I am taking a few moments away to write this newsletter for you while I’m on an Adriatic cruise with my wife. The scenery here is stunning and the building styles architecture and city planning are certainly inspiring.
A feature I found interesting they are using to preserve their historic buildings is the introduction of tie rods (The diagonal metal bars seen in the photo below. This makes the buildings more earthquake resistant which will help prevent collapses when earthquakes inevitably will strike again.
While I’m away, business is still moving forward. We are back at it working away on our three phase project in Bowmanville as well as completing a number of unit turn overs that we have for September. We also broke ground on our second coach house for Oshawa this past week.
Macro changes to keep an eye on..
We have seen quite a few macro changes over the last few months, which is something one must take head of when planning out their investment strategies heading into the future. Interest rates are coming down and we may very well see a federal election in Canada well before next fall. With the environment shifting, there are a number of questions we are asking ourselves to ensure we are best prepared for what is to come, which we think everyone should be considering as well as we enter the next phase of the real estate cycle.
Questions to consider as we head into 2025
One of the questions to consider as we prepare for the upcoming shift in the real estate market is what investment strategies should we be employing.
There are four basic types of allocations in real estate. Core, Core plus, Value add and Opportunistic. Core and Core plus are generally referred to as stabilized assets with low loan to values and higher cash flow.
These assets are the foundation of your portfolio and stabilize you through difficult times such as what we have just experienced and are beginning to exit now.
Value add strategies are generally referred to as strategies where you improve assets that previously existed such as flips or turning over apartment buildings. These strategies are considered strategies that have a medium risk profile.
Opportunistic investments strategies are typically when you are creating an asset that did not previously exist or converting a property to a new use. They are the riskiest of the real estate allocations, however, they also come with the highest potential reward.
CMHC is currently predicting a strong increase in the real estate market in 2025 and interest rates are expected to continue to decline. We cannot count on a large upswing, and there is always a chance inflation will begin to rise again. However, risk on strategies should now be considered for the following year to take advantage of the transition into a new phase of the market cycle.
Source: Read the article here →
Selling assets with high equity positions that don’t have a significant future upside potential and looking for better opportunities for lift in value add or opportunistic investments would be something worth evaluating to determine if that would be a good choice when considering your goals. If you had cash on the sidelines waiting for the recovery phase, pulling the trigger on opportunities that arise in the coming months has a good opportunity for higher returns.
What Lessons Have you Learned from the recent Tightening Cycle?
This is going to be one of the best questions to ponder as we enter the next phase of the real estate cycle. As time goes on, we have a tendency to forget how an experience affected us in the past. This can cause us to be susceptible to the same mistakes in the future.
–Did you go variable on your mortgages during historically low rates because common wisdom in real estate is that variable is the best choice?
–Did you stager your renewals so you aren’t at risk of renewing your mortgages at the same time in the future with higher rates?
-Were your loan to values too high you couldn’t exit cash flow negative properties?
-Were you too timid to take action when opportunity arose?
-Did you follow inflation rates, bond rates, and unemployment and other macroeconomic factors before the tightening cycle?
We have been thankful to see our business grow through this contractionary period. However, we have identified many areas where we could have made improvements to perform better, which is the best part about entrepreneurship. Learning how to overcome pain points means struggles from the past won’t cause the same stressors in the future and that is a comforting thought.
If you take the time to analyze your errors in this cycle, you will be a much better investor in the future and see your portfolio grow faster easier.
Want to learn more of what we are involved in?
Check us out through the buttons below!
For any concerns or inquires you can reach us at info@northlakesdevelopments.ca or through our website contact page.