Are Young Investors Making a Huge Mistake Becoming Landlords?

Steep mortgage rates in Canada are putting pressure on young investors who have recently entered the housing market, causing some to have second thoughts about their investment decisions. These investors, who are experiencing the harsh side of the interest rate cycle for the first time, are facing higher mortgage payments that are impacting the profitability of their properties.

For example, many young investors, like you, entered the housing market when home prices were soaring, hoping to expand their portfolios and capitalize on the market’s upward trajectory. However, with the rapid increase in the Bank of Canada’s benchmark interest rate over the past year, the business case for some properties has changed dramatically.

Some young investors are finding themselves in a challenging situation, particularly those who hold properties with variable mortgages. As interest rates rise, they are forced to cover the increasing costs out of their own pockets, resulting in monthly losses on their investments. This financial strain is causing them to reevaluate their options and consider selling their properties to mitigate the negative impact.

The concerns of young investors contemplating selling their properties are echoed by a recent survey commissioned by Royal LePage. The survey revealed that a significant portion of investors, especially those aged 18 to 34, are considering selling one or more of their properties due to higher interest rates. The allure of investment properties for young Canadians, despite the difficulties in entering the housing market as homeowners themselves, has waned as the financial burden becomes more apparent.

These challenges highlight the risks associated with property ownership and the need for young investors to carefully assess their risk appetite and financial capabilities. While the real estate market has shown promise as a wealth-building avenue, the current circumstances require a more cautious approach. It is crucial for young investors to weigh the potential returns against the potential risks, such as rising mortgage rates and their impact on cash flow.

Furthermore, young investors must consider the long-term viability of their investment properties. Planning for contingencies during periods of high mortgage rates or increased vacancies is essential. Becoming a landlord is a significant business decision that requires a clear understanding of the market dynamics, financial implications, and the ability to weather potential challenges.

While the decision to sell an investment property may seem daunting, young investors should carefully evaluate their individual circumstances and determine what aligns best with their financial goals and risk tolerance. It is important to seek advice from professionals, such as mortgage experts and financial advisors, who can provide guidance on the potential impacts of selling, including mortgage penalties and taxes.

As more young investors face these challenges, it is crucial to remain informed about market conditions, seek support from experts, and make well-informed decisions. While the current environment may create uncertainty, it is important to remember that real estate investments can still present opportunities for growth and wealth accumulation. By approaching the market with caution and planning, young investors can navigate the challenges and make informed choices that align with their financial aspirations.

Above was a summary I read in a Global News article recently. Here’s a link to the original article for you. GLOBAL NEWS ARTICLE