Buying at the peak of the market?

9 Dec    Uncategorized
Dec 9

Buying at the peak of the market?

After a month-long vacation in Florida, I am starting day 2 of my mandatory 14-day quarantine.  The real estate market in the greater golden horseshoe is still on fire but I’ve been itching for another house for a while now.  First thing I did when I landed was hop on a call with my team.   By day 2, I already have a house under contract.  This is the power of having a competent team I can trust so I can buy houses without actually seeing the house in person.  They’ve worked with me for the past dozen deals so they know exactly what my criteria is.  But I also needed to be decisive and take action.

A lot of people suffer from analysis-paralysis.  How did I decide that this was the right time to jump in?

I DON’T! 

I’m not sure if prices will soften next year and if they do, great, I’ll buy more.  I’ll break down my decision-making process.

  1. Even though I am purchasing properties at $100,000 more than what I purchased them for 12 months ago, I can’t keep looking in the rearview mirror.  This bias is not easy to overcome and is why I didn’t get into real estate sooner than I had liked.  When I bought houses for 450k in 2019, they were only around 200k a few years ago.  Did I feel shitty?  Sure, but I regret nothing.  You just have to get in the game.  Every real estate investor’s regret is that they didn’t buy more when they first started.  Now, I look back and think that 400k houses are cheap because they are selling for 600-700k now.  Duplexes are worth even more so when I refinance my properties, my existing houses will help me buy more houses.

  2. Most importantly, do the numbers still make sense.  Yes, house prices are higher, but rents have just skyrocketed.  An upper unit can rent for over $2,000 and a lower unit for $1,600.  We’re still at about $1,000 cashflow/month.  As long as the property can carry itself, we just let the market fundamentals take care of the appreciation and enjoy the fruits of our labour.

  3. My purchase price of $585,000 seems absurdly high compared to what I was buying last year or some of the off-market deals I’m presented with.  We still have more negotiating to do after our inspection tomorrow. 

    As a savvy real estate investor, I see opportunity that other people don’t see.  This 3 bedroom upper and 1 bedroom lower bungalow sits on a huge, premium lot.  After reviewing the layout of this house, the hidden opportunity in this house is that it can be converted into a 3 bedroom upper and 3 bedroom lower house if we convert the garage into living space. Plus, the huge lot it sits on allows us to add a tiny home or garden suite to the backyard (which requires special knowledge as not all lots can accommodate this addition).  This property should produce gross monthly rental income of $6,000+ when the project is completed.

  4. With the government printing trillions of dollars, inflation will run rampant.  What is money anyways?  It’s so fake, I don’t want any fiat money.  Maybe we will have some deflation in the next few months before inflation kicks in but when it does, you better hold on for the ride.  Because if you’re not on the ride, you’ll wonder what happened to house prices and everything around you.  

    Jerome Powell from the Federal Reserve now sets the inflation target at an average of 2% instead of 2% per year.  If inflation in 2020 was 0.5%, then their inflation targets in 2021 will be 3.5% so the average will be 2% per year.  As we know, houses and rents outpace inflation.  I am not trying to time the market.  I am in this for the long haul.  That’s what an investment is, your horizon should be long-term.

  5. Is COVID scary?  People have different opinions on it.  Whether you’re scared of this virus or not, it’s a temporary event.  As of writing this, there is news of rolling out vaccines as early as this week.  When this virus is under control and takes the backstage, life will go back to normal and it may be sooner than you think. 

    In fact, immigration to this country never stopped during COVID.  And when this thing passes, believe me that immigration will be higher than ever.  The Canadian government has further increased its targets for 2021-2023 to help the country recover from the pandemic and stimulate growth in the economy.  They’ve increased their immigration targets by 14% to over 400,000 immigrants each year and we blow way past these targets every year.  This will further exacerbate the huge housing shortage we have here in the greater golden horseshoe.  That means housing demand and rental demand will continue to increase in the long-term.

  6. When money is cheap, I take it.  With interest rates at all time lows and no sign of it ever going up, low interest rates are here to stay.  If I can borrow money and make a return that is much higher than the interest rate, AND let inflation destroy the value of the loan over time, it is logical and rational.

With strong fundamentals backing our real estate market, low interest rates, rampant inflation, and a money-printing press wielded by the central banks, I decided to jump in after running my numbers conservatively.  After seeing that my cashflow projections were still strong and that this deal presented some unique opportunities that the regular buyer could not see, (the 3 bedroom lower unit conversion and adding an extra unit in the backyard), I decided the “high” price was worth paying.   I hope this article gives some clarity on your decision-making process but don’t wait too long, before its too late.

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