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Show Summary:

Scott Dillingham, the host of the Wisdom Lifestyle Money Show, addresses some frequently asked questions about the current real estate market. He believes it is a good time to buy properties despite higher interest rates. The market has cooled down, with fewer bidding wars and some properties being sold below the asking price. Rental prices have remained stable or even increased in some areas, offsetting the impact of higher interest rates on cash flow.

Dillingham predicts that the cooling in housing prices is temporary due to a shortage of housing supply in Canada. Once the economy returns to normal and the effects of COVID-19 subside, he expects prices to recover quickly. While interest rates have recently risen, Dillingham believes they will eventually settle down and follow the trend of inflation. He advises investors to consider their preference for fixed or variable rates, noting that the variable rate allows for a higher purchase amount and provides flexibility for future investments.

To maximize purchase prices, Dillingham suggests two strategies. First, opting for a variable rate mortgage, as it has a lower stress test compared to a five-year fixed rate. This allows borrowers to qualify for a larger mortgage. Second, choosing the right lender is crucial. Some lenders consider a higher percentage of rental income for qualification purposes, enabling borrowers to increase their purchase price. Dillingham recommends working with a broker who specializes in investment properties and has access to a wide range of lenders.

Dillingham concludes by encouraging listeners to reach out to Lend City, his recommended lending company specializing in investment properties, for assistance in growing their real estate portfolios.

Scott Dillingham: Welcome to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today I'm gonna go over some of the most frequently asked questions.

We're getting tons with the market, with the rates going up and the market's slightly cooling, and people are wondering what to do. One of the number one questions that people are asking me is, should I buy in this market? So as a real estate investor, I believe, yes, you should. The past couple years, when I look at my personal investing, I've been a little reluctant to get out there and invest because the market was crazy.

There was bidding wars and things were going nuts, and I just felt like I was overpaying for a property. But what's happened is the properties have, the values have cooled a bit. And you don't get those bidding wars that you did before. Some properties still do, but you can now buy properties where you're the only offer, and in some cases you can buy them at a discount below the asking price, which is great.

That didn't happen six months a year ago. So yes, the rates are higher, but your purchase prices that you can get these properties for are much lower. The rents, they haven't changed at least in the markets that I invest in and I'm familiar with, they haven't changed. They've maintained, and some markets they've even went up.

So in those cases the housing is coming down. The rents are the same, are going up, and of course the rates are a little higher, which impedes the cash flow a little bit. But there's some changes to that happening too. Behind the scenes some of the lenders are discussing going with longer amortizations, so right now it's around 30 years and they're talking about going to 35, and some have even stated 40, so that the longer amortization will offset the rate increase.

From a cashflow perspective, while the rents are going up and the properties are going down. So I think that it is a great time to buy. Now the property's going down. I don't think that's something that's gonna go on and on. I think it's just there's been a bit of a cooling and cuz there's not so much attention or aggressive behavior in the market that it is cooling.

So the other thing to consider too is we have a housing supply issue in Canada. There's not enough housing for everybody that lives in Canada. So because the demand for housing is greater than the supply the cooling of the pricing I believe is temporary and will recover quickly once the rates settle down.

Now, where do I see rates going? If you consider Covid, right? Covid was a catalyst to get us lower rates pre C O V I D. The rates were around 4% for AFF fixed, and then they lowered the rates for covid to keep the economy going. And then once they got rid of those discounts, the rates were also back up to around 4%.

So during that time period, We had rates that were normal. Then they lowered artificially for covid, and then they came back up to normal. Now, right now it's the middle of July. And last week the government raised the rates one whole percent. So now the rates have went up. So historically everything goes up over time.

So it's normal for interest rates to increase, but it's usually gradual. But because of covid and the shortages of things and inflation's being higher, they jumped it up. Do I think it'll stay this high? Who knows. It's really something that's hard to predict. But I can't see it going up and up and up forever.

I feel like it'll match inflation once we return to a more normal economy and the damages of covid are gone. I really believe that the rates will simmer back down. And even pre covid. If you look at history, if you look up interest rates for the past 25 years, You'll see that they went up and down. So that's what they do in a normal market.

But right now, because of inflation and everything they're going up. So I believe in the short term, you can expect them to go up a little bit more cuz inflation has been increasing, right? But once we catch on and things return back to normal, the, I believe the rates will come back down a little bit.

Now, investors. Are asking me should they go with the fixed or the variable. So I really think that's your preference. The variable though, will get you a higher purchase amount. So I'll cover that in the next question cuz that's part of the next question. Personally, I'm staying with variable, so yes, the variable's going up, but right now, so is the fixed.

So if you're locked into a fixed, I would renew your term. I do the variable for a couple of reasons. So yes, it can go up and down, which is the negative. Not if it goes down, of course that's a positive, but if it goes up, that's the negative. But I get the variable, not for the rate, but for the exit strategy, right?

So what if there's an apartment building that I wanna buy and I've got all these properties in a five year fixed, right? The exit fees are huge to get out of that, where if I have the variable, it's just a three month interest penalty, I can dispose of the properties and get that next project. So I do prefer the variable for that.

So the next question and where the variable ties in is people are asking me Like how to maximize your purchase price. So there's a couple of things that you can do. So it's a two step process or two, two solution answer I should say. One is get the variable. So the variable has a lower stress test than the five-year fixed rate.

So because of that, you can qualify for a larger mortgage on your investment property or even owner-occupied home if that's what you're looking to buy. Now, the second part of that is working with the correct lender. So what I mean is, let's say you go to a bank, and I'm not gonna name one, but let's just say a major bank.

But they will use more of the rental income. But ultimately it's by working with a broker that understands investment properties, I think is the most important thing because they'll look at your portfolio, they'll do your pre-approval and say, here's where you are. You've told me you want to go over here.

And if we go with this lender, we can accomplish that for you. And it really is important that this broker or lending specialist that you work with understands investors. Because if you're only working with owner-occupied properties, that's the lender pool that you have to choose from. You're gonna use those lenders.

But when you work with investment properties, there's the lenders that you would use and work with are different. So that broker or that lender, May not have access to those lenders if they're not regularly doing rental properties because you have to do so much volume on the broker side to be able to access most of the lenders, right?

And if you don't do those volumes, you don't have access. So it's super important for you to grow your portfolio to work with the correct broker or mortgage agents. With that being said, obviously I'm biased, but I do recommend Lend City. That's our focus as investment properties and if you are looking to grow, reach out to anybody on my team.

Our office line is 5 1 9 9 6 0 0 3 7 0 or you can visit us online@lendcity.ca and someone on my team will be able to help you to get started and to grow your real estate portfolio. Look forward to chatting with you next time. Take care.