The Market Is Shifting, protect your business for an uncertain market.
Overall, there’s been a sudden shift in the market place today. Many investors in our network are halting acquisitions as we hear rumours of another 0.75% basis point hike, following the united states & further inflation rates. Since the Bank of Canada began to raise interest rates in order to combat inflation, home prices have steadily declined. Desjardins says that average price of a home in Canada fell 2.6 per cent month-to-month in March and 3.8 per cent in April.
Our recommendations for any investors are the following:
Stress test deals - for example, if the current interest rate on rentals is 3.5, perhaps stress test them at 4.5% to be safe or consider running flip projects with a 5% market drop and ensure projects still work with those numbers.
Do shorter term deals - in an uncertain market, or economy, doing a flip for 12 months is not something we advise, but doing a shorter term flip of say 3-4 months is a strong recommendation. Get in and get out quickly so you can re evaluate every few months.
Reduce expenses where possible in your business (automations, efficiencies, unneeded expenses, reduce pleasures) - this gives you the ability to withstand a halt in acquisitions or affected casfhlow, etc.
Rack it and stack it. Keep raising funds, and stockpiling. Opportunities are coming - lots of them.
When others are fearful, double down with caution. Uncertainty & fear wipe out many people in business, real estate, etc. and it’s at that time that you want to double down & take on as many opportunities as possible, however, do it with caution.
Diversify - diversification in your real estate portfolio in our opinion is key. For example, if you only invest in longterm holds, we recommend holding a combination of single family, small multi family, apartments & other strategies as well. As some models get “hit” others may prosper, diversification also allows you to have differences in your portfolio, for example, many single family & small multi family holds are held by investors in variable mortgages. In this case, cashflow is getting hit hard, however, with apartment blocks, much like we do at Arete, we’re locked in with a fixed mortgage so our cashflow does not get hit once however & that creates diversity, stability and comfort.
Begin exploring other relationships - this industry is a lot more about who you know than what you know. Certain lenders are changing who and what they do, what they offer, etc. and that does mean your strategy no longer works, it simply means, it’s time to explore other lenders. The time to look for other lenders is before you actually need them. Build relationships.
