By Wayne Weum
In a real estate market that has been chugging along year after year with continued job growth, population growth, increased GDP and a friendly lending environment, opportunities to make money in real estate were everywhere.
It was very simple, actually – buy a piece of cash-flowing real estate and wait a few years. After those few years, sell for a profit and live happily ever after. The end.
Then, all of a sudden, things changed. From that never-fail market that has been a reality in most provinces in the past five years (particularly out west), it seemed like the brakes were applied. Oil started its slide from triple digits to barely hanging on to half of its 2014 peak value. The headlines started to pop up, none of which painted a very rosy picture for the real estate market in some centres (again, particularly out west).
So where does that leave the real estate investor? The answer to that question depends on that kind of an investor you are. For the investor who shivers at the thought of a few years of zero or minimal growth, or perhaps even a decline, it leaves them in the cold, dark and miserable place of fear and uncertainty. For the investor who is willing to roll up their sleeves, put their thinking caps on and get to work, it leaves them on the starting line of a track of opportunity.
Here are some positive touch points for investors who want to lean into this slowing (at least as being perceived) market:
- Fear is your friend.
Visit your water cooler or break room and listen to the chatter about how “the market” is going to crash and burn. Listen to the conversations and gain knowledge from the people around you. Pick up on the hints that some will drop about selling before “the bottom falls out”.
If you’re sophisticated, and know your market fundamentals, there just may be a chance that you could pick up a really good deal from somebody too fearful to stay in the market. Use your intimate knowledge of the market to your advantage here – try not to convince them that in 10 years from now, none of this will be relevant, and there is a good chance that real estate will weather this rough patch like it always has.
Eventually, you may walk away with a strong property in a stable market that you purchased well under value thanks to somebody else’s nervousness. Private sales are your friend in this case. Have your lawyer on speed dial and some blank offers with you at all times.
By the way, one thing that works much better than a business card after making contact with a vendor is a deposit cheque along with your offer. Nothing says “I’m ready right now, today” better than a cheque made out to their lawyers trust account.
- A temporary price decline may actually help a real estate investor.
As more people list their houses, supply goes up and basic economics state that values will drop, which may increase affordability for the investor. If rents remain stable, and an investor can pick up a deal for a little less money than last year, cash flow will rise. After all, those people selling their houses will still need a place to live, and will therefore become renters.
This equates to more customers lining up outside the doors of a retail store, a basic increase in demand for rental housing. The reason I used the word “temporary” above is because affordability increases will create more room for first-time buyers, or people upsizing, therefore shifting the demand back to the market.
Real estate is a very inefficient monster, where the impacts of basic economics usually work their way into the market months or years later. As an investor, remember to use caution with this, as interest rates are extremely low right now. It would be prudent to conduct analysis at a higher cost of borrowing and stress test your current portfolio.
- This is a golden opportunity to start taking advantage of access to labour.
The contractors and tradespeople that were impossible to reach during the screaming hot economy last year may now be within reach – and perhaps even at a discount. An investor may consider finishing a basement suite, renovating and re-renting their existing properties, or taking care of the little things that will make your product more appealing in a competitive market. It’s better to be the landlord that others are trying to compete with, rather than you trying to compete with them.
Visit and evaluate your exit strategy for each property. Focus on why you got started in the business to begin with – focus on your end game. Lean on your peers for support and ideas. Join a solid investment club in your area (I’m a REIN member; it’s top-notch) for tools and advice you can count on. Keep your vision intact and let the information be your guide.
This is how you will be on your game when the fear-mongering gives you deal after deal, or when your contractor shows up the next day to overhaul a tired property that you can put back on the market for premium rent. As it is right now, a tenant just left a unit of ours in such a state that we had virtually no choice but to overhaul it – and our new tenant cannot wait to move in.
Wayne Weum is the president of Testament Properties. He has been actively investing in real estate since 2008. Follow him on Twitter @wayneweum
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