Make Money In Real Estate in 2022 | The YVR REMO Show Podcast
Where do we see opportunities in 2022?
We look at a few key ways, based on trends that we saw in 2021, where we see things continuing to grow.
IS THERE VALUE IN YOUR HOME?
If you have been in the real estate market for the last 12 to 24 months, you have made money on your home. Unless you are in a very poor transaction, your house is going up in value.
How do you take advantage of that?
Money in your home is not working for you, it's just sitting there. We can tap into that equity at very low interest rates right now. We have seen clients taking advantage of this to grow their net worth.
On average, detached home prices in the Fraser Valley have increased by up to $300,000 in the last 12 to 24 months. We've seen townhouses increase by $200,000 and sometimes more. We've seen condos jump from $50,000 to $200,000. That is a dramatic amount of equity that has built up, even for someone that put 5% down. You now have access to well over 20% of the money that can be drawn out.
When it comes to looking at equity in their home, clients don't realize it exists, especially those clients that put 5% down two years ago. We've never seen this so early into a five-year term. As a first-time homebuyer, it's been pretty rare to see the opportunity to access equity in the first five years.
Realizing there is equity in your home, we take it for granted. A lot of people are putting their heads down, working hard, enjoying life, and not looking at the value of homes. One big takeaway here is you have equity in your home, there's no question.
WHERE DOES THE OPPORTUNITY LIE WITH THE EQUITY IN YOUR HOME?
From an opportunity perspective, values will continue to increase with properties going up in value. Refinancing and capturing that equity for something good is going to help you make money. We know that 2021 was the year of inflation rising. When you continue to pay for a mortgage at 2% and you could take $100,000 out at a $350 payment, invest that. Equity is your number one opportunity for growth.
WHY TAP INTO YOUR EQUITY?
You have equity sitting there and there's a way to utilize it. It could be establishing a home equity line of credit that you don't need, but don't pay for. You might as well have it there and have access to it if you do need it, because when you do need it, and it's not there, it's a lot tougher to get debt. It's very easy to get it when you don't need it.
WHY WOULD YOU WANT TO ADD ANOTHER FIVE YEARS TO YOUR AMORTIZATION?
That's not necessarily what's going to happen, but creating a minimum payment threshold if you get into tough times can be useful. You may need to access equity because you lost your job or are temporarily out of work, these are possibilities. To create safety funds or strategies are highly recommended.
REAL-LIFE SCENARIO
We just had a client that was looking to buy and she didn't want to refinance her home. and she qualified for about a $400,000 purchase. She's at a higher rate and a high payment. We're restructuring and getting her into a lower range, not pulling a dime out of the property, stretching it out to 30 years. She's going to qualify for a $550,000 property just because we've got that payment down. That's another great tool if you're looking to buy an investment property. The component of pulling money out but also getting that payment to the lowest possible point can make a huge difference for cash flow as well.
WHAT IS HOUSE HACKING?
One of the strategies we talked to people all the time about is buying a home with 5% down and living in that home for a year. Start to build up some equity and then rent that out. Put a renter in that property to help pay off the rent to get some cash flow going. Move into the next property with another 5% down.
What's interesting is we're working with a client who has a property that went from $450,000 years ago to almost $600,000. We can refinance to take enough equity out to increase future downpayment and reset the amortization. Now his property is going to cash flow and he's going to move to the other property. The same strategy as he was going to do before, but just a better way to do it. That's just with the equity growth.
OPPORTUNITIES WITH RENOVATIONS
I just want to touch on renovations and the opportunities with renovations. This can skyrocket the value of your home. A lot of people don't realize that a suite is far more advantageous than a garage. If you're thinking why would you eliminate your garage, that now opens you to a new demographic of buyers. There's now rental income there. Adding a suite is a no-brainer. It's something I would highly recommend because it can add value to your home.
INVESTING IN A VACATION HOME
How do you buy a vacation home? In a lot of circumstances, if this property has power and electricity, you can buy this property as a typical vacation home. For a lot of people, it's a rental, so buy a vacation home and put a renter in there for a year to get them to start paying it off for you. This allows you to enjoy it for the rest of your life or rent it out.
Airbnb placing can be incredible in the right area and right community.
DOES PRE-SALE MAKE SENSE FOR YOU?
Pre-sales are great if you know what you're doing. There's a lot of people in the industry that aren't educating their clients about the pros and cons. Pre-sales are going to be big and they're going to continue to be big. Make sure you're doing your due diligence in your search.
ARE THERE NEGATIVES FOR PRE-SALE PROPERTIES?
If you look at what these pre-sales are selling for per square foot, you are buying at a premium. You need to understand that you're buying at a higher market value than resale properties. That's important to know because you're taking a gamble. Don't buy that pre-sale without the ability to close. You need to be able to close on that property because a lot of people are buying these pre-sales with the mindset of i'll sell it before I have to close. That's not the right way to go in it, you have to go in on that project with the ability to close.
