One of the most popular questions I get these days…
Should I buy now or should I wait?
And I would answer that by asking you another question.
Are you planning to use a line of credit to pay for your 20% deposit?
If your answer is YES, then do not buy now.
Back then, when the interest rate was close to 0, money was very very cheap.
It was common for investors to use cheap borrowed money to put a deposit down for pre-construction condos.
The construction is going to take 4-5 years.
So what you are really buying is time.
You use that 4-5 years to save up for the deposit.
Then you can pay back the line of credit and get a mortgage upon closing.
This is a great strategy to force yourself to put aside some savings into assets and maximize the power of cheap borrowed money.
But now, with all the interest rate hikes, money is not so cheap anymore.
So if you can’t even come up with the deposit with your own savings, then I really think you shouldn’t be investing in the current market.
On the other hand, if you have some extra cash sitting around, then it’s a totally different story.
When you see extra money in your bank account, your hands get very itchy, you tend to spend your money somewhere…
How many of you are like that?
You can spend your money on liabilities, buy a new watch, go on a nice vacation…
Or you can spend your money on assets.
You can put your cash into a GIC.
The current rate is around 4%. Some people say that’s pretty good.
I personally think that’s terrible.
With inflation high up at 7%, you are basically losing money everyday with a 4% GIC.
Besides, the Canadian dollar just fell to the lowest level in 2 years, it’s now below 75 cents U.S.
You see, it’s dangerous to keep cash because it keeps depreciating.
That’s why I never put my money into GICs.
What about stocks?
I do invest in stocks and yes, I’m going to shop for more as the market continues to tank.
When everyone fears, opportunity comes. Just doing what I always say.
But stocks are not real tangible assets, they are just paper assets.
So I only put a small portion of my money into stocks and keep the majority of it in real estate.
I have invested in real estate outside of Canada as well and that’s why I think we are really blessed to have a market like Toronto.
A market that’s backed by real demands.
When the interest rate increases, potential home buyers are discouraged and they decide to rent instead.
So the demand in the sales market has shifted to demand in the rental market.
But you see, it’s the same demand for housing units, doesn’t matter whether it’s for sale or for rent, people are looking for housing units.
So yes, investors have to pay more interests, but rents are also increasing to cover that.
Remember this video about “Cancelled Condo Listings Spike by 643% across the GTA”?
When investors couldn’t sell at the price they wanted, they simply keep renting out their unit instead, especially when the rent is all time high.
What other investments can give you the same kind of safety net?
And if you want to completely forget about the interest rate for the time being, just put your extra cash into a pre-construction deposit and not worry about it for 4-5 years.
In the current market, not every pre-construction project would sell.
If you have great products like Regent Park, 8 Elm, you still see people fighting for units.
But some other projects are seeing quite the opposite.
So it’s going to take longer for projects to sell and that means it will take longer to deliver the completed units to the market.
What does that all mean?
We’re going to see even tighter supply a few years down the road.
Here’s the thing.
There are always risks involved with investing.
But with inflation and the housing supply and demand imbalance that’s specific to Toronto, I think the risk of not investing is definitely bigger than the risk of investing.
Of course, I love buying liabilities and enjoying nice vacations as well.
But I always make sure I put aside a majority of my savings to acquire assets first.
If you’re ready to invest, schedule a call at the link below and I’ll share with you what I bought so far this year.