New market conditions spark investor interest again

Photo: The Canadian Press/ Jonathan Hayward

For the past two years, real estate investment has been a tough sell.

Rising interest rates, softened rents and sky-high property prices meant many deals just didn’t pencil out. Investors found themselves in a squeeze, with the numbers simply not adding up. But here’s the good news— that tide is finally beginning to turn.

A shifting market

Investment properties like side-by-side duplexes and single-family homes with legal basement suites, once out of reach for most investors, are starting to make sense again. This change is being driven by several key factors:

• Interest rates are easing: After a relentless series of rate hikes, we’ve finally seen some relief with two rate cuts in recent months. And it’s looking increasingly likely that this trend will continue, making debt cheaper and more accessible.

• Price adjustments: Property prices have corrected by as much as 15% in many markets, bringing them closer to a level where they can actually cash flow. For the first time in years, we’re seeing opportunities where the math works in favour of the investor.

• Rents have stabilized: After a shock to the short-term rental market earlier this year, rents have found their footing again. While not skyrocketing, they’ve stabilized at a level that supports investment viability.

• Supply dynamics: Many investment properties were snapped up by owner-occupants rather than investors during the frenzy of the past few years. This shift in ownership has reduced the supply of rental properties, helping to keep vacancy rates low (still under 2%) and rents solid.

At the same time, we’ve seen a decent amount of new inventory come onto the market, both in the form of purpose-built rentals and new condos. However, the overall supply remains tight, which is another positive sign for future rent growth.

Timing the market

If you’ve been sitting on the sidelines, waiting for the perfect moment to jump back in, now might be the time to take a closer look. The best time to acquire real estate is often at the trough of the market.

While there’s vigorous debate about whether we’ve hit bottom yet, one thing is clear: asset prices follow liquidity, and all signs point to debt getting cheaper and easier to obtain. By acquiring a property now, while the market is still slow, you can factor in a little market risk and potentially secure something well below the market highs. And if the property covers itself—or even makes a little cash each month—you’re setting yourself up for future success.

The “back-of-the-napkin” math

To quickly assess whether a property is likely to be cash-flow positive, here’s a simple rule of thumb—don’t pay more than 15 times the annual rental potential of the property. If the numbers work within this framework, you’re likely looking at a solid investment.

Looking ahead over the next five years, it’s a safe bet rents will rise, property values will increase and interest rates will continue to ease. In other words, these investments only get better from here.

Proceed with caution

Before everyone rushes to flood my inbox asking for lists of cash-flowing properties, let me be clear, we’re just at the beginning of this trend. There are only a handful of properties that pencil out at any given moment. But if you’re ready to explore what’s out there and want to see examples of what’s working right now, feel free to reach out.

The window of opportunity is opening, but as always, smart investing requires patience, diligence, and a bit of calculated risk. If you’re ready to reenter the market—or if you’ve been waiting for the right moment—now is the time to start paying attention.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.