Real estate during COVID-19: to invest or not to invest?
It goes without saying that COVID-19 has had an unprecedented and far reaching effect on the Canadian economy. With record unemployment and job uncertainty being a reality for many, it can be tough to find the silver lining. However, it’s important to remember that in times of fear and uncertainty, there is also opportunity. Let’s look at how that applies to real estate investments—whether that involves renovating a suite in your home or purchasing a separate property to generate rental income, or other property-backed investments.
Is now a good time to invest in real estate?
I’ve always said that when times are good you make money on equity, and when times are bad you make money on financing. At this moment, several months into the pandemic, there is a possibility for both. House prices are holding steady and financing costs are low, which is an almost unheard-of situation. The way I see it, this is a gift from the real estate gods.
Keep in mind, though, that this can, and likely will, change. People have been hesitant to sell during the pandemic and, as a result, inventory has been low, which has kept prices steady. As government subsidies run out this fall, and more Canadians are expected to be pressed financially, there is a strong possibility we will see an increase in available inventory, and this could also see prices decrease. In fact, earlier this summer, CMHC was predicting a 9% to 18% decline in average home prices for the rest of the year. Only time will tell but, personally, I intend to take advantage of the current opportunities—money is cheap and homes are holding their value, meaning there’s been almost no better time in history to use leverage as an opportunity to invest.
City or suburbs?
Rural, suburban and vacation areas are where we are seeing the highest activity right now. We are actually starting to see slight reductions in the condo market, where people are required to live in tight common areas and get into elevators regularly. Some of those executive short-term rentals that made up for a substantial part of the market are now are sitting vacant, so we’re seeing a little more inventory in the urban centres. Working remotely may be a reality for many years to come and proximity to downtown areas is no longer a priority.
That said, as an investor, you might not want to chase these trends. With so much activity in rural and suburban areas, any discounts that pop up are going to be in the cities. As long as you’re in it for the long term, you’ll find that when everything goes back to normal, you’re going to see a rebound of equity in those properties.
Income suites and residential investment properties consisting of single-family homes are still safe bets as far as I’m concerned. With people less interested in living in tight spaces, the desire for homes with room for social distancing from others will only grow. Location will always be an important factor with real estate investments, but I don’t believe that COVID-19 has had too big of an effect overall.
Travel restrictions might be reality for some time, and so people are taking the money they may have used for exotic vacations and investing it in vacation properties closer to home. If you’ve been on the fence about investing in a vacation home, now may be the time to snap one up. As long as many others have the same idea, these prices will go up, so if you’re going to make a move, don’t wait.
Another investing opportunity that has proven itself to be a safe way to passively invest in real estate is through a Real Estate Investment Trust, such as District REIT. REITs have been performing well throughout the pandemic. I often recommend this option to people who want the benefits of investing in real estate without the responsibility of managing brick-and-mortar properties. Anyone looking to diversify into something that has a history of great returns, great tax advantages and a long-term opportunity for capital appreciation, may find that a REIT is a great place to put some money.