VALUE IS A MOVING TARGET
What’s my home worth today? Well, that question will spice up the virtual dinner party conversation!
We chat with a lot of folks trying to sell, rent or otherwise get out of their houses. Almost every day someone says, “I know it’s worth …. “ And they often have compelling arguments as to why a buyer should pay $XXX.00.
Then you could stir the pot a little by asking an appraiser what said home is worth. To be fair, that’s a tough question. Appraisers begin by looking for very similar properties (comparables) that have sold recently. But if “recently” was February in that neighbourhood, how can they guesstimate? Some communities in Alberta had a very slow winter, followed by – COVID; making comparables even more difficult. Even city assessors are having a tough time approximating each home’s value for 2020 taxes. Appraisers and assessors are trying to use their pre-COVID scientific methods, but then how do they adjust for the post-COVID marketplace?
So truthfully, today’s house value is whatever a buyer is willing and able to pay for it. And the post-COVID home-buyer has a completely different emotional and psychological buying strategy than before this virus.
In reality though, value is always a moving target. It’s just that in places like Toronto and Vancouver that moving target has been going up for so long that some people almost forgot it could go down. And if you’ve been watching housing markets in Ottawa or the East Coast, some of their neighbourhood targets are still going up!
So what is a savvy real estate investor to do? Invest “as if” the market could go down. Ya but … Warren Buffet’s first rule: Don’t lose money! That’s what most of you were thinking, right? Why would we do that? Because real estate is different from other investments. There are multiple ways to make money in real estate.
- Mortgage paydown happens regardless of the value of the house—and your tenants pay it for you. You can make $5000 to $10000 per year on many Alberta houses from mortgage paydown alone—especially at these interest rates!
- If all the expenses are paid by the tenants AND you have some extra leftover each month—you have positive cashflow. The harder it is to qualify for a mortgage, the more tenants will be looking for a place to rent. And as much as the media loves the horror stories, most experienced investors will tell you that as much as 90% of renters will pay their bills—and your mortgage and cashflow.
- Buy and Hold over the long-term. This is one of the best times in history to buy a property and plan to hold it for the long-term. We’ll just call a spade-a-spade here: despite all the pontificating, no one has a crystal ball. YES, the property values may go down over the next year or two—or not?! But as the jobs come back, and consumer debts eventually go down, and more millennials prepare to have families and buy homes—we know the downturn will not last forever.
Investing has some risks associated with it. Plain and simple. Stocks, mutual funds, real estate, even gold can go up and can go down in price. The beauty of real estate is that price isn’t the only way to grow your equity—especially if you have time. There are so many unknowns with the current economy, but we know that this won’t last forever. We know that today’s values won’t last indefinitely either.
Connect with us anytime to learn more or have a converstion about renovations and real estate investing in and around the Calgary area.
