For years, the Guelph investment game was pretty simple.
Purchase property for X, rent it for Y, and after all of your expenses are paid, make a few $100 per month, or simply just break even to cover your expenses and Bob’s your uncle. Sounds easy, right?
However, it was sometime around the start of last summer that everything in the Guelph investment game started to change. All of the sudden prices started to skyrocket and nobody really knew why. It was crazy.
I remember bidding on a property at 1155 Gordon St that was listed for $374,900. All of the other realtors, including myself, were saying, “That’s way too high!”…… The comparable sales in that complex simply did not support that high of a list price. To everyone’s astonishment, that property sold in multiples for just over $390,000 and I was floored! My clients were floored! Everyone was floored that this complex just shot up from around the $360,000 mark to $390,000 in just a few short months!
It turns out that was just the tip of the iceberg.
Fast forward that same crazy market just 6-9 months later and those same jaw dropping prices at 1155 Gordon St continued to soar up to $405,000, then $420,000, then $430,000, eventually breaking into the $440,000’s, then $455, 000, $460,000 and finally settling around the $480,000 mark. Talk about sky rocketing property values!
But was this a good thing?
Any prudent investor that watches the value of a property go from $360,000 to $480,000 in less than 1 years time would surely be concerned that positive cash flow is now much more of a challenge, not to mention whether or not those values will continue to hold at $480,000 or drop down once the market shifts.
I watched many first-time and seasoned investors take their foot off the gas and completely back away from their searches. I mean, can you really blame them?
Unfortunately it seems the game we’ve all come to know and love is over, at least for now, unless you were willing to invest with a significant amount of more cash down just to reduce your debt load which many investors simply aren’t willing, or able to do.
Although for now the gig might be up, there’s always a new angle that can be played and opportunity to be had while everyone else is sitting around scratching their heads wondering what happened.
I guess the question we’re all wondering is, “What’s the new game?”
To be perfectly honest here, I don’t know. This is new territory for me as well and, just like the rest of you, I’m still growing and learning to adapt as this market changes and forms into something very few of us have ever seen before.
Remember when you used to rent videos from the video store? You could either go to Blockbuster, or Rogers. Both were great and essentially did the same thing for years and years and both were very successful at what they did.
It was a good little racket, but then one day Rogers Video starting selling cell phones and other electronic devices in a small section of their stores. It was a little odd, cell phones in a video store, but looking back they were poising themselves for the changing market. In only a few short years time, everyone was downloading their own movies online and this once thriving market of video rentals up and vanished forever, not to mention the cell phone market completely exploding. Fortunately for Roger’s, they saw the trend coming and adapted their game play for the inevitable outcome.
Now, unlike renting videos from the video store, unless abandoning your home and setting up shop in the forest is something that starts trending heavily in our area, it’s pretty safe to say that real estate is a fairly stable market that will continue to be a necessity for many years to come.
But for Guelph investors, my point is that change needs to happen if we are going to continue to thrive in this robust economy, higher prices and all.
Perhaps rents will adjust, house prices will stabilize and investment properties in Guelph will once again be cash-positive for the average investor.
Perhaps cash-negative properties will be a necessity with investors knowing their still building equity through mortgage principal reductions and slow, but steady property value increases.
Perhaps new construction will become a new niche market with investors getting in on the first few phases and then selling their properties shortly after closing.
Or perhaps the whole thing will go “BOOM” and we will all just be left standing where we started.
The truth is, no one truly knows what’s going to happen next. Everyone has an opinion, and even the most scrupulous economists can never accurately predict what and when something will happen.
One thing I know for certain is that the Guelph market in particular is fairly well poised to withstand a few economic blows before going down for the count.
We have economy, education, proximity to the GTA and 401, Toronto commuters and investors, industry, nightlife, arts and festivals, culture, limited supply and a fairly significant amount of demand.
As far as what the next solid “investment game” is, I really don’t know to be honest.
The market does seem to be shifting, however, from a red-hot seller’s market to a more balanced market, with more listings available and not as many offers on properties compared to as little as just 6 weeks ago.
As always, time will tell.
Until next time, Happy Investing!