How to invest in real estate even when the market seems overpriced

Even when the real estate market in general has had a long successful run, there are still bargains to be had.   This is true even of hot markets such as those we’ve seen in Toronto, Mississauga, and other areas in the GTA.  The key to successfully invest in real estate in a bullish market is to have the right perspective and approach.

My top 4 suggestions to help you invest in real estate even when the market in general seems high:

1. Think long term

In a market that’s been hot for a number or years, don’t count on being able to buy and then flip a property for a huge profit in a few months.  Historically the real estate market has always demonstrated short-term price fluctuations.  With real estate, the size of the risk involved with an investment is directly correlated with the shortness of the time frame.  If you want to buy a property, fix it, and sell it in six months, you are taking on much more risk than if you buy a property, rent it out for ten years and then start looking for an opportunity to sell.  In general, the longer you hold the property, the more likely it is that you will realize a good return on your investment.

2. Reconnaissance

Spend time getting to know the target area(s) where you want to invest.  Visit local coffee shops, park on neighbourhood streets, and engage in some people watching.  Chat with patrons in local stores and ask questions like, “What do you like about this area?” or “Why do you choose to live here?” From there, go just slightly out of the area and see if there are similar nearby locations that may be a better target for your investment dollars.

3. Sniff out opportunity

Look for places that have the potential to generate significantly more rent than they are currently commanding.  For example, look for single-family homes that could easily be converted into a two or three bedroom unit, or a rental property that has recently been significantly renovated but hasn’t been rented yet. Remember, a well-renovated unit or home often sells for only a bit more than a comparable non-renovated one, but can sometimes command a significantly higher rent.

4. Find a great, local Realtor

Employ a local Realtor who understands your long-term goals. Such an agent is worth his or her weight in gold.  Not only can they keep an eye out for bargains that suit your criteria, but they can also research rent trends, identify demographic shifts, and inform you of rumoured changes such as transportation updates (better highways or public transportation on the way) or new big box stores that may be about to open in the area. Further, they can help with identifying gentrifying neighbourhoods destined to be the “next hot location”.

Don’t let a seemingly overpriced market hold you back if you want to invest in real estate.  Do your homework. Get a good Mortgage Professional and Realtor to help you.  And finally, patiently search for the “right” property – it’s out there. Happy investing!