Perch CEO and Principal Broker Alex Leduc recently sat down for a chat with Hart Togman, the CEO of Rent Panda, for a discussion on reducing costs in rental properties.

With interest rates rising over the past year and many variable rate holders hitting their trigger rate leading to increased mortgage payments, making sure you’re managing your expenses and reducing unnecessary losses is key now more than ever for real estate investors.

Here are their top takeaways for real estate investors in 2023.

Is now the right time to buy?

For real estate investors, when to buy is the million dollar question, but the answer might have been ‘now’ all along. “From the perspective of real estate investing, I think now is an interesting time because you’ve got pretty heightened rents relative to where the market is. So going in, you’re able to lock in a pretty good price,” says Alex, as the housing market has dipped in most major cities across Canada following rate hikes from the Bank of Canada.

“Our outlook is that the housing market has more or less bottomed out. So Q2 and Q3 2023 is where we think things will kind of start to flatline and then even reverse. On our side, we’re seeing a huge influx of pre-approvals from purchasers, both real estate investors and first time home buyers. So we think now is a good time to get ready to buy because we don’t think there’s going to be a lot more downward movement and prices. Additionally, everything is pointing towards high demand and low supply in the near future. So we do think now is a good time to be getting ready to get into that Q2, Q3 market before opportunity passes you by.”

Where will mortgage rates go over the next 5 years?

With the Bank of Canada’s current policy interest rate sitting at 4.50% at the time of writing, investors are wondering where rates are headed, and whether it’s a good idea to go with a fixed or variable rate.

”The Bank of Canada just increased rates by a quarter point in January. We think that’s their last one for the year and they should be holding steady for pretty much the remainder of 2023 if things go well. They might even start cutting them by the end of  this year.” says Alex. 

Our Head of Mortgage Advisory Ali Hussin predicts that variable mortgage rates will trend towards 4.00% over the next few years. “As you'll see in our outlook, rates are expected to drop about 1.00% over next year. So that's going to be a massive, massive release if you're in an adjustable rate mortgage on your payments. For real estate investors, these will probably be closer to, let's say, the 5.00% range on a rental property. So that's going to be a lot of relief for many people that are in adjustable rate mortgages. I think a lot of people will really look at the cash flow,  where people have that cushion of extra equity to really go through with what might be a negative cash flow position until the rates come back down. There's an opportunity to really realize a lot of capital gains that'll make up for the negative cash flows in the short term. So it's rethinking how you're going to make your returns on the property versus what you might have historically been used to.”

Making the choice between an adjustable or variable rate mortgage

 While many assume that a variable rate mortgage is the same as an adjustable rate mortgage, there are notable differences. 

With a variable rate mortgage, your payments remain the same, but the amortization adjusts based on changes to the prime rate. In contrast, an adjustable rate mortgage means that your payments change immediately with every rate announcement, while the amortization stays the same. In the current market, a variable rate mortgage would have been more favorable as there wouldn't have been as much of a payment increase. However, when it comes time for renewal, variable rate mortgage holders may be in for a shock as they will absorb the entire increase at once. In contrast, those with an adjustable rate mortgage have had time to adjust their budgets and cash flows to account for the new rates. When deciding which type of mortgage to choose, you'll want to weigh the potential benefits and drawbacks of each option carefully.

What economic signals should investors look at to enter the market?

Investors are always looking for signals to determine the right time to enter the real estate market, but no one has a crystal ball. One of the critical signals to consider is the Bank of Canada’s interest rate meetings. A rapid increase in interest rates can lead to a significant drop in house prices. Conversely, a reversal in interest rates can signal a great opportunity to invest in the real estate market. Another factor to consider is population growth as it can impact the demand for housing. 

Recommended: How population affects the housing market

“We had record immigration numbers last year, we're going to have record immigration numbers this year. You then have people that are going to stay put because they don't want to break their mortgage and go into a new rate, which puts a damper on resale volume. From there, a lot of the construction projects were essentially stopped during the last couple of years because of increased labor costs, shortage of materials, and a lot of the things that impacted renovations in general were also affecting the construction side, so that is going to lead to less inventory later. So really, there's no reason to think we won't have high demand in the short term. Additionally what has always plagued many parts of Ontario in the past is low supply, so all things kind of point in one direction. It's just not a matter of if, it's just a matter of when.” says Alex.

If you’re looking to enter the market, here’s why now might be the best time to buy a home in Canada. Sign-up to Perch today and browse mortgage offers from our lenders.

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