Young adults investing in income properties ahead of their own homes, report finds
As many GTA residents struggle to afford one home, a new report from Royal LePage reveals younger adults are often buying investment properties before they purchase a place to live in themselves.
It also shows that younger investors tend to have the most aggressive expansion plans for their real estate portfolios.
Half of Canada’s 4.4 million real estate investors plan to buy at least one additional property in the next five years and, even among non-investors who were surveyed, 23 per cent are considering purchasing an investment property before 2028, according to the Leger research published on Thursday.
In the GTA, 28 per cent of non-investors said they planned to purchase in the next five years. Among them, 48 per cent were aged 18 to 34 and 35 per cent were between ages 35 and 54.
Sixty-four per cent of investors in the GTA own a single income property and 34 per cent own two or more, with younger investors, those aged 18 to 34, most likely to own more than one investment property.
Mike Heddle of Royal LePage State Realty acknowledged the survey results are somewhat surprising given the GTA’s housing affordability issues, particularly among millennials.
The survey found that 15 per cent of Canadian investors don’t own their own primary residence. That number rockets to 33 per cent among investors aged 18 to 34.
In the GTA, 14 per cent don’t own, choosing instead to rent or stay with family or friends.
Heddle says that age group’s attitude to investing in real estate may have been influenced by real estate and renovation TV programming and the experience of living in a high return housing market for most of their lives.
“If you go back over 65 years, the real estate market continues to outperform many of the other indices — the TSX or the NASDAQ,” he said.
Many people, particularly younger investors, are partnering with family and friends to buy second and third properties, said Heddle.
“That demographic may not have the funds themselves, but they are partnering with financial partners and they’re understanding how to invest in real estate,” he said.
The online survey also showed that in the condo-packed GTA, 44 per cent of investment properties are single-family detached houses, while only 39 per cent are condos.
“There’s a real confidence in single-family homes. That ties into increased density, the mandate to build smaller, increased density homes, and the single-family homes in the GTA and Golden Horseshoe are a building class that may be something of the past,” he said.
The report shows, however, that interest rate hikes may be taking a toll on some investors with 36 per cent in the Toronto area considering selling at least one of their properties.
Heddle said many of those people likely bought without necessarily having the appropriate investment knowledge.
“We see some investors having great success with leverage in terms of increasing returns. But 31 per cent (across Canada) are considering selling in the next year or two. Those are likely investors that jumped on the bandwagon, invested in what we call speculation.”
You have to be prepared to weather the ups and downs of the real estate market, he said.
“Real estate can be a very sound and safe investment but making money or investing in real estate should be like watching paint dry — very slow and boring.”
Among GTA investors, 28 per cent expected to renovate in the next two years and 42 per cent said they would keep their holdings in their current state. Thirteen per cent said they would be moving family members into their investment homes in that period.
Half of Toronto investors own in different cities or towns, according to the survey, which showed the proximity of post-secondary institutions is an important consideration among investors.
The Leger survey of 1,003 Canadians between March 2 and March 17 is considered accurate within 3 per cent 19 times out of 20.
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