MATH IS WHERE IT’S AT
From real estate investor to developer, from builder to renter: it all comes down to the math. Bless all those elementary school teachers dealing with sniffly noses! As it turns out, more of us were paying attention than they ever realized.
- People moving for better home prices or rents
- People moving for lower taxes and/or higher wages
- Businesses closing because the math no longer works
- Developers and builders putting projects on hold because they have zero profit at today’s interest rates
- Potential homebuyers unable to qualify for what they want, but choosing more affordable homes like townhouses and rowhouses
Canadians are doing their math, according to many recent headlines! On a bigger scale, politicians and industry leaders are too. One of our favourite economists is Benjamin Tal, with CIBC. He just wrote an article about Canadian math on a large scale. How many people are really and truly coming to this amazing country? How many homes do we genuinely need to build – and fast! https://economics.cibccm.com/cds?id=5befd4b4-4015-47c2-9730-9a520dc4faaf&flag=E
At the industry level, the Canadian Home Builders’ Association is also crunching numbers and coming up with potential solutions: https://www.chba.ca/CHBADocs/CHBA/HousingCanada/Government-Role/CHBA-Sector-Transition-Strategy-2024.pdf Builders and Developers are not the evil money-grubbing, … that the media portrays. They are business owners; they will go out of business if they try to build without profit. It simply cannot be a charity. And the building industry is facing an interesting dilemma of building codes that demand higher environmental standards, which are often more expensive, versus creating the affordable homes that the country so desperately needs.
What does all this math mean for real estate investors? There are ample customers (tenants)—no one should be debating that. The volume of people looking for homes to rent and buy doesn’t appear to even plateau in the near future (like the next decade!). “Affordable” housing means different things all across the country, and is a moving target. “Affordable” building versus Net Zero building will continue to be a tough conversation. We would also like to add a special cautionary note that we’re seeing locally: be mindful of lagging infrastructure upgrades in some municipalities with limited budgets (water and sewer really matter, just sayin’).
Real estate investors who are careful with their math are finding both challenges and opportunities every day. We’re not suggesting that it’s easy. And we’re anticipating that the speed of change in regulations, taxes and the cost of expenses (insurance, interest rates, etc…) will continue to test even seasoned investors.
So rental housing providers need to ask themselves, “does the math make sense to me, in my situation, with my goals, today and into my future?”
Fyi: if the math seems too good to be true, trust your gut, it probably is. Way too many stories out there today of treating real estate investing as if it was like buying a lotto ticket. Avoid the shortcuts! Even with so many people looking for housing, markets can go up AND down. Play safe out there my friends.
