The Advantage of Buying Tenanted Properties: A Smart Move in the Current Real Estate Market
Are you considering getting into the real estate market? With the current high interest rates impacting investors, it may be a good idea to explore alternative strategies to buy that dream home. One option worth considering is buying tenanted properties, particularly in Metro Vancouver, where condo investments are facing challenges.
In this blog post, we’ll discuss why purchasing a tenanted property can be an excellent way to get a discount in this market, while also examining the implications for investors and renters in the Metro Vancouver area.
The Changing Landscape of Condo Investments in Metro Vancouver:
Recent data from the Canadian Mortgage and Housing Corporation reveals that condos owned by private investors make up approximately 40 percent of all market-rate apartment rentals in Metro Vancouver. However, rising interest rates, real estate prices, and maintenance costs have diminished the appeal of condos as an attractive investment option for those seeking a good return on investment.
The Burden of High-Interest Rates:
The surge in interest rates has created a significant burden for potential condo investors. While the prospects of capital gains, rental growth, and overall returns remain promising, the increased interest rates make it challenging to meet mortgage payments. This situation has discouraged investors from buying condos to rent out and has affected the overall viability of condo investments in the current market.
A Shifting Business Case:
To understand the impact of rising costs, let’s consider the average cost of a condo in Metro Vancouver, which now stands at $830,000 according to the B.C. Real Estate Association. Even with a 20 percent down payment of $166,000 spread over 25 years, a 4.99 percent interest rate would result in monthly payments of $3,858. This figure doesn’t include skyrocketing strata fees and other increasing maintenance costs, making the financial viability of condo investments questionable.
Implications for Rental Market and Housing Supply:
The declining appeal of condo investments has consequences for the rental market and housing supply in Metro Vancouver. With fewer investors participating, new condo and rental apartment building projects are being put on hold until more favourable conditions arise. This decrease in supply is likely to exert additional pressure on the already tight rental market, causing rents to rise even higher in the coming years.
Benefits of Buying Tenanted Properties:
Amidst the challenges faced by condo investments, buying tenanted properties emerges as an attractive alternative for potential buyers. Here are the advantages to consider:
- Discounted Prices: Purchasing a tenanted property often allows buyers to negotiate a lower purchase price. Motivated sellers seeking to exit the rental market may be more inclined to provide a discount, offering buyers an excellent opportunity to acquire property at a reduced cost.
- Potential for Future Appreciation: Although the current condo market faces challenges, the long-term prospects for real estate appreciation remain promising. By purchasing a tenanted property at a discounted price, you position yourself to benefit from potential future appreciation when market conditions improve.
As the condo market in Metro Vancouver faces difficulties due to high interest rates and rising costs, buying tenanted properties can offer buyers an advantageous opportunity. With the potential for discounted prices, immediate rental income, an established tenant base, and future appreciation, purchasing tenanted properties can be a smart strategy in the current real estate market. As investors take a hit, savvy buyers can leverage these circumstances to secure a valuable asset while contributing to the stability of the rental market in Metro Vancouver.