If the headline caught your attention, I won’t make you read an entire blog to reveal the answer you are looking for:
The most important rule with real estate investing is to have time. If that’s all you are looking for, you can continue on with your day. If you read on further, you’ll find out why.
As a bit of background, I have been a REALTOR® in the Metro Vancouver area for several years, and have helped clients buy and sell homes for themselves as well as for investment purposes. Cumulatively, my clients have made millions of dollars over that time. This isn’t to show off, but rather to offer some credibility to my perspective, and most importantly, to appreciate the clients who have trusted me with some of their most important decisions.
In my time in the industry, I’ve heard it all:
buy concrete buildings only
buy something with land underneath it, not condominiums
don’t buy property under 500 square feet
it must have a parking stall
buy only on rapid transit routes
don’t buy in the Fraser Valley
only buy in Downtown Vancouver
don’t buy if it isn’t cash flow positive
Don’t get me wrong, there is merit in each of these statements, but there is one common theme in all of them that is flawed. These ideologies discourage people from getting into the market unless they can meet certain criteria. The reality is, utilizing the tool of time, there have been almost no bad real estate investments in Metro Vancouver. Sure, some opportunities have performed better than others, but not all options are available to all people. The real estate investment journey isn’t one that enables everyone to begin from the same starting point. Affordability, location, and timing are just some of the factors that have created greater levels of success for some. Those rules above — they are all theories from different investors. The common theme among them that is worth looking at: all have been successful. Unquestionably, there are multiple paths to success.
Let’s talk about time, beginning with an old real estate agent cliche:
Time in the market is better than timing the market
What does that mean? Well obviously everyone wants to buy at the low point, and when the market is dipping, who doesn’t want to wait until the absolute bottom? The problem with this is that the bottom is only visible in hindsight, when the market is on its way back up. More on this in a previous blog linked here: You May Have Missed the Bottom
Now that we’ve established the difficulty with timing the market, let’s unpack the first half of that cliche: time in the market. Here, I’ll use some statistics and graphs to help illustrate things. Let’s examine the effect of time, and just how much of it is needed to safeguard your investment status. For reference, the Real Estate Board of Greater Vancouver statistics encompass all regions from the North Shore to New West, from Whistler to Tsawwassen. Needless to say, the region is large and offers a great overall idea of the market performance.
From 2020 to Now
The past 18 months have been an excellent example of the resilience of Metro Vancouver. From a market that looked to be on an upswing beginning in 2020, to one of the rockiest events we’ve seen in over a decade, our real estate market has seen robust activity since the first quarter of 2020 largely in part due to low interest rates which enable buyers to afford more. Throughout the Metro Vancouver region, home prices have increased 20.4% over this time.
5 Year Lookback
Although the one year outlook on the market appears to be “frothy”, this is something I would consider fortunate for those in the market rather than a sound investment strategy. Drawing things out to a 5 year horizon demonstrates that real estate prices do go up, just not always in a straight line. Over this half decade period, Metro Vancouver experienced the busiest market the region has ever seen alongside several new taxes and policies that were intended to calm the torrid pace of price growth. Throughout the Metro Vancouver region, home prices have increased 34% over this time.
Let’s go Way Back
Let’s stretch this out to a much longer time frame. Looking back to 2005 allows us to observe just how effective having a long horizon can be. From 2005 until today, we’ve experienced a significant economic market downturn from 2008 to 2009, a global pandemic, and several changes in housing taxation policies in our local market. Despite these factors, over this period, average housing prices have more than tripled.
How about the Valley?
For those of you Vancouverites who don’t believe in crossing bridges…well, turns out Fraser Valley real estate has paid off for those who took on some perceived added risk. You’ll see over the same long term as above, a similar result was achieved of seeing prices triple.
So how long do you hold for?
The general answer is as long as you can. Of course, 15 year holding periods aren’t feasible for everyone. Life happens. My advice is typically to consider holding for a minimum of 5 years (often equating to one mortgage term). Again, that would be the minimum. The safest thing to do is to plan for closer to 8-10 year holding periods. That horizon enables you to ride out a storm in the market should one arise during your ownership tenure.
And Just for Fun
For anyone wondering, a buyer who purchased a home in Greater Vancouver at the average sale price in January 2005 would have paid $380,000. Assuming they used a 20% down payment to obtain a mortgage without any insurance premiums, that would have required a $76,000 cash outlay. Fast forward to late 2021 where that same average sale price is at $1,170,000. Should that homeowner sell their home, they will have seen a 1,400% return on their money. Not bad.
Looking at a housing investment in 2021? Feel free to reach out to me anytime at adil@adilkhimani.com
Thank you for reading,
Adil