How to Make Good Money in Real Estate

Investment strategies

Today I want to talk about the economic downturn caused by the coronavirus pandemic, and how real estate investors can genuinely profit from it. The economic crisis created by the pandemic has swept across every country in the world, and Canada is weathering it with the smallest losses of any developed nation. What does that mean for us?

According to expert estimates, the Canadian dollar will strengthen against other major currencies. This is tied to the broader global political and economic picture, and beyond that, the Canadian dollar is heavily influenced by oil prices, which will inevitably start climbing once the pandemic ends, as soon as travel restrictions between countries are lifted and production ramps back up to full capacity, oil prices will move sharply upward.

Major investors tend to look toward more stable economies during a downturn, and Canada is unquestionably one of them. Given the significant political divisions in the US, its sharp economic downturn, and its immigration-unfriendly policies, Canada is set to see a very substantial inflow of investment from around the world.

Many companies that never previously considered Canada as a place to set up shop are now looking at opening offices here. That kind of investment substantially increases the number of jobs available, which in turn inevitably affects real estate prices. Most economic forecasts for Canada's recovery are quite optimistic, predicting a fast recovery and substantial growth once the pandemic ends.

Next, we need to factor in inflation. To manage the pandemic, the government was forced to turn on the printing press, which will inevitably push inflation higher. Given today's lending rates, which most experts believe will stay at this level for at least the next few years, we're essentially getting borrowed money at a rate below inflation, in other words, for free. On top of that, a global rise in construction material costs has already begun, and that trend will continue until production fully recovers. There will likely be some correction down the road, but construction material prices will never fully return to pre-crisis levels. For Toronto real estate, this means a substantial rise in construction costs, which will inevitably push prices upward.

In the first two years after the pandemic ends, a significant number of Canadian citizens who had been living abroad are expected to return to Canada. Of the three and a half million Canadians living abroad, the majority live in three countries: the US, Hong Kong, and the UK. Quality of life in these countries is declining significantly, and experts estimate that roughly a million Canadians currently living abroad could return over the next 5 years. Add to that number the students arriving on work visas and immigrants, whose numbers will also keep growing, and we arrive at a population growth rate nearly double what it was before the pandemic. The end result is an enormous pool of potential buyers and renters.

Here's what we'll be dealing with once the pandemic ends:

Strong demand to buy property
Enormous demand for rentals
A shortage of new construction
Extremely cheap borrowed money
A rapidly recovering economy
A strengthening Canadian dollar
Above-normal inflation

All of these factors point to today being an ideal investment climate for real estate in Toronto, though it's worth keeping in mind that the number of new projects coming to market has dropped significantly in recent months. Many developers aren't confident they can sell units in today's market at prices high enough to make construction viable, so they're putting projects on hold until conditions improve. But they're still paying off loans on land they've already purchased, which means that to avoid losses, they'll eventually need to sell at higher prices. As a result, we'll soon see very few new projects come to market, which in 4-5 years will inevitably lead to very few project completions, and that always triggers another round of rising prices.

For anyone investing in pre-construction, now isn't the time to put off buying. There's almost no time left. You need to buy right now, while there are still a good number of solid projects on the market, and while deposit structures remain genuinely attractive. On most of the projects we work with, we've managed to negotiate a total deposit of just 15% with developers, paid in installments of just 5% a year. Just eight months ago, terms like these would have been hard to even imagine.

A small deposit substantially increases your return on investment, since you're putting in only a small amount of money while the full value of the property appreciates.

Unfortunately, opportunities like this are becoming increasingly rare, and there's almost no time left to think it over. The moment demand outpaces supply, terms like these will be a thing of the past. As demand recovers, developers will very quickly return to their standard 15-20% deposit, payable over a year, or at most a year and a half.

I'd specifically recommend paying attention to the central areas of the Greater Toronto Area, certain neighbourhoods in downtown Toronto, parts of Etobicoke, and certain areas of Mississauga. Southern Scarborough is also quite interesting right now, since it's currently the most affordable area while also undergoing very rapid development. Certain midtown Toronto neighbourhoods are worth a look too.

The buy-low, sell-high strategy hasn't gone anywhere, and over the past 8 months, prices in these areas have barely moved, making them very attractive right now. That said, I wouldn't recommend giving in to today's hype and buying up property in outlying areas, where prices have jumped 20-25% over the past 8 months. There's clearly a bubble forming there, and once demand shifts back toward the city centre, we'll likely see at least a soft landing in prices in those outlying areas over the next few years.

You need to buy not where the puck is today, but where it's going to be tomorrow, and in my view, that's exactly the city's central neighbourhoods, where 4 to 6 months after the pandemic ends, we'll see demand go through the roof and prices start climbing sharply.

We're on the verge of a new wave of rising real estate prices in this city, and those who take advantage of it wisely will come out very far ahead. Pre-construction real estate investors always do reasonably well for themselves, but it's precisely in crisis years, or more accurately, the years right after a crisis, where the opportunity exists to earn truly outsized returns! The team of professionals at www.newGTAcondos.com is always here to help. Over the years we've been in business, we've helped a great many people take their first steps into real estate investing, and go on to achieve financial independence through passive income. We're always happy to help.