vertical mortgage Rates increasing pressure on Canadians landlordsespecially young investors who are facing the harsh side Rate of interest Cycle for the first time.
A report released Thursday by Royal LePage Shows that higher payments are prompting some housing investors to consider selling their properties. But for Karim Najjar, 32, the decision is more than just writing off losses on an investment.
Najjar moved from Edmonton to Ottawa in 2017 and jumped into the housing market a year after arriving.
They had a good time on the market, Najjar recalls, as home prices soared in their first few years of ownership. He sold his first property with enough profit to put down a deposit on several new builds, looking to expand his portfolio.
Najjar’s portfolio now includes four properties, three in Ottawa and one in Quebec. But after the Bank of Canada sharply raised its benchmark interest rate over the past year, the business case for some of their assets has changed rapidly.
“Some of the properties I own have convertible mortgages. And this means that as interest rates go up, I’m taking a hit to a degree where … I’m paying out of pocket to cover the difference.” I am,” he told Global News.
He owns a townhouse in the Barrahhaven suburb of Ottawa, which has seen his payments, including mortgage and property taxes, balloon to the point where he is taking a loss every month on the investment.
Najjar could raise the rent on the house — property built after 2018 in Ontario is not subject to the same rent controls as other units — or he could sell it and take it off his balance sheet.
But the idea of evicting the young family living in the house didn’t sit well with Najjar, who was previously president of his neighborhood community association.
“The idea that, yes, you’re able to sell it because you’re not making money makes me feel guilty or bad because I don’t want this family to be moved to another property because it’s their home,” He tells Global News.
Najjar, who works primarily as a consultant for public sector clients, says he has “absolutely” had to cut back on his lifestyle to keep up with the high interest rates, including working through the holiday. It is lying
The young landlord says he can probably put up with the higher payments for next year, but with mortgage rates above six per cent, another hike from the Bank of Canada would be unsustainable. Meanwhile, another property on their books with very few fixed-rate mortgages taken out during the pandemic is up for renewal in 2025.
Najjar says he is deciding whether he wants to freeze interest rates to potentially reduce and improve his cash flow, or make a tough decision about keeping his properties or selling them. .
Nearly a third of investors are considering selling
Royal LePage’s findings, released on Thursday, show that Najjar is not alone in re-evaluating the business case for his investment properties.
The results of the Leger survey commissioned by the brokerage show that nearly a third (31 per cent) of investors are considering selling one or more of their properties amid high interest rates.
The survey, which polled 1,003 investors out of a broad swath of more than 10,000 Canadians in early March, also suggests that young owners are particularly keen on investment properties, even as many young people find it difficult to enter the housing market.
According to Royal LePage, Canadian landlords aged 18 to 34 were most likely to own more than one property (44 per cent), compared to peers aged 35-54 (29 per cent) and 55-plus (25 per cent).
A third of young investors in that age group also said they do not own a principal residence, despite owning investment properties.
Royal Lepage CEO Phil Soper told Global News that it’s not surprising that younger Canadian investors are particularly keen on the route, as many saw their parents doing well in the Canadian housing market growing up. seen performing.
He says traditional investment avenues like the stock market have been affected in the last few years. At the same time, Canadians have heard about the country’s tight housing supply and rising immigration levels that have kept demand for homes stagnant.
For example, Najjar says he was drawn to owning property in Ottawa for its stability as a government city and G7 capital, where he expects property values to remain high over the long term. Healthy demand will continue to grow. He also tells Global News that he prefers tangible assets for his investments, rather than the “up-and-down” nature of the stock market.
The Royal LePage survey found that 26 percent of those surveyed say they plan to buy an investment property in the next five years.
While Soper says those numbers are a bit “aspirational,” it shows continued growth in housing as a solid place to grow your wealth or save for retirement, whether as an alternative or supplement to a registered retirement savings plan. points to faith.
“People are looking at the real estate market and saying, this might be a better place for me to invest today,” he says.
Landlords have to consider selling or increasing the rent
While those outside the market may be willing to jump in, young people who are willing to jump in are now likely to have second thoughts, according to Royal LePage’s survey.
The survey showed that more than half (54 per cent) of those aged 18-34 with many properties are now considering selling amid higher interest rates.
Soper notes that the investor market is more likely to churn when rates rise than in the primary residence segment. Too many people hit the market and decide they don’t like being a landlord, he says, or find they “overestimated” the returns and maintenance costs that come with property as an investment.
Victor Tran, a mortgage expert with the comparator site Rates.ca, says that even the decision to close on an investment property comes with a few more calculations than exiting the housing market.
While both situations will have penalties to consider when breaking the mortgage, a property that is not your main residence is also subject to capital gains tax, which can significantly affect your overall return, Tran notes.
“It will affect their profits as well,” he says.
Soper says he expects investment market interest to remain high from this point with the Bank of Canada’s policy rate on conditional pause, rents still rising and home values stabilizing after last year’s correction. Is.
But he cautions future investors that even if things look good today, becoming a homeowner is a business decision and should come with plans for dry years when mortgage rates rise or vacancies rise.
“For new investors, it’s really important that they realize that it’s not the kind of emotional decision that often drives decisions on major residences, your home, your nest. It’s a business decision and you have to make a The business case needs to be made,” says Soper.
“No one should go into this with eyes half open.”
While his business case has evolved, Najjar says he was never blind to the potential that owning property would make easy money.
“It’s risky, isn’t it? But I always say, there are consequences. And that’s a decision I made to buy that asset,” he told Global News.
Najjar says he believes there are “better days” ahead for real estate investing, but he needs to measure his “risk appetite” in deciding whether to keep the units in his portfolio.
He worries about the widespread impact of investors like him struggling with whether to raise rents as their mortgages come up for renewal, and the knock-on effects for families in their community.
“I think the impact of what’s happening, we haven’t seen it 100 percent yet because people still have mortgages for the next few years,” he says.
“I think the way things are going, the increased cost will be passed on to tenants and it is getting out of hand.”
