Real Estate Investment Strategy: Is It Time to Downsize?

Posted in Market, Investments, Stocks, Estate Planning

For many investors in the Oakville or Toronto area, real estate has been a good strategy. However, the question is, for how long? Maybe it's time to revisit the idea of downsizing?

  • Buy land, they’re not making it anymore.
    - Mark Twain, Age-Old Adage

Over recent years, real estate has been a solid investment strategy.

No doubt about it, buying real estate has worked very well for the Baby Boomer generation in terms of return on investment.

The resulting capital gains and rental income now support a growing portion of Baby Boomers retirement funds.

The question is – is the real-estate bubble about to burst?

Obviously this is not a black and white question. Nor is there an 'absolute' answer. 

At CLRIM, we believe that 'burst' may be too strong a word to use in the short term. However, we do see a the real estate landscape changing, particularly in the Toronto GTA, Burlington and Oakville areas. The long-view for real estate is getting somewhat darker, in our opinion.

So, what do we see as imminent issues for real estate investing?

AFFORDABILITY – Who will be the future domestic buyers of real estate? The massive appreciation in housing prices makes housing ownership ominous for the Gen X, Gen Y and Gen Z buyers.

DEMOGRAPHIC INVERSION – The release of the 2016 census indicates for the first time in Canada that there are more seniors (over 65 yrs) than there are young people (0-15yrs. Not only is affordability an issue for new domestic buyers but there will be less of them. This is called a demographic inversion and it is here to stay for the next two decades.

GOVERNMENT INTERVENTION – Vancouver introduced new housing rules to slow their real-estate market by penalizing foreign buyers/speculators. Toronto has now followed suit.

EXPOSURE RISK – For many Baby Boomers their house is their largest asset and in frequent cases it is more than 50% of their net worth.

One solution that addresses all of these risks is downsizing.

Consider the benefits of downsizing now. Firstly, you'll take advantage of the current market pricing. Secondly, as a future resale product, a smaller property will be more affordable to younger buyers in the future and will be more desirable for other Baby Boomers. And thirdly, the profits from the downsize can be invested in other unrelated assets and securities that may provide more long-term peace of mind for Baby Boomers.

If you're interested in exploring this discussion, we invite you to contact us today.