“It’s tempting because prices are still rising across much of Canada and there is a sort of scarcity of good investment properties to buy even at a price where you cannot cash flow,” Shanna McFarlane, author of Top 5 Secrets to Maximum Profits in Minimum Time, told CREW. “But you have to be able to cash flow the property immediately otherwise you may struggle to mkeep the property and price appreciation isn’t guaranteed.”
It’s caution that an increasing number of investors are throwing to the wind as they face heightened competition for a limited number of small multifamily properties not only in major centres but across much of the country. Those escalating prices mean some are buying with the full knowledge that mortgage and other expenses will eclipse rental revenues.
They’re making that commitment with the hope that market capitalization and increasing demand will continue to raise property values.
But with tighter lender underwriting across the mortgage sector and the threat of rising interest rates, that strategy may backfire, said McFarlane, who counts hundreds of doors in her own expansive portfolio, although most were acquired at a low point in the market.
Some investors are anticipating a return to that kind of bearish market for Canadian real estate if the central bank opts for a more rapid escalation of interest rates spurred on by a stronger U.S. economy.
But that remains speculation for now, with McFarlane asking investors to keep their eye on cash flow.
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