positive cash flow you can still net some deals but you need to be quick.  Make sure don’t skip the finance and inspection conditions though.  

    Speculators driving Pre Con market in GTA   

    2Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Connor Ferguson

    There is no such thing as a "Canadian" real estate market. Canadian & average numbers are absolutely meaningless. You're buying a specific asset, on a specific block, of a specific area, in a specific city & province. To drive this point home, next time you're at a real estate conference with 200+ people (zoom or otherwise) ask the question "who here owns an average home" then poll those that raise their hands and see what their appreciation/ depreciation, asset value, income, cashflow, LTV and so forth are.

    Canadian average numbers are exactly as useless as month over month numbers are. It’s like when the local CBC reports on potholes in April every year.

    2Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Andy Sung

    Cap rates are as low as 1.5% and as high as 9.5%. This is like asking “what’s the weather like”. It’s Canada, you can always find what you’re looking for if you’re willing to genuinely look.

    1Reply
  • Zorya Belanger
    Rental Property Investor · Edmonton, Alberta · Member since 2015 · 307 posts · 200 votes
    5y

    Totally agree with Frederick on there is no "Canadian real estate market". It is crazy what some are paying. What's going to happen to those people when there's a correction, which there very likely could be? We focus on cash flow and mortgage paydown, not appreciation. Right now there is a lot of pent up demand and FOMO, so you have to be careful. Good time to sell if you have something to sell.

    1Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Zorya Belanger

    FOMO alive and well coast to coast to coast. Small towns and large cities. Whenever a significant factor in appreciation is emotional (in this case, fear), it’s time to take money off the table. When legitimate economic drivers are creating above average appreciation, get your money back in.

    0Reply
  • Connor Ferguson
    OP
    Investor · Canada · Member since 2021 · 6 posts · 5 votes
    5y

    Thanks for the feedback, @Account Closed Thanks for your suggestions as well. I appreciate the blunt perspective. That's how I see things as well right now.

    2Reply
  • Zorya Belanger
    Rental Property Investor · Edmonton, Alberta · Member since 2015 · 307 posts · 200 votes
    5y

    @Account Closed Exactly - there's no legitimate economic drivers.

    0Reply
  • Jacob Perez
    Rental Property Investor · Hamilton, Ontario · Member since 2016 · 285 posts · 181 votes
    5y

    @Zorya Belanger & @Account Closed - Would you not consider demand a legitimate economic driver? 


    There is clearly a lack of supply in the country. We have a government that has done zero to address the supply issue & in addition we are bringing in record numbers in immigration year over year.

    That is the clear driver. Building costs continue to rise, thus re-sale market continues to heat up. Certain asset classes are safer then others.

    Where you find success in this market is the same as any other really. Determine the metrics that you value in your investment (cash flow minimums, tenant quality, BRRR potential etc.) & proceed forward if you find what you're looking for.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y
    Originally posted by @Jacob Perez:

    @Zorya Belanger & @Account Closed - Would you not consider demand a legitimate economic driver? 


    There is clearly a lack of supply in the country. We have a government that has done zero to address the supply issue & in addition we are bringing in record numbers in immigration year over year.

    That is the clear driver. Building costs continue to rise, thus re-sale market continues to heat up. Certain asset classes are safer then others.

    Where you find success in this market is the same as any other really. Determine the metrics that you value in your investment (cash flow minimums, tenant quality, BRRR potential etc.) & proceed forward if you find what you're looking for.

     I think it depends where you are.  Vancouver, GTA and some other big cities, yes.  But other areas there are lots of new builds and prices aren't as crazy.  Where I am, new subdivisions are constantly being developed and house prices haven't increased much over the last 15 years because of that.

    0Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Jacob Perez

    No sir, not in this case. Economics, while a bit of a pseudo science, is incredibly predictable when it comes to certain portions/ general trends of real estate.

    Gdp rising -> lots of jobs -> rising wages -> in migration -> rising rents -> rising sales -> rising sale prices ....

    In this case, we’re missing the ENTIRE foundation that leads to rising prices. Not only that, we’re missing it and it has been decimated into decline in almost all areas of the country. People aren’t fleeing downtown Toronto because they have jobs elsewhere, they’re fleeing being stacked on top of their neighbour with their 3 kids being stuffed into 750 sq ft.

    This has nothing to do with economic fundamentals

    1Reply
  • Jason Rego
    Member since 2021 · 6 posts · 3 votes
    5y

    Canada is pumping money into the economy; the first-place money will go into is a hard asset! Even though the economic fundamental for a regular boom is not there but the artificially inflated price due to more money is valid.

    1Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Jason Rego

    You’d have to define “valid”. As I interpret your argument it is like saying “the holes in the boat don’t matter because we bail water”, or maybe “the hole in the gas tank won’t affect us on this trip because we will just add more gas”...

    0Reply
  • Jason Rego
    Member since 2021 · 6 posts · 3 votes
    5y
    Originally posted by @Account Closed:

    @Jason Rego

    You’d have to define “valid”. As I interpret your argument it is like saying “the holes in the boat don’t matter because we bail water”, or maybe “the hole in the gas tank won’t affect us on this trip because we will just add more gas”...

    Valid as in no surprise; hard asset (house) prices tend to go up when there is more and cheaper money in the economy. House prices can go up due to fundamental reasons or just plain inflationary reasons. This time its seems due to inflation because of so much money in the economy since the pandemic.

    2Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Jason Rego gotcha. Yep easy money definitely finds real estate quickly. I do feel like when stimulus is withdrawn we will see a noticeable softening in some areas of the country. Mine being one of them. I’m out west. Currently anything with a suite in it has bids over asking working a day. Realtors are doing “presentations” of offers to try and start bidding wars and its working. Houses are selling 10-15% over asking within 72 hours. .... all driven by the fear of missing out. New supply is 6+ months away and doesn’t even have a defined purchase price in most cases as building materials are rising too fast. The Texas freeze doesn’t do us any favours wrt sheet good supply as resin factories all shut down and many received damages. Osb in areas is $60/ sheet now! Insanity.

    Fall 2022 before we’re normalizing building & prices in my area. How long do you figure yours will be? & where is it?

    0Reply
  • Zorya Belanger
    Rental Property Investor · Edmonton, Alberta · Member since 2015 · 307 posts · 200 votes
    5y

    @Jacob Perez

    I'm by no mean an economists, but from what I've learned from Don Campbell, it makes me think that just "demand" cannot be a fundamental economic driver. It's the result. What's the underlying driver that's causing the demand? Yes, when there is demand, that then can cause prices to rise. Like @Account Closed, it depends where you are. There's not as much as a housing supply issue outside of major centers.

    @Account Closed where out west are you?

    1Reply
  • Account Closed
    Member since 2021 · 237 posts · 153 votes
    5y

    @Zorya Belanger

    I operate mainly in Saskatoon and surrounding area. Live in SK, and did one of my degrees at UofA. Lived in Med Hat for a year. I stay on top of MB-> AB for revenue real estate but maybe one day I’ll be old(er) & fat(ter) and relaxing in the Okanagen. Time will tell.

    1Reply
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