Home Equity is Changing What it Means to Be a Real Estate “Investor”
These days, everybody is an investor. The average homeowner is leveraging their record-setting equity gains to purchase at least one more property. That’s the picture that’s developing, according to new data sets, and realtors.
“I think we saw more investors enter the market than we have before,” said Engel & Volkers realtor Glenn Feldstein, who works in Greater Vancouver.
Those investors he says are typically homeowners who are tapping into their home equity and taking advantage of low interest rates. It’s like a rainy day fund, he says.
“Those investors wouldn’t be the career type, as in, that’s what they do [for a living], but more the average family that has been in a property for five or six years, have a ton of equity and they buy a condo to build wealth that way.”
In the Fraser Valley, such as Langley, he says new condo development is especially attractive, and investor buyers can pick up a condo for around $400,000.
That behaviour is behind a BC housing market in the last year that has seen prices soar as inventory drops lower than ever before. Numbers indicate that it’s mostly the investor or repeat buyer who is snatching up whatever comes online.
“We’ve never seen supply this low,” said Brendon Ogmundson, chief economist for the BC Real Estate Association (BCREA).
A healthy market is about five months of supply, he says. Markets such as the Fraser Valley and Victoria currently have less than one month of supply.
“We’re pretty short of healthy. It doesn’t seem possible, but everything that’s coming on as a new listing is selling right away,” he says of those markets. “If we had no new listings, everything would be gone.”
Given those extreme conditions, the average price in the province went up 22.7% year-over-year in December and passed the $1 million mark for the first time, says Ogmundson.
As of December, the MLS composite index price was up 17.3% in Vancouver, on a year-to-year basis, and up 33.4% in the Fraser Valley, 23.6% in Victoria, 33.2% on Vancouver Island, 30% in the Interior of the province, and 41.5% in Chilliwack, according to the BCREA.
And a new Bank of Canada study — which examined mortgage and credit bureau data — showed that investors in Vancouver accounted for about 20% of home purchases in 2021. Meanwhile, the share of first-time buyers dropped between 2015 and 2021.
“I think the name of the game in real estate is don’t sell a property unless you have to,” said Feldstein. “I don’t think anybody should sell a piece of real estate unless they need the money. Hold on if you can.
“If you are going to sell and make a lateral move, there has to be a really good reason because you incur real estate fees and transfer tax at the other end. So, keep your principal residence and refinance on your investment condo or even a recreation property.
“That is a question we ask all our clients: ‘Do you need to sell your current residence to purchase the next one?’ They need to find out what that looks like.”
Mortgage broker Alex McFadyen says the majority of his investor clients are people who have made some money on one property and are looking to buy one or two more. He estimates that only about 10% of his investor clients are buying property number three, four, or five. The average investor-buying group he sees is the 35 to 45 year olds, usually with kids. He’s even seeing young people in their 20s bitten by the real estate investor bug. If they can pull the funds together, the may opt to buy a property in another market and rent it out.
“Go on TikTok and see what they are talking about all day. Property investing is sexy again,” he says.
“I would say I am probably seeing more first time investors, but it’s not like I’m seeing mom and pop open up and buy five properties. Typically what I’m seeing is they are buying maybe one rental or maybe two rentals. Often in many circumstances it’s a condo where they put a tenant in… or it’s a place for their kid to live in one day.
“The difference in my opinion is that people are being woke. They are getting educated on the opportunities of investing in real estate. But it’s nothing that hasn’t happened for the better part of 20, 30 40 years. Real estate investing as a whole has become just more and more popular visually, through social media, and that sort of thing.”
It used to be that you’d sell your primary residence in order to upgrade to a new place, or a new location. There weren’t too many options, other than securing a place to live and paying down mortgage debt.
And it’s not the interest rate that is driving the flurry of investing, adds McFadyen, but instead, it’s the equity growth. A fixed interest rate isn’t much better than what buyers were getting a few years ago, he says.
“Interest rates are irrelevant in my opinion. I think it just comes down to the equity in the home.
“But [the low rate] still drives the conversation because they think interest rates are really low.”
Other factors are inflation, the idea that everything appreciates. These investors are often responsible landlords, he adds. He himself is a landlord and he says he does his best to be a good one.
“My experience has been quite positive, they are not trying to hoard, they’re not flippers or doing unsavory things. They are just looking for an opportunity to diversify their wealth outside the stock market and the banks.”