If you're buying a property for rental, and the presale isn't done for three to four years, you have lost out on three to four years of rental income and principal paid out. You're may still gain appreciation. If you buy a resale property today, and you get a renter in there tomorrow, that renter is paying down your mortgage and you could be cash flow. You're still going to gain appreciation because you're in the market. You can gain a ton of net worth and wealth in those years that you're waiting to close on a new property.
WHAT ARE SOME REASONS PEOPLE CHOOSE PRE-SALES?
We see people buy pre-sales because they don't qualify for that size of a mortgage today. Someone may have quite a few raises, their wage is going to increase over time. In two years when the property is ready, they will be able to afford and qualify for the mortgage.
Somebody might only have their 5%-10% down. That may be all the development requires, but they need 20% to qualify for the mortgage. This place is ready in three years, it gives them three years to plan, save up, and get themselves into that property.
A pre-sale is a great option if you are striking out currently based on your situation. If you have a detailed plan with your mortgage broker as to how you're going to get there in the future, that's a phenomenal plan. I don't think you'd go wrong.
If you're striking out because you're not in a position to go subject-free, you should not be going subject-free. There's risk there unless you have a backup plan with your family. Pre-sales give you an automatic, standard, by law seven-day rescission period. You have time to go and try to achieve financing approval to see if it's going to work. That's the other big value that we see people go this route.
BUYING A HOME AND GETTING INTO THE MARKET
People that we've talked to this year, who have maybe lost a job or had something occur, had a large amount of debt and their home equity was able to help them get out of the hole. Those are people we were able to teach not only how to leverage and pay off the debt, but also how to take that money to purchase an investment and turn that into something real.
There are creative ways to get into the market with co-ownership agreements, joint venture agreements, or parents helping.
If you can take some of these strategies we've talked about throughout the year about getting into the market and finding creative ways to get a down payment, your yield will pay dividends. It will bring your lower your monthly costs down in a considerable way. That's super important. I don't want to sugarcoat how easy it is to get in the market. It's not easy, but there are ways to do it.
START PLANNING TODAY FOR SUCCESS TOMORROW
You got to start planning because you can run the numbers and in the best-case scenario, it works right now and you can pull the trigger and buy something. On the flip side, it doesn't work right now but we can start explaining and planning with you, figuring out what you need to do to get there. Whether it's borrowing from family, getting a co-signer, or buying with a friend, there's always a ton of different scenarios that we can look into. If you're one of these people that is waiting for a crash in our market, you need to stop waiting for a crash, because it's likely not going to come. Try to get in and make sure it's affordable.
Because of what's happened in our market and how high prices have increased, if you think you've been priced out, have a conversation with us. There are other options you can look at. If you are priced out, try to buy something somewhere else, even Alberta. You can buy a detached home that brings in a large amount of rental income in Alberta for $500,000. You're not gonna see the same appreciation, but it's good to get into the real estate market at some level. I wouldn't walk away and shut the door on real estate if you know you've had a poor experience so far, it's worth the conversation.
INVESTING OPPORTUNITIES
The opportunity to be able to give back or even just another foot in the door to invest in further real estate, look for these opportunities. Look for these great people, whether it's your son, or your daughter looking to get into the market, these are great opportunities for you to support that individual. Get your foot in the door with another property as a co-ownership agreement. We're all at the point where it's very difficult to buy another property, it's very tough to qualify for more than one or two properties and getting into three or four. People rarely own more than three or four properties because it's so hard to qualify. These are great ways to get your foot in the door as a silent partner.
We did an episode not long ago, talking about the four key strategies to getting started. Watch the episode below because that's going to give you everything you need to know about what you should be doing first.
Put your budget on paper, you know, write it down exactly what you're trying to do and make it happen. Start the conversation. For 2022, create a more positive mindset of what you're going to do, then action it and make it happen.
DEALING WITH CREDIT
A credit bureau that's pulled for a mortgage can be very different than quickly checking a website like Credit Karma. From a planning perspective, you may not be ready for 12 months, but having a thorough review of your file and where you may be at today can just set you up for success. The biggest thing is avoiding big headaches when you are ready and to be able to rectify issues with creditors that you thought you dealt with. We pick these things up earlier because we're planning, it's priceless.
Your pre-approval is going one of two ways. You either qualify and it all works or it doesn't work, and we need to build a plan. We have personally worked with clients for five years, helping them fix credit, save downpayment, and get into a better job before they purchase their house. It usually doesn't take that long, but it can take a year.
PREDICTIONS & OPPORTUNITIES FOR 2022
We predict the trends continue into 2022. In 2021, we saw people being more comfortable with purchasing properties remotely such as moving to different provinces. We also saw a lot of clients in the past who said they would never buy an investment property elsewhere because they couldn't manage and see it. They started shifting their mind and we're talking to more clients about buying a property out of province. It comes back to equity and a lot of people have enough to buy properties elsewhere.
Another opportunity that I would look at is the two-bedroom, two-bathroom condos in the Lower Mainland and Fraser Valley. Those have gone up in value in 2021. They're primed for a boost in 2022 because that's what we saw in the townhouse market during 2021. The number of clients that we see dual-income, they're qualifying for condos. That's what's affordable.
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