DOWN THE RABBIT HOLE?!?
“Alice in Wonderland” is an old children’s story; it was first published in 1865! As the story goes, a young girl follows a rabbit, literally down a rabbit’s hole, to a world where it seems everyone has gone mad! The story is full of characters that are good and evil, ridiculous and preposterous.
Does anyone else out there feel as if we’ve gone down the Covid rabbit hole, and haven’t yet returned to a more rational world?
And yet, time doesn’t stop. There is no “pause” button, where we can all just wait for the proverbial return to normal. And in this era of inflation, the time value of money matters more than ever.
So what’s a real estate investor to do? Hang out with the Cheshire Cat? Go to the Queen’s croquet game? Join the mad tea party?
Obviously not. We’re trying to lighten up the serious issues here. Waiting will never get you to your financial future. We’re listening very carefully to trends, stats and smart people.
For example, CIBC recently released their economics forecast, entitled “A dream deferred.” They are predicting a slower, longer economic recovery for Canada, North America and globally. Some experts are saying 2-7 years, some suggest full economic recovery may take 10 years. BUT they’re talking about recovery. Businesses and regular humans have all grown some resilience. The reality is that zero is better than negative, and slow growth is better than zero. In Alberta we understand this very well!
RBC economics also puts out frequent reports, including a September one entitled, “Recovery bumpy, but still advancing in all provinces.” It is significant news for Alberta that oil started flowing through Enbridge’s Line 3 pipeline today. As global demand rises (even just for winter, nevermind other industrial and commercial increases for oil & gas), Alberta can now deliver more of its resource. As a rental housing provider, many of us are already talking to families where at least one person is preparing to “go back to the patch.” Some people are already working overtime in their jobs related to the Oil & Gas industries.
Diversification is also exciting in this province, with ATCO announcing that it is building Western Canada’s largest urban solar project in Calgary. And Alberta is now home to 3083 tech companies (as of August 2021), compared to just 1238 in 2018. That’s almost 250% growth, through the pandemic. Guess that cheap office space is good for something?!
As real estate investors, it’s easy to get distracted by all the craziness in Wonderland. But when we pause to look for facts and experts, there is reason for optimism. Plus, early recovery is a well known phase in the Real Estate Cycle for investors. The downside risk is minimal – been there, done that for 6-7 years. Slow growth isn’t as sexy as an exploding market in Toronto, or 20%-30% growth in Kelowna; but for low risk, solid, cash-flowing investments—this is a fantastic place to be. A buy and hold purchased today will have strong returns: simple mortgage paydown, slow passive appreciation, and small cash flow returns. Remember that one asset is making money at least 3 different ways—while someone else pays down that mortgage (your tenants).
We encourage all of our investor colleagues not to get too distracted in this Covid rabbit hole. Winter will have plenty of challenges, but this too shall pass. And right now there are great opportunities to position your financial future, and be ready for the wave of recovery!
