A while back we started a discussion about how the Real Estate market in Canada is what many consider to be ‘flat’ at this time; meaning that property values were no longer increasing, but also not losing value. This is particularly true for detached homes, and whether this cooling of the market suggests a further downturn remains to be seen. Many experts think that there’s enough of a likelihood of that to suggest that now is the time to sell investment properties because there may well be a significant value dip on the horizon.
Of course, real estate professionals from coast to coast will be keeping a keen eye on these proceedings, as swings in the market have a traceable line to their real estate business and the effects can often change the way a realtor has to apply their efforts in marketing clients homes and identifying client leads themselves. Here at Real Estate Leads, our online real estate lead generation system is a great way to keep the results you have from your prospecting fairly steady, and even in times of downturns in the market.
It seems a good number of leverage wealth experts are saying real estate investors in Toronto and Vancouver should sell now, coming from the age-old perspective that people should buy at high cap rate and sell at low cap rate. Looking at comparative asset classes and at risk-adjusted rates of return, rates on Toronto real estate are running as low as 2-3%. This means that if there’s inherent risk to the principal and many additional considerations then the vast majority of high-yield money market instruments or low-yield bonds have much less in the way of market risk.
Investors enjoyed an aberration in Toronto last year, and that’s hard to dispute. Appreciation climbing upwards of 30% in a single year is not sustainable. It’s not to be ignored however.
There is a belief when looking at this that the market is sliding towards a general upheaval, and the while it’s ever more likely the only thing we don’t know is how severe it’s going to be.
They suggest to start looking at high-end real estate and the vast majority of real estate investments, and if you do you’ll see that the actual yields on these—taking into account average rent based around the underlying value of the underlying security, the ‘gross cap’ as it’s called—are so low that the vast majority of people are actually working within the parameters of speculation real estate investing. If they are to consider maintenance fees, property taxes, default, the incremental risk of mortgage debt, it’s not a sound investment move.
Consider the yield curve as well, which has flattened out just like it has now to predict 7 of the last 9 recessions. These same individuals say that we can expect to see some form of recession as early as May 2019 based on the way the yield curve is flattening out. They insist further that investors need to come up with robust strategies if they intend to continue investing money in the Toronto and Vancouver markets.
Realtors with investor clients looking there should advise their clients to leverage wealth via strong cash flow, a balance sheet and a long-term investment horizon. Much of this is based on the fact that as values have gone up, many real estate investment clients are soon very top heavy with real estate holdings.
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