Is Real Estate Still A Good Investment?

The real estate market is rate sensitive and it is typical when interest rates rise, the market dynamics shift. Interest rates have gone up by 3 % in 6 months. Is real estate still a good investment?

Buyers become hesitant and it takes time for sellers to adjust expectations to a changing market.  Real estate investors need to look at the market from a different perspective, yes put on your business owner hat to look at the market conditions and opportunities it presents.

Here are 3 things to look at from a real estate investor’s perspective:

1. Higher interest rates means higher tax deduction on your T776 Statement of real estate rentals when you file your income tax at year end. Since mortgage rates are higher, the interest portion of the mortgage payment is higher. This provides you with a higher tax deduction at year end. Disclosure: Please consult with a professional accountant for your personal tax advice.

2. Higher interest rates mean less competition from buyers. Do you remember back in the day, well it was less than a year ago, when multiple offers and bully offers were in style? Now, as a real estate investor you do not have to compete, you do not have to go over listing price and you can put conditions on your offer. Isn’t this a great advantage?

3. Higher interest rates will result in higher triple A tenant demand. The mortgage stress test which increases with rising mortgage rates creates a higher barrier for well qualified buyers to jump over. These buyers will be pushed into the rental market creating higher demand. And yes higher rental demand results in higher rental income

You might say this is all great but interest rates are high compared to 2020 or 2021? I agree and here is a strategy to mitigate the impact of high interest rates: What if you take a 2-3 year mortgage term which will give you an opportunity to restructure the mortgage financing at renewal time? I like this approach because you can re-evaluate the cash flow in 2-3 years timeframe and you get into the market now before buyers return after sitting on the sidelines and we get back into buyers overbidding each other. We saw this pattern of waiting on the sidelines then returning with a vengeance after the 2008/2009 credit crunch and 2018 after the introduction of foreign buyers tax.

To summarize, higher interest market conditions provide the real estate investor with higher tax deduction, higher rental income and triple A tenants. What are you waiting for?

If you are looking to invest in real estate or add more rental properties reach out. I’m happy to share my investment experience and knowledge.

Until next time happy investing!!