Leading investor: Correction would benefit investors

by Justin da Rosa01 Jun 2016
It may go against conventional wisdom, but this is why investors may want to start cheering for a correction.

There are two major reasons investors would benefit from a market correction, according to one leading investor.

“As an investor, there are two things that come up in a market correction: First, everything goes on sale. That’s the most obvious thing,” Martin Kuev, an Ontario-based investor, told Canadian Real Estate Wealth. “So if you want to purchase additional cash flowing properties, it’s a lot easier to do so.”

The second thing, according to Kuev is an improved rental market.

“If you’re already an investor, you already have properties that have rental income coming in,” Kuev said. “With a correction it’s going to be a lot harder for people to purchase homes, so it’s going to drive that rental market up.

“And if you transition tenants, you’ll have the opportunity to increase rent. So your cash flow will increase. The rental demand is going to increase.”

Potential market corrections often make it to the news, and industry players scoff at the idea given just how hot many markets have been over the past few years.

And while it may be a huge fear for many, Kuev argues investors should welcome one. Especially those interested in long-term buy-and-hold strategies.

“If you’re a long-term investor, we know appreciation is growing at a much faster rate than rents. So it’s becoming more difficult to find cash flowing properties,” Kuev said. “So with a correction, it will allow those to kind of stabilize a little bit and have the appreciation near what rent is doing. It allows rent to catch up and it allows you to purchase cash flowing properties.”

As for when – and, indeed, if – a correction materializes, it’s anyone’s guess.

“I think within the next couple years we probably should see one. We’ve seen a lot of things happen in the Western provinces; we’re a little bit before them in the life cycle of real estate, so probably within the next two years,” Kuev said. “There are variables we don’t know about, one of them is the influx of foreign investment. When that is going to be turned off, I don’t know, but I think a lot of that is driving Canadian appreciation.”

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