Why the COVID Pandemic Made 2020 the Best Year for Real Estate Investments
The Coronavirus pandemic has changed the world. People all over the world are more concerned about washing their hands and wiping down their groceries than ever before.
But COVID-19 has also changed the world of investment. When the lockdown measures came into place, the stock market went down and stocks that used to be reliable and profitable, such as airline or cruise stocks plummeted.
Unfortunately, the coronavirus pandemic is far from over. Even though several companies have developed effective vaccines, it will take a while for them to be produced, distributed, and reach the general population. As a result, stock trading is still rocky and even legendary investors like Warren Buffet had to change their investment strategies.
However, these uncertain times for the stock market turned investors toward other financial opportunities. And there’s one opportunity that seems extremely attractive right now: real estate investment. Here’s why.
Low Mortgage Rates Make Real Estate Investments More Profitable
Novice investors might be tempted to put their money under the mattress and wait until things settle down before searching for new money-making opportunities. But veteran investors know there are always some deals that make financial sense, even when things may seem grim.
The COVID-19 pandemic ravaged Canada’s economy and caused widespread unemployment. The Bank of Canada’s reaction was to cut the key interest rate three times in March in order to lower mortgage rates for consumers across the country. Initially, this move didn’t persuade other banks to lower their mortgage rates. In fact, some of them increased their rates to protect themselves from financial loss.
But by June mortgage rates dropped to near historic lows. And with the ongoing pandemic, many banks are still offering some of the best mortgage rates in decades. This presents a unique opportunity for investors. They can buy properties on generous terms and increase their profits.
How Reduced Mortgage Rates Translate Into Profits for Real Estate Investors
All this information about reduced mortgage rates might seem interesting, but how does it actually help investors?
Well, let’s take a look at a real-world example to put the lowered mortgage rates into perspective.
The average mortgage in Canada is $289,000. Investors can now access uninsured mortgage rates of 1.84% instead of accessing rates of 2.84% as they were in January. Even though this might not seem like a big deal, it translates to a cost reduction of $13,532 over 5 years for the average mortgage.
The Canadian Real Estate Market Is Primed for Investors
The interest rate reduction could make one think that the real estate market is busy or even overcrowded by investors. But the truth is that national home sales decreased by 0.7% in October.
And it gets better for investors. Despite the fact that they can get some of the best interest rates in history, more than 70% of Canadians who are currently renting state that they have no plans of purchasing a home in the near future.
This means that the real estate market is still primed for long-term investors who want to purchase units they can then rent out.
Is Now Really a Good Time to Invest in Real Estate?
Investing during a pandemic might seem risky. Sure, there are already two Covid vaccines in development, but who knows when things will get back to normal, right?
At the moment, the financing costs are low and the real estate market is not seeing the highest activity, which can be a huge advantage for investors. And because many businesses are now working remotely and will continue working remotely until the pandemic is contained, renters are not necessarily looking for something close to work, they’re looking for something comfortable.
For investors, this means two things. One, short-term rentals that make up a substantial part of the market may no longer be as profitable as they once were. And two, real estate opportunities in rural and suburban areas may be more profitable than ever before. Residential investment properties such as single-family family homes and apartments seem to be the safest bets at this time.
People Still Need to Go on Vacation
Another important aspect to keep in mind is that people still need to go on vacation, even if they’re working from home. The current travel restrictions may remain in place for some time, so people who would normally travel somewhere exotic may be more inclined to vacation somewhere closer to home.
Short-term rental bookings decreased dramatically during the summer, but as people have gotten used to protecting themselves from the Coronavirus, some of them started visiting new places during the last few weeks. Even though the 2020 holiday season is most likely compromised, people will still need to take a break from work in the months to come.
This presents an opportunity for long-term investors because they can scoop up valuable vacation properties at lower costs and increase their profits in the long run.
The COVID Pandemic Created Better Real Estate Opportunities
Now, several months into the pandemic, we can say that the Coronavirus created unique opportunities in the real estate market. House prices are currently holding steady, but the financing costs are low, which is an advantage for investors.
And even more real estate investment opportunities may appear in the near future because people were initially reluctant to sell during the pandemic, which means that inventory is quite low.
But there’s a strong possibility that the inventory will increase as people will start listing their units on the market. And when inventory goes up, prices go down, which translates to better investment opportunities.