Should I Wait Until the Market Drops to Buy an Investment Property?

With all the issues that is currently going on, the biggest question I am getting from investors is, “Is now a good time to buy an investment property or should I wait until the real estate market drops?”

Anyone asking this question is really asking a different question in disguise. The real question is, “Will I make money or lose money if I buy a real estate investment now?”

The answer depends on whether you have a long-term strategy or a short-term strategy in place.

Long-Term Strategy

If you have a long-term strategy, I believe now is always the right time to buy, as long as the fundamentals of the purchase are sound. By that I mean:

1. It cash flows.

2. It is a good product in a decent location.

3. You’re not over-leveraged.

There are cycles, yes. But over the long run, values almost always go up. 

The two main ways investors make money on real estate over time are through appreciation and rent growth. We can see the property value will go up over time, but what about rent growth?

CMHC releases all of these numbers that are taken on a national level and local markets and you have to make sure you understand the numbers and trends for any specific market you plan to invest in.

Short-Term Investing

If you are looking at doing a fix and flip or a new build and planning to sell out in the next three to 12 months, you need to have a good grasp of the current supply and demand dynamics of your local market.

We entered 2021 with a shortage of supply for both new construction and rental property in most markets of Canada, and people still need a place to live.

Building (supply/inventory) has lagged demand in most markets, propping up prices. There are fewer properties on the market and prices continue to rise.

What could lead to an increase in supply?

Foreclosures. Over the last few years, couples have been buying homes with as little as 5% down, while relying on two jobs to make ends meet. We could see more distressed properties coming to market in the next eight to 12 months if, for example, one person loses their job and they are not able to make their payments.

But foreclosures don't necessarily mean deals. Banks will still seek the highest and best offers for properties, so if there are 10 buyers for every foreclosure, there won't be any fire sales.

The bigger question when looking at short-term values is the demand. Demand is driven by people’s willingness and ability to buy. If there are still people with good jobs and loans are available at decent rates, then there will still be buyers.

In the 2008 recession, there were very few buyers because lending requirements tightened and people couldn't get loans. So far, that hasn't been the case with this downturn. There are people who can no longer qualify for a loan based on job loss, but it hasn't reached the proportions of the last recession and that is keeping our real estate market extremely busy.

Bottom Line

If you have a long-term strategy, now is always a good time to buy and you will do well over time. If you are looking for short-term gains on flips or developing new builds, then you need to keep a close eye on the current supply and demand dynamics of your local market